sushiHOUSE Treasury Management
sushiHOUSE
A DAO House by YAM
Summary
Treasury Management Solution for Sushi
Successful companies invest and effectively deploy capital from the corporate treasury. Likewise, community run Decentralized Autonomous Organizations (DAO’s) share a similar imperative. DAO House by YAM combines various elements into a customizable solution that can bring significant operational stability to any DAO.
Abstract
SushiHOUSE is a fully-customizable treasury management solution built by the Yam Finance team. This proposal would allow the Sushi DAO to migrate part of the sushi treasury into a diversified basket of ETH, BTC, stablecoin and other DeFi allocations as a Bear Market Protection Portfolio. sushiHOUSE will have an active portfolio manager to rebalance portfolio according to risk profiles.
For further divestment in addition to funds allocated to sushiHOUSE a purchase into the Defi Pulse Index (DPI) as a purely buy and hold strategy for the Sushi treasury.
Preferences of the Sushi core team:
- Portfolio Goal: Bear Market Protection Portfolio
- Portfolio Risk Target and Strategy: 1 or 2; out of a scale of 1 (conservative) to 5 (aggressive)
- Portfolio Starting Funds: $5 to $10 million in $SUSHI
- Portfolio Manager: @Krugman an experienced crypto portfolio manager and currently managing yamHOUSE for yam.finance and an active Sushi community member
- Buy and Hold Defi Pulse Index (DPI): $2.5 to $5 million in $DPI
These are preferences by the core team, but ultimately it is up to the community to decide.
Part two of this proposal is to participate in a DAO Treasury token swap as a collaborative project to support the entire DeFi ecosystem. Sushi will pledge a small portion of sushi towards this DAO Divestment initiative. Additional details will be in a new proposal when DAO token swap candidates are obtained.
Motivation and Challenges
Sushi Treasury currently holds approximately $250 million entirely in $SUSHI. This exposes the operational stability of the DAO to significant crypto market risks.
| Treasury Management Challenges | sushiHOUSE Treasury Solutions | |
|---|---|---|
| Risk | Would a single event trigger severe instability or collapse of the treasury? | Customized risk assessment and risk profiling assures sustainability and success |
| Strategy | What strategy and metrics are best to maintain growth and minimize risk? | Strategy team explores how to best use treasury for meeting investment goals |
| Security | Can the treasury be managed securely while maintaining custody of assets? | DAO House is built on TokenSets smart contracts and dependable infrastructure |
| Agility | Is DAO governance agile enough to respond quickly to risk events? | Dedicated active manager operates with guardrails that the DAO establishes |
| Transparency | Are investment decisions, changes and results easily tracked by the community | The DAO House/TokenSets public UI provides real-time investment performance and details |
RISK / STRATEGY: Bear market protection portfolio
The investment objective of sushiHOUSE is to protect against an extended bear market by diversifying into lower volatility assets such as stablecoins, BTC, ETH and hedges to protect Sushi’s Ecosystem. This process allows for a more dynamic allocation of assets with better risk handling and analysis without loss of decentralization.
End-to-End Risk Management
| Portfolio Risk Analysis | To manage risk, DAO House investment will be determined by an investment strategy on a scale from 1 to 5 (from conservative to aggressive) that targets risk and diversification goals set by the dao. |
|---|---|
| Beta and Correlation | Portfolio rebalancing is based on BETA and Correlation analysis. |
| Smart Contract Guardrails | Execution is done by a portfolio manager which can be appointed by the DAO. Smart contract guardrails ensure capabilities of the portfolio manager are secure and in the best interest of the DAO. |
Portfolio Risk Targets
Krugman has developed a portfolio risk target: This table provides a sample of how DAO House helps each DAO establish the right risk tolerances based on Beta and Correlation. However, each DAO House treasury solution is customized to the unique goals and situation – which can and will change as goals and market conditions change.
| Risk/Exposure Level | Beta Target (vs ETH) | Correlation Target (vs ETH) |
|---|---|---|
| 1 - Very Low | 0.25 | 0.2 |
| 2 - Low | 0.5 | 0.4 |
| 3 - Medium | 0.70 | 0.6 |
| 4- High | 1 | 0.8 |
| 5 - Very High | 1.5 | 0.9 |
Portfolio Allocations
Based on an allocation starting at $5 million, the larger the portfolio the higher the liquidity requirements of the underlying assets. This was specifically developed for Sushi’s situation where a small amount of the total treasury would be divested into sushiHOUSE while a bulk of the remaining assets would continue to be $SUSHI.
