Improve cash management by earning a yield with a portion of cash via Maple pools

[tmfbernd]

Authors and contributors
@tmfbernd

Status
14 days discussion time.

Summary
Based on the sentiment in Start discussion for Treasury Diversification - Discussions - Merit Circle, I believe there is an alternative to cash management that strikes a balance between the different views: Earn real, on-chain yield with limited risk in terms of both loss of capital and liquidity by deploying a portion of MC’s cash into newly established Maple Finance Pools.

The proposal is to deploy 50% of the current cash balance into the Pool that provides the T-Bill rate of currently just shy of 5%, 10% into the receivables financing pool yielding more than 11% and 10% into the secured digital asset lending pool yielding almost 8%. The remaining 30% would be untouched.

This would mean a potential yearly return of $1.65 million (if interest rates remained unchanged) while still having more than $11 million immediately available, additional $19 million available within a few days, and the remaining almost $8 million available within a few weeks.

I believe this would be an ideal balance between risk and return potential, without really harming the DAOs investment flexibility.

Specification of the proposal
A diversification of the stablecoin balance in the treasury was discussed in Start discussion for Treasury Diversification - Discussions - Merit Circle. The sentiment seems to have been largely that:

1. While USDC has some risk, it’s still the preferred stablecoin
2. The large USDC cash balance doesn’t yield anything
3. Off-chain cash alternatives (T-Bills, fiat) are undesired
4. Volatile crypto-assets like ETH/BTC were not seen as a great cash-alternative
5. No more DeFi yield farming

Please do correct me if I did miss something or got something wrongly. But I agree with all of that. And so I would like to propose an alternative that wasn’t discussed: Earning real yield with on-chain based on treasuries and other asset backed opportunities through Maple Finance.

Maple Finance is a Web3 platform that offers accredited investors to generate yield on their stablecoins. The yield is generated by deploying stablecoins into different pools that are managed by delegates. The Maple in depth capital markets experience by the Maple Team makes this a very attractive cash alternative in my view.

While Maple had bigger issues and struggled last year, the platform has been improved substantially, and just recently several new pools have been created that in my judgement offer attractive risk-adjusted yield opportunities.

Specifically, there are three pools that I think it makes sense for the treasury team to consider committing a portion of the cash in the treasury to:

1. Cash Management. This pool “is designed to meet the conservative risk profile and daily liquidity needs of DAOs, Offshore Companies and Web3 Treasuries. Backed by U.S. Treasury bills and reverse repurchase agreements, the Pool targets a net APY of the current 1-month U.S. Treasury bill rate less fees and expenses of 0.5% annualized.”. This pool currently yields 4.79 % annualized. I think 50% of MC’s stablecoins could be deployed here due to the very short term maximum Withdrawal Waiting Period of 2 days.
2. Receivables Financing – this pool provides “liquidity to US businesses by purchasing their receivables. The program focuses on tax credits provided by the U.S. Treasury”. The pool is more risky for lenders, but the loans are still secured by real assets (receivables) that are relatively secure (tax refunds). The current APY of this pool is 11.65%. Of course there are no guarantees, but I’d consider the risk-reward attractive enough to deploy up to 10% of MCs stablecoins into this pool.
3. Secured Digital Asset Lending – this is Maple’s latest pool. It “lends USDC to institutions against digital asset collateral. Borrower pledged collateral is held in unique segregated accounts with qualified custodians.” The one loan that this pool has currently issued is 3x overcollateralized but still yields 7.84% currently. Another 10% of MC’s stablecoins could be deployed into this pool.

If the MC DAO did this, it would mean the following:

• Cash still immediately available: $11.4 million
• Cash deployed into Maple pools: $26.7 million
• Of this, more than $13 million could be withdrawn within only two days
• APY on the cash deployed: 6.2%
• Potential yearly return to MCs treasury: $1.65 million

I would propose the exact allocations into each pool to be subject to change on a monthly basis and determined by MCs treasury committee depending on the budgetary needs of the following months.

Motivation
MC has a very large portion of cash in its treasury. And this makes sense, as MC wants to be agile when investment opportunities come around. It’s unlikely though that MC would suddenly need a large portion of its cash immediately. Why having this portion lying idly around in the treasury for months or even years in a high interest rate environment, if it could earn attractive risk-adjusted yields instead?

Rationale
MC hasn’t used double digit millions of stablecoins in the last two years. Now that attractive real yields are available (as opposed to mostly fake yields we’ve seen in DeFi in previous years), the MC treasury with its high cash balance is in a unique position to benefit from this.

If will require ongoing monitoring and a more active cash management, e.g. a monthly revisiting of the budget needs and subsequential potential additional deposits to or withdrawals from different Pools on Maple.

The costs of this should be well under the rewards though. It would be another step to professionalize MC’s treasury management.

Budget
The costs are purely resource related, other than transfer fees for moving cash in and out of the pools and the fees that would be paid to the Maple pools (which are much lower than the yields).

Poll
Are you in favor of the proposal?

• Yes
• No

Copyright
Copyright and related rights waived via Creative Commons CC0.

[tyghh]

As mentioned before in TG…we have a load of very high risk investments in projects and teams. We have had some issues with yield bearing treasury pojects already. Even had some money in Maple pools. We DO NOT need additional risks with the treasury funds. That needs to stay in very boring stables.

So respectfully to you, and others trying to steer treasury management into risky assets…, again respectyfully…piss off and try to bleed another DAO treasury…Voting NO!

[tmfbernd]

I respect your opinion, even if you could be a little bit more friendly. All I have in mind with my proposal is how to improve Merit Circle. I’m a token holder as much as you are, we are in the same boat, it doesn’t help if we spit at each other.

Let’s stay rationale when making such decisions. Emotional decisions will inevitably lead to bad outcomes long term. I trust the community will do the right thing, and if the right thing is not voting for this proposal, I’m the first one who accepts it.

An alternative suggestion from those who are too afraid of the risks could be to start with a much smaller amount deposited into Maple pools, say 5%. But again, if the community thinks 0% is the right allocation, I stay in the boat with everyone else.

[tyghh]

It’s not personal but if you are a holder and have been following the community you know this is like the 8th proposal to let the treasury “work”. We’ve been in maple and we nearly lost a few mil. We’ve seen others make proposals as well for different types of ways to make the treasury work. The community voted no everytime.

[tmfbernd]

Well, admittedly, I have been a holder for much longer (2 years?) than I am an active follower of the community. In that case I apologize that I missed so much, I’ve only gone through the previous discussion in detail and thought that could be approved upon.

Anyway, hope that cash can be put to use into other investments relatively faster in the next 2 years than in the last 2 years, who knows for how much longer this bear market grants the opportunities to pick things up before others wake up to them.