[SGTM 004]: Generating Yield on DAO Treasury Assets to Support Runway

[Avantgarde]

Gm Gitcoin community.

After having deployed the SGTM 004 assets in late June, July was the first full month for the deployed strategies outlined above. As a reminder, 5M USDC were deposited into Avantgarde’s DeFi Yield Vault on Enzyme, and another 1.6M GTC were deployed into a covered call strategy on MYSO.

Below we provide the first update and will continue to do so here in this thread on a monthly cadence.

July Update

The 1,600,000 GTC deployed into a covered call strategy via MYSO resulted in a premium of 10,072 USDC, which were subsequently deposited into the same DeFi Yield Vault as the 5M USDC. The covered call expires on 21st of September, at which point the strategy can be rolled over, depending on the call’s outcome.

The DeFi Yield Vault saw an increase of 0.47% (or 5.8% annualised) in July. After a muted period for stablecoin yields which saw the supply rates of USDC on Aave struggle below 4%, the environment has shifted in the last week with a significant uptick in risk appetite following positive regulatory news in the US.

The vault has taken the opportunity to reposition into higher yielding opportunities, within the context of its focus on large and battle tested protocols with high capacity. Expected returns have increased, with a portion of the portfolio fixed at 10% until September, and an increased allocation to USDC lending on Morpho, which is currently yielding 9%.

[Donny_Jerri]

I was in favor of this proposal and love to follow these updates. The utilization of sustainable DeFi strategies being employed is a pleasure to see for a ReFi public goods funding platform and DAO like ours.

[Avantgarde]

August Update

The DeFi Yield Vault saw an increase of 0.79% (9.92% annualised) in August. Risk appetite saw wild swings during the month, as ETH reached a new all time high before retracing over 10% into the end of the month. Funding rates whipsawed in tandem with price action, ending the period relatively subdued. Stablecoin yields remained healthy and the strategy maintained its positioning through the volatility, having secured a portion of the portfolio at a fixed 10.5% at the end of July and earned an average of 9.4% on the floating rate component through the period. The vault continues to focus on large and battle-tested protocols with high capacity and will look to adjust positioning into the end of September and redeploy capital as current positions mature.

[Avantgarde]

September Update

The DeFi Yield Vault saw an increase of 0.78% in September. Crypto prices moved higher in the first half of the month with ETH peaking at 4760 before moving into a period of choppy price action into month end. Funding rates followed an intuitive pattern, as strong risk appetite gave way to muted leverage demand as prices declined in the last two weeks of September. Stablecoin yields remained healthy through the majority of the period and the strategy continued to benefit from its allocation to fixed yield into the positions expiry in the last week of September. Opportunities were more muted in the last week, with the vault maintaining more exposure to floating rates until better fixed yields present themselves

With the market rallying in the summer, GTC also saw price go higher, from 0.203 in late June up to as high as 0.45 in mid August. This rally saw the covered call on 1,600,000 GTC exercised at a strike price of $0.3334 per GTC, yielding $533,203 USDC for the DAO (see this link for full details). Since then, prices have come down to $0.2163 as of October 11th. After checking in with the Gitcoin team, the acquired $533k USDC will be deposited into the DeFi Yield Vault alongside the other ~$5M USDC to earn yield. Should the DAO have a strong preference to instead utilise the USDC as collateral to buyback GTC via cash-secured puts, we’re happy to consider and elaborate on that further.

As of today, the Avatar safe holds roughly $5,533,000 USDC.

[Avantgarde]

October Update

October proved to be a historic test for the crypto space, breaking the multi-year “Uptober” trend, including the severe flash crash on 10/10, which triggered a record level of liquidations across the space. The DeFi Yield Vault, where the DAO’s stablecoins are currently allocated, saw an increase of 0.19% over the month (2.30% APY), as risk appetite and leverage demand waned, compressing yields in the second half of the month. Against this environment, the strategy took the opportunity to adjust positioning, increasing the allocation to attractive fixed yield positions against a backdrop of declining risk sentiment.

November 6th Addendum

• The first week of November has seen significant volatility in prices and also a number of notable events within DeFi.
• The Avantgarde DeFi Yield Vault has no direct exposure to the Balancer v2 exploit, no direct exposure xUSD, no direct exposure to the Moonwell exploit, and no direct exposure to Compound comets
• There is heightened volatility and large shifts in liquidity as markets continue to digest these events. We continue to monitor second order effects closely and our current assessment is that any potential secondary impacts at the strategy level are small and contained.
• Whilst risk is elevated, there have also been significant opportunities in otherwise sound markets that are impacted by this short term liquidity squeeze, leading to spikes in yield and abnormally high returns for those in a position to take the other side. Avantgarde has retained a high level of liquidity, which enables us to take a balanced approach in this environment, through a combination of controlled de-risking and measured allocations to capture opportunities from short term dislocations.

[Avantgarde]

Dear Gitcoin community, given recent events and as a follow-up to the November 6th addendum, we are here providing another update:

As you may be aware, the market was shaken by recent events surrounding Stream Finance and its yield strategy xUSD, which announced a $93 million loss last week and subsequently halted all withdrawals. Among other things, this event had an immediate and severe domino effect on Elixir, which had significant exposure to Stream. The loss of this backing caused Elixir’s deUSD stablecoin to de-peg and collapse, evaporating liquidity across the ecosystem and preventing withdrawals on underlying Morpho vaults, impacting a number of players in the space.

Our vaults had zero direct exposure to xUSD, nor did we have exposure to any Morpho markets where xUSD was used as collateral. The primary knock-on effect we have been monitoring is with Elixir’s deUSD, as Elixir (the entity) has lending exposure to Stream. Due to the uncertainty surrounding Elixir’s exposure to Stream, the sdeUSD market on Morpho became illiquid, with all supply being borrowed. The Avantgarde USDC Morpho vault had a ~2% position, allocated to lending USDC to the sdeUSD market on Morpho. Due to our internal risk management framework and portfolio constraints at each allocation layer, the lookthrough exposure to the affected Morpho market was limited to ~1% in the DeFi Yield Vault where the DAO is invested.

To prevent the position from growing as it accrues an exponential amount of interest and protect against further impact, we redeemed the liquid ~98% of the vault’s assets from this specific Morpho vault to segregate the funds while leaving the distressed 2% exposure to the sdeUSD market contained within the Morpho vault contract. That 98% liquid component has been moved to Aave as a temporary, defensive measure where they are currently earning a safe baseline yield, pending redeployment into the new, upgraded Morpho v2 vaults which we had already been in the process of building a migration plan for.

Segregating the funds ensures that all future on-chain accounting for the main, healthy portion of the vault is accurate and, importantly, enables the DAO to retain their full claim on any potential recovery value from the isolated 2% position. The resolution of the sdeUSD position remains unclear. If the loan is repaid (the 2% exposure), there is potential upside as Stream’s debt grows (currently accruing a yield north of 200% APR), though this recovery remains highly uncertain.

We will continue to monitor the situation and will update the DAO if any recovery becomes possible. Thank you for your continued trust in us, we are proud to be serving the Gitcoin community.