To make an effective bear market protection portfolio, a minimum of 33% of treasury assets should be divested out of the protocol token. Based on building with this end in mind, @krugman has created a general long term portfolio allocation for sushiHOUSE, which can be customized to Sushi’s needs and community feedback.
| Risk/Exposure Level | ETH Alloc. | WBTC Alloc. | Stablecoin Alloc. | DeFi (Large Cap) Alloc. | DeFi (Mid/Small Cap) Alloc. |
|---|---|---|---|---|---|
| 1 - Very Low | 15% | 15% | 65% | 2.5% | 2.5% |
| 2 - Low | 25% | 25% | 45% | 2.5% | 2.5% |
| 3 - Medium | 55% | 20% | 20% | 2.5% | 2.5% |
| 4 - High | 70% | 20% | 5% | 2.5% | 2.5% |
| 5 - Very High* | 120% | 0% | 0% | 2.5% | 2.5% |
To be clear: 33% of assets does not need to be allocated to sushiHOUSE but can be done via a variety of products.
Treasury Asset Divestment Options
There are multiple options to divest $SUSHI token to minimize impact on $SUSHI. At yam.finance we have explored each of these opportunities and are able to offer it to sushiHOUSE. Our team will create a process that is approved by the core team to ensure that market impact is minimized.
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Portfolio manager lead diversification: Smart contract guard rails can be placed on the amount per time period that a portfolio manager can divest. Also instructional restrictions can be put on portfolio managers.
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DAO Treasury token swaps: A whitelisted set of participating DAOs who would also like to divest their treasury, where a OTC swap can be done without affecting price. Agreements can include a vesting period so it will be mutually beneficial. This requires coordination from multiple DAOs and their communities, so it is planned as a phase 2 for sushiHOUSE.
-
OTC trades: There are a range of options for OTC trades. At Yam.finance we routinely use OTC desks for larger positions to protect from market manipulation.
SECURITY / AGILITY – Built on Set Protocol
Set Protocol is audited by OpenZeppelin and ABDK consulting. Set Protocol contracts repo has 100% line and branch coverage over the span of over 840+ unit, integration and simulation tests. Set protocol allows a portfolio manager who is assigned by the DAO to operate within guardrails that are held to strict controls and performance reviews. At no time is the portfolio manager in custody of assets and investment options are set by sushi DAO. Set Protocol has built multiple indexed products including DeFi Pulse Index DPI which has over $100 million AUM / TVL.
Portfolio Manager Roles and Restrictions
| ✓ | Perform actions in accordance with DAO control structures and investment strategy |
|---|---|
| ✓ | Execute trades via the dedicated (TokenSets based) customized Trader UI |
| ✓ | Execute trades to keep portfolio within beta and correlation targets established by the DAO |
| ✓ | Any additional assets must be whitelisted and approved by the DAO in order to add into the set. |
| ✓ | Trades can be restricted by time and volume. |
| ✓ | sushiHOUSE tokens are in custody of the treasury, portfolio manager has no direct access to assets. |
TRANSPARENCY - Simple Portfolio Monitoring
sushiHOUSE will be listed on the TokenSets website (by Set Protocol) to showcase asset performance, as well as smart contracts, on-chain transactions and historical movement of tokens. At Yam Finance we’ve tested full implementation of a DAO House with the first house: yamHOUSE.
Active Manager Trade UI and Public Dashboard
The private and secure Trader User Interface (left), and the publicly available TokenSets website (right).
sushiHOUSE Costs
Yam <> Sushi have been mutually supporting each other since their beginnings and we would be happy to support in building sushiHOUSE. We ask in return a 3%+ investment into $YAM token to be hodl’ed inside the sushiHOUSE. Yam Treasury and yamHOUSE currently hodl over $1.5 million in $SUSHI tokens.
