De-risking

I’ve written about IDEX here on several occasions. Yesterday, I sold my entire stash.

It’s probably most telling that despite owning their tokens, I never once used the market. On-chain exchanges are gas heavy and slow, and IDEX never got anywhere near their goal of being a fully decentralized product. They had on-chain orderbook nodes, which I ran (at a loss) for about a year. They finally got rid of that a few months ago in favor of a lightweight staking node. The truth is though, despite having about ten times the minimum stake requirement, I never got more than a few dollars in ETH rewards. The tokens did accumulate, but despite everything going on in the markets I felt like my money was better put to use elsewhere. Time will tell.

So I’m currently sitting at a little over one third of my “retirement fund”. I’ve still got over two months left to get the other two thirds. It’s going to involve some hard decisions. The majority of my funds are locked up in Badger DAO, so I’ve got to figure out how I want to pull funds from there. It’s going to be a difficult decision, although I did wake up this morning ready to pull the trigger after this latest dump. I’m still up significantly, but don’t want to risk losing capital.

So it’s quite fortuitous that I ran across this Badger Improvement Proposal on putting the USDC treasury to use. Basically, it would have eighteen months of runway set aside (with a growth multiplier, at that,) and the rest of the funds would be put to use. The author, Mason, proposed a three tiered tranche system, based on risk ratings, which would rate the various USDC vaults and projects, such as Curve, Yearn, Maker, as well as riskier ones like Float and Dollar protocol.

I thought it was a brilliant solution to the problem that I’m not facing. How to preserve funds in a stablecoin while still maintaining yield and returns. I immediately copied the spreadsheet and put my numbers in it.

As you can see, allocation 1 and 3 provide nearly identical returns with less risk. I’m actually quite comfortable with allocation 4, but decided to go with 1 to be conservative. Another Bager commented that no more than 40% of any tranche should go to one project, but after some consideration of gas costs, I think it would be too much trouble to need to manage nine positions compared to six, so we’ll say that no more than half of a position should be deployed in any one vault.

The risk rating of each project is going to take some though. I’ll need to do some research to see if anyone has put a framework together already that I can build off of. For example, there are about a dozen or more Curve vaults with various stablecoin assets and returns up to forty percent. Some have one, three or four underlying tokens such as DAI, USDC, USDT, as well as other newcomers like USDP, GUSD and so forth. Each one will need some sort of risk rating. Then we have Yearn vaults which build on top of those Curve pools. Could a Yearn vault still be “safer” than one of the newer Curve vaults? How to we rate the Yearn V2 vaults versus V1?

Then there’s the matter of these newer projects like Vesper, Float Protocol, Fei, and Dollar Protocol. Those are going to require serious consideration. Normally I’m willing to stake funds in practically any single-asset vault for liquidity mining, but when you’re talking about an elastic rebasing token or sienorage token things are a bit different.

As of right now, I’ve got funds staked in the Curve USDP vault, considered tranche B (med. risk) by Mason, and I’ve got enough ready to stake for one of my tranche A low risk vaults. I’m leaning toward the yCRV vault with 34% APY. I’ve also been checking out these other projects closely to assess risk.

More research will be done.

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