Put Your Treasury to Work: How MYSO can benefit DAOs
Exploring how MYSO’s Zero-Liquidation Loans can increase yield for DAOs and protocol treasuries
Though many might suggest that we are in the depths of a stern bear market, DeFi is constantly adapting to new conditions and maturing — a key focus for protocols and DAOs has now shifted towards sustainability and revenue optimization. As DeFi treasury management advances as an economic sector, organizations will search for new methods of putting reserves to use in productive, sustainable ways.
With MYSO’s Zero-Liquidation Loans, DAOs and protocol treasuries are able to create non-liquidatable loan markets to target many use cases, whether it be putting idle stables to use or growing secondary market liquidity for their native tokens. This unlocks an efficient and risk-managed method of providing additional utility to native tokens, incentivizes borrowing for protocol supporters, lets idle treasury stables accrue yield, and more.
Let’s explore how MYSO’s Zero-Liquidation Loans can help protocol treasuries and DAOs achieve this goal 👇
State of DeFi Treasuries
One of the main goals of most DeFi treasuries should be to maximize long-term token holder value and generate sustainable returns for users and members alike. To achieve this, DAOs and protocol treasuries have a number of choices they can make to allocate funds in a risk-managed way, starting from how they balance their reserves to what investments can be made to put native-token-denominated treasury holdings to use.
Typical DeFi treasuries hold reserves mostly denominated in their own native token. Though this notion varies on a case-by-case basis, many large DAO and protocol treasuries also keep vast amounts of stablecoins and blue-chip crypto assets in reserves for future expenses and investments.
With current DeFi governance zeitgeist, you can think of a DAO or protocol treasury as an eclectic governance-managed portfolio, where users vote in their best interest to generate maximum revenue while balancing weightings on reserves and investments.
Sophisticated treasuries are thus constantly looking for avenues to put their reserves to work in a risk-managed way, whether it be investing into yield-bearing vaults or even on-chain Real-World Assets (RWA).
This is where MYSO comes in — and where MYSO can satisfy the needs of many treasuries through Zero-Liquidation Loans!
Create your own ZLL market
With Zero-Liquidation Loans, any protocol or DAO can create their own borrowing and lending pool and give community members access to non-liquidatable loans denominated in their own native token. This adds a layer of utility to a native token by incentivizing community members to participate in borrowing/lending activity.
On the other side, the treasury is able to have access to a new yield source by lending out stables against their native token. If a protocol is bullish on the sustained growth of their native token and wants to provide additional incentives to community holders, a non-liquidatable lending market allows putting treasury stables to use while attaining this very goal.
For example, let’s take a look at a recent proposal we made in the OlympusDAO governance forum (which recently got approved through a Snapshot vote!).
OlympusDAO has a very large treasury that includes millions of $ in idle stables that are currently not accruing any yield. In a recent proposal, MYSO suggested to allocate a part of the treasury to a non-liquidatable v1.1 gOHM/DAI pool which would allow community members to borrow DAI against gOHM collateral without liquidation risk while providing OlympusDAO access to a new yield source.
Creating a non-liquidatable loan market for a protocol native token would add further utility to the token by allowing users to essentially take leveraged positions to capture token upside while allowing the treasury to put its stablecoins to use in a way that is contained to its own ecosystem!
Though lending stables against volatile native assets is risky, if a treasury has conviction in sustained growth of the token and is willing to acquire it at a discount given a downturn, then creating a Zero-Liquidation Loan market makes sense for a risk-managed treasury.
On the other hand, ZLLs can also be applied to non-stable treasury holdings and can be used to create a circular value flow within a protocol’s own ecosystem. For example, the v1.1 RPL/rETH pool that is currently live on MYSO allows users to pledge RPL collateral and borrow rETH. This rETH can then be swapped to RPL through the rETH/RPL Balancer Pool to gain approximately 1.4x leverage. Additionally, users are also able to use the borrowed rETH to enhance their your yield by pairing the borrowed rETH with RPL and providing liquidity to the Balancer rETH/RPL pool or on any other DEX. LPing, in this case, not only opens up an additional yield source through a long-tested strategy but also increases the depth of Rocket Pool ecosystem swap liquidity for other community members and makes the assets less vulnerable to oracle manipulation.