Polls
Overarching Proposal Poll
- Create sushiHOUSE w/ additional DPI Purchase
- Create sushiHOUSE without DPI Purchase
- Only DPI Purchase
- Do not do anything
0 voters
Portfolio Risk Target and Strategy:
| Risk/Exposure Level | Beta Target (vs ETH) | Correlation Target (vs ETH) |
|---|---|---|
| 1 - Very Low | 0.25 | 0.2 |
| 2 - Low | 0.5 | 0.4 |
| 3 - Medium | 0.70 | 0.6 |
| 4- High | 1 | 0.8 |
| 5 - Very High | 1.5 | 0.9 |
| Risk/Exposure Level | ETH Alloc. | WBTC Alloc. | Stablecoin Alloc. | DeFi (Large Cap) Alloc. | DeFi (Mid/Small Cap) Alloc. |
|---|---|---|---|---|---|
| 1 - Very Low | 15% | 15% | 65% | 2.5% | 2.5% |
| 2 - Low | 25% | 25% | 45% | 2.5% | 2.5% |
| 3 - Medium | 55% | 20% | 20% | 2.5% | 2.5% |
| 4 - High | 70% | 20% | 5% | 2.5% | 2.5% |
| 5 - Very High* | 120% | 0% | 0% | 2.5% | 2.5% |
Team Preference 1-2
- Risk Level 1
- Risk Level 2
- Risk Level 3
- Risk Level 4
- Risk Level 5
0 voters
Portfolio Starting Funds:
Team preference $10 Million
- $0
- $5 Million in $SUSHI
- $10 Million in $SUSHI
0 voters
Re-evaulate after 3 months.
Portfolio Manager:
Team Preference @Krugman
- @Krugman
- Another Portfolio Manager TBD
0 voters
Addendum - Purchase $2.5-5m DPI
Summary
Divest the treasury a further $2.5-5m into the Defi Pulse Index (DPI) as a purely buy and hold strategy to diversify the Sushi treasury. This is a separate investment to SushiHOUSE but is being put forward in the same proposal.
Abstract
DPI is a basket of the top DeFi tokens built on Set Protocol V2 contracts. The methodology was designed and is managed by the team at DeFi Pulse aka Pulse inc. Tokens in the index are rebalanced based on relative market cap each month, full details of the methodology including what constitutes an inclusion and how projects are assessed can be found here.
The index is now managed jointly between Pulse inc and the community at Index Coop where we look to market, integrate and improve productivity of the index. Part of that role is to communicate the benefits of holding the index compared to the individual tokens and look to share the benefits with both individual and organisational level investors.
During the most recent rebalance, Sushiswap as a project passed 6 months since launch and became eligible for inclusion into DPI. The rebalance has now taken place and the Sushi token makes up just over 8% of the Index.
Motivation
The motivation to hold DPI essentially comes down to improving risk-adjusted returns vs holding just Sushi but maintaining exposure to the DeFi sector. For the most recent breakdown of DPI performance we publish a monthly update, and there is a deep dive on performance against competitors and BTC/ETH here.
The highlights of both these articles are that:
- DPI performance in February, over 3 months and since inception are all positive at 18%, 257% and 198% respectively. As you can see in the table below, DPI has outperformed ETH and BTC since inception, at the cost of only a 1-2% increase in volatility depending on the benchmark.
-
DPI is starting to represent a viable portfolio addition over and above BTC or ETH as the DeFi space continues to grow and mature. For example, during January BTC saw a 30% drawdown across the month while DPI captured 85% of BTC’s upside, but only 18% of that downside.
-
Measured against similar products DPI has a lower annualised volatility
Specification
Carrying out the trade has to be done carefully and over time. Recommend the process is managed by the SushiHOUSE portfolio manager using the upcoming Exchange Issuance function to be launched by Index Coop.
Exchange Issuance has been designed as a one click solution in cases where reducing slippage is more important than the gas cost associated with purchasing multiple tokens, i.e very large trades. The function will swap the input token (ETH recommended) for all of the underlying in the correct proportion and subsequently issue DPI tokens using the best prices from either Uniswap and Sushiswap.
Poll
To purchase DPI:
- $0
- $2.5 Million in $SUSHI
- $5 Million in $SUSHI
0 voters
A special thanks to @0xMaki @dangerousfood and @magicturtle for the guidance on crafting this proposal.
Yam Team
