Introduction
We enjoyed reading both this post and the Initial Treasury Strategy Llama has proposed. We largely agree with the approach to diversifying risk and thinking carefully about the treasury’s long term goals. However, we believe that given the rapidly-changing nature of the space, the treasury would be better served by more active management. We dive into this a bit more below, including a suggestion for implementation.
We have commented separately on the Initial Treasury Strategy where we outline some specific strategies we believe would be beneficial to the further diversification of the treasury.
Active vs Passive Management
In general we think it’s important to maintain flexibility given how fast yield opportunities can change in the space. The easiest way to do this by having a committee which implements a high level strategy (eg. try to get the best yields on stable coins) but then authorizes one party to implement it. This prevents us from getting lazy in positions and not being flexible and nimble enough to react on emerging opportunities.
Obviously, we would want to prevent someone abusing this power so we’d propose using a protocol like Enzyme to carefully define policies which limit the behaviour of what a delegated trader can and can’t do (Enzyme’s protocol is currently shipped with many such policies, and writing custom smart contracts for this specific use case is possible).
There is already an example of a protocol using Enzyme for a similar purpose. Unslashed Finance, an insurance protocol, has deployed ~30,000 ETH (~$90m) into an Enzyme Vault where it is earning yield in the form of more ETH, CRV, and LDO from the Curve stETH pool. We worked hand in hand with Unslashed to ensure the protocol adapters required for their strategies were brought to Enzyme in a timely manner and lent a hand during the migration process.
Efficiency vs Transparency & Accountability
The TMC (Treasury Management Council, proposed here) could be a multi-sig which delegates, breaks up and allocates strategies via Enzyme vaults. The advantage of these is that each strategy can be managed by a 3rd party in a controlled way and with exact permissions being pre-determined by the TMC. In addition, the AAVE community benefits from professional real-time reporting, historic on-chain reporting, risk management controls and full transparency.
Insurance
As AAVE seeks to earn yield on its assets by using a wide range of DeFi protocols, we believe defining the risks that could emerge and insuring at least a part of portfolio will be important.
Who We Are
Our team is Avantgarde Finance. We have been building in the DeFi space for five years and share more than 40 years of cumulative experience in TradFi. More recently, we have broadened our focus to providing Treasury Management Services. This can be anything from developing custom integrations and reporting tools required by DAOs to managing the assets on behalf of DAOs on-chain and implementing strategies.