Allocate $2M USDC to GLP on Avalanche
Authors
JoeyBaggaShitcoins
Summary
I propose the DAO allocate $2M USDC (<5% of current USDC holdings) to GLP.
Abstract
GLP is the liquidity token of the GMX platform which exists separately on both Arbitrum and Avalanche.
GLP serves as liquidity for leverage traders using the GMX Platform, and earns trade fees ($19M Since June) in the form of ETH and AVAX respectively, as well as realizes traders PNL. This equates to 20-30% non-inflationary yield. The value of GLP fluctuates based on traders PNL and the price of the underlying assets (USDC WBTC WETH WAVAX).
This would return an estimated $500k annually for the DAO to use for buybacks/burns etc. as well as provide some muted exposure to large cap assets.
Motivation
The motivation here is clear: to increase cashflow to the DAO therefore increasing the DAO’s ability to buyback and burn tokens, further decreasing the outstanding supply. I think it’s fair to assume anyone participating in this DAO has a bullish outlook on crypto over a long enough timespan, so taking some risk in terms of exposure to the price of a few of the most established assets seems in line with the DAO’s risk tolerance.
More info on how GLP works can be found here: GLP - GMX
Relevant stats/performance can be found here: GMX analytics
Budget
$2M USDC
Rationale
As mentioned above this proposal aims to generate cashflow for the DAO, in a market where yields are drying up as the majority of yield is either inflationary or based on the demand of borrowers, GMX has proven its ability to generate revenue regardless of market conditions. The Merit Circle DAO has proved similar, after reaching a great milestone of burning 100M tokens. Now it is upon us to work toward burning the next 100M, and this proposal if accepted would help us achieve that goal.
Is this safe? What are the risks?
There a couple of risks to consider.
Market risk
You are taking positions into different underlying crypto assets. Any asset has a risk of going to 0. USDC is the largest position in the pool and should be delta neutral. BTC and ETH make up another large part of the pool. Avax would be the most risky position, an asset with a higher beta. The upside is of course that these assets can go up in value, and with it the value of the position. Given the current sentiment and subsequent low price point of the market, I believe it is not a bad time to indirectly take positions into some of these assets for the DAO.
IL Risk
This is related to the market risk. Since the assets are held in a continuously rebalancing pool, there is added Impermanent loss (IL) risk. However, I believe the incentives and fees should outweigh the longterm impermanent loss compoment.
Smart contract risk
Secondly, as with any pool that utilized smart contract, there is smart contract risk. GMX has been eaditted by ABDK consulting.
Chain/Bridging risk
I think this one is minimal, but worth mentioning for completeness. Since this position would live outside of the Ethereum main chain, it means funds would have to be bridged to Avax chain and held on Avax chain. There is a minimal risk that something could go wrong in the bridging process or with Avax chain at large. On the other hand, it is also an opportunity for the DAO to diversify risks across chains. Avax could be operational in times when ETH is congested.
Are the funds locked?
GLP is locked for the first 15 minutes and after that can be redeemed for the underlying assets at any time. esGMX (part of the rewards) is locked for longer.
What about the GLP pool on Arbitrum?
The Arbitrum GLP pool could be an alternative option. As it stands today, I believe the basket of ETH/AVAX/USDC/WBTC with the current yields will offer a superior Risk/Reward profile over the Arbitrum pool that contains UNI, LINK, ETH, WBTC, FRAX, DAI and USDC.
Copyright
Copyright and related rights waived via Creative Commons CCO