A Growth-Earmarked Treasury Strategy for Compound

This proposal is a follow-up on the Snapshot proposal A Growth-Earmarked Treasury Strategy for Compound that was approved by the Compound DAO on the 28th of March.

Since then, Avantgarde has:

• Set up a 2/4 Manager safe with Avantgarde, MYSO and the Compound Governance Working Group (PGov and Arana) as the signers.
• Created a Compound Avatar safe and enabled the module to execute trades using the Zodiac roles contract (which allows Manager safe to execute trades in a permissioned manner).
• Created permission for Deposit/Withdraw USDC on Compound v3 and TakeQuote/Withdraw COMP on MYSO. These permissions payloads have been executed on the Compound Avatar safe.
• Fully tested the above permissions on a test Avatar safe before deploying them on the Compound Avatar safe.
• Had OpenZeppelin review and approve the setup.
• Transferred ownership of the Compound Avatar safe to the Compound Timelock contract (as per OZ's advice).

The passing of this on-chain proposal will transfer the $1.5m (35,200 COMP as of April 27) to the Avatar safe, owned by the Compound Timelock contract and managed by a 2/4 Manager safe held by Avantgarde & MYSO (+ PGov, Arana), to allow the strategy to be executed.

TL;DR 

This proposal presents a treasury strategy to complement Gauntlet’s reserve management, with the aim of improving capital efficiency and revenue on idle treasury assets to support the DAO’s capacity to fund growth initiatives and improve financial sustainability. The strategy has three parts:

1. COMP Yield Strategy: Use COMP to generate USDC yield. This strategy maintains COMP exposure whilst making opportunistic sales possible at higher prices. In the meantime, it targets to deliver 15% or more annualised net USDC-denominated yield on COMP tokens.
2. Deposit USDC into Compound for cUSDC: Deploy USDC proceeds and potential COMP conversions into Compound lending markets, earning additional yield via Compound-deposited cTokens.
3. cUSDC & Yield-Generating Buybacks: Use yield-generating cUSDC as the underlying for put options to earn yield on yield while buying back COMP at favourable key levels.

As each COMP -> cUSDC -> COMP cycle completes, the strategy can be continuously rolled over to keep generating yield for the DAO.

Outcomes:

• Earn USDC-denominated yield on COMP (targeting 15% APY).
• Earn yield on cUSDC proceeds deposited into Compound.
• Earn yield on yield while buying back COMP at key levels.
• Enhance capital efficiency and financial sustainability.
• Stimulate trading volume and market liquidity.

Ask:

35,200 COMP (≈$1.5m as of April 27h) to execute on the outlined strategy.

Compensation:

15% on premiums.

Updates to the Proposal since V1

Based on feedback, a number of changes have been made to the proposal since first draft:

Lowered COMP amount:

• Ask lowered from $5m to $1.5m as a first pilot.

Focusing Exclusively on the COMP Covered Call Strategy:

• Citing Gauntlet’s concern over working ETH capital, we have removed the ETH strategy and are focusing exclusively on the COMP strategy. 

Deploy Converted Stablecoins to Support Compound’s Liquidity:

• Using external lending markets may generate higher yields, but the most value-aligned way to deploy stablecoin proceeds is within Compound’s own lending markets to support liquidity supply and foster borrowing activity on COMP.

Using Yield-Bearing cUSDC for Strategic Buybacks:

• Stablecoin proceeds from the options strategy will be used to buyback COMP price at key levels through cash-secured puts using Compound-deposited, yield-generating cUDSC, as deemed appropriate pending market conditions.
• If a COMP conversion (despite keeping probability reasonably low) occurs from the options strategy, we deposit the USDC into Compound and use the yield-bearing cUSDC as collateral to write put options—earning yield on yield while converting USDC back into COMP at favorable prices—eliminating any potential strategic overlap related to USDC accumulation. 
• To optimize execution, we will use technical market signals to help identify and trigger buyback opportunities systematically, see below for further elaboration.
• The bought-back COMP can then be used to rerun the covered call strategy, continuing the yield generation cycle for the Compound DAO.

https://tally.xyz/gov/compound/proposal/432