Zero-Liquidation Loan markets in v1.1 are also oracle-independent and do not rely on external price feeds to price assets. For native tokens of protocols and DAOs without any oracle support, it is difficult to promote external integrations — with MYSO’s ZLLs, even long-tail assets are supported, as every pool has its own loan parameterizations that are unique to that pool! This allows any DAO or protocol to make a lending market for their native token, with loan terms that can be defined in any way you please.
If you are a DAO member or treasury manager and would like to see your reserves be put to work while creating a Zero-Liquidation Loan market for your native token, please reach out to the MYSO team anytime!
Increasing DEX liquidity for DAO native tokens
Many early-stage DAOs struggle to grow secondary market liquidity for their native token. This is because stablecoin or blue-chip holders are often times hesitant to provide two-sided liquidity on a CFMM DEX for any early-stage DAO token as they don’t want to be exposed to a risky native token and suffer from impermanent loss.
There have been many attempts at solving this dilemma through introducing DEX liquidity mining incentives. The problem is that they often times involve complex bribing systems, which essentially function as ‘markets for liquidity’. Rolling out a liquidity mining program through these bribing economies often comes with significant coordination overhead and can be challenging to budget for due to their dynamic nature. Questions of sustainability arise, in addition to how many bribes should be offered, what happens if another project bribes, etc.
Additionally, a conventional crypto-collateralized loan setting for this would be problematic for several reasons. Liquidity providers would be vulnerable to liquidation risk as their position would be locked-in for a certain time period without being able to unwind it to avoid being liquidated. It can also be a challenge to find a reliable price oracle for the LP token value, especially with long-tail asset pairings. Though loans typically have a repayment amount that is higher than the loaned amount, DAOs using this setup might have to offer a debt discount (i.e., negative interest rate) in order to attract liquidity providers — which may not be possible with conventional lending platforms.
As per MYSO’s recent Balancer Grant application, our solution to build DEX liquidity is that DAOs enable their users to do ‘delta-neutral’ liquidity provisioning, meaning that the user’s LP position value is immune against large changes in the DAO’s token price. One can achieve this through ‘DEX-LP Loans’, meaning the DAO lends its native token to users, who pair it with their stables or ETH holdings to then provide two-sided DEX liquidity.
The received LP token can then be atomically pledged as collateral with the DAO. This way the DAO lends its native tokens in a purpose-bound way (i.e., for DEX liquidity provisioning), ensuring that they cannot be used in a way that would be misaligned with the DAO’s interests (e.g. for short-selling or similar). As it is in the DAO’s interest to build and maintain liquidity for longer periods (e.g. 6+months), any native token loan would have to have a certain minimum time period before liquidity providers can repay and unwind their LP position.
Future of Treasury Management
As DeFi has matured over the years, so have treasuries — protocols and DAOs are constantly looking for avenues to put their reserves to work in a risk-managed way.
MYSO’s Zero-Liquidation Loans offer a stark alternative to currently-available strategies by promoting secure non-liquidatable loans not only for the benefit of a DAO, but also for the borrowers and the whole ecosystems alike.
We are working hard to offer innovative ways to maximize value for DAOs, treasuries, and general borrowers/lenders alike. As with our current Balancer Grant application, the MYSO team is striving to create ways of furthering yield opportunities for DeFi-native communities and to increase the robustness and depth of market liquidity for both blue-chip DeFi tokens and long-tail assets alike.
Stay tuned for more! Also, be sure to check out our tweet, where we announced that ZLLs are coming to zkSync Era!
