Treasury Diversification Proposal

Qhawe

Summary

Following on the August 2021 diversification round that resulted in ₂ million USDC in the treasury, we are proposing authorizing the Tokenomics Working group to take the following two actions:

Converting $150,000 of USDC to ETH.
Investing $500,000 of the USDC in Treasury into a low risk investment opportunity.

Motivation

Converting USDC to ETH

Diversifying Forefront’s treasury is a top priority heading into 2022. The first conservative step in this direction is to convert $150,000 (approximately 8.7% of the USDC in Treasury) into ETH. The timing of the conversion is also somewhat fortuitous as ETH is down 30% over the past 30 days (as of Jan 30, 2022). Treasury ownership of ETH also provides upside exposure to the larger value creation of Web3.

Investing USDC

The USDC currently sitting in treasury is ‘unproductive’, meaning it is not earning any yield. We are proposing conservatively investing $500,000 of USDC into a low-risk interest-bearing investment opportunity. One example would be depositing the USDC into an Aave savings account (yielding 2.16% as of Jan 30, 2021). This would yield approximately $10,800 over the course of the year.

Success Conditions

Successfully swapping $150,000 of USDC to ETH and investing $500,000 of USDC into a low-risk interest-bearing investment opportunity.

Specification

Treasury Multi Sig will execute both the swap and investment.

Costs

Gas associated with trades. Costs are minimal.

Jihad

I am fully in support of this proposal. Outside of $FF, our treasury is extremely unproductive, and given the volatility of the market it is irresponsible for us not to diversify.

milanshrestha

Great proposal and completely support it.

pulkit

Hey, at the risk of sounding naive about this, as I am new to the ecosystem, a 2.16% risk free rate while marginally higher than the US treasury rates, sound pretty low. Say for example in India the Govt. Treasury rates are currently at 3.8% for a 3 month period to 6.8% or so for 10 year treasury bonds.

Qhawe

pulkit That's not naive at all, good question. 2.16% IS low. With recent market volatility, there's been a stampede to "safety", so APRs on stablecoins are very low atm. Unlike treasuries, these APRs are variable, so they'll likely increase again when risk is back on.

There's a continuum of risk/return options (on multiple chains) for stable coins ranging from Aave (2% today) to Anchor (19% today) to various "riskier" DeFi protocols.

The tough part is determining where on the continuum funds should be deployed (and in what allocation).

geko

Sounds like a good idea. I would also suggest diversifying the $500k into at least 2 or 3 different low-risk interest-bearing opportunities.

louisgrx

This sounds like a very reasonable idea and low hanging fruits. Yes yes yes!