TMP-8: Rage Trade Risk Off Vault Conversion to 80-20 Tricrypto Vault

Title: Rage Trade Risk-Off Vault Conversion to 80-20 Tricrypto Vault Author(s): Noodles, Dash, and Avi Created: 6/8/2023

Summary

This Treasury Management Proposal suggests that the DAO transfer its $1.5M USDC Deposit in the Rage Trade Risk-Off GLP Vault to the Rage Trade Tricrypto 80-20 vault. This migration is due to Rage Trade deprecating their GLP vault to focus all their efforts on Rage Trade Perps V2 – built on GMX V2.

Disclaimer

Jade Protocol is a decentralized autonomous organization, which means that all treasury management proposals are discussed with the community and voted on as a collective. No single member of the DAO shall be held responsible for the positive or negative outcomes of the TMP should it pass. This proposal put forth by the author(s) was synthesized in good faith as a result of due diligence and community discussion on Jade Protocol’s governance platform. There are no guarantees of financial gain and the DAO collectively assumes responsibility for both the positive and negative outcomes that may result from executing this proposal. This proposal does not constitute investment advice, but rather presents opportunities available to the DAO.

Should the community vote to pass this proposal, then the DAO and its contributors are authorized to carry out the suggestions set forth in this proposal. If the proposal represents an investment opportunity, the community accepts the risk that the DAO may lose the entirety of its deployed funds. If new information comes to light prior to the execution of this proposal (i.e. a change in the investment thesis) then the DAO reserves the right to not deploy funds even with the successful passing of this proposal, as it may pose an outsized risk to the DAO and its collective community.

There are risks associated with modifying token economics, moving funds across blockchains, yield farming, investing in seed stage projects or liquid tokens, including but not limited to: complete loss of funds, counterparty risk, de-peg risk, economic exploits, smart contract exploits and/or the risk of impermanent loss. Due diligence is meant to mitigate these risks, however the DAO must still acknowledge and accept that these risks exist.

Abstract

As an early depositor in the Rage Trade platform, the Jade Protocol DAO is continuing to work closely with their team in order to support its novel yield products. At this time, the Rage Trade team has chosen to deprecate both of its GLP vaults in order to focus efforts on Rage Trade Perps v2 built on top of GMX v2. While the GLP vault concept was well positioned for sideways markets, the data analysis did not support its viability in the current market conditions. The pivot to focusing on its perps product is a welcome development as Rage Trade v2 offers a novel product offering with new revenue sources for the protocol.

In the meantime, migrating our Risk-Off GLP Vault deposit to the Tricrypto 80-20 vault allows the DAO to take a directional position now that market conditions are shifting. For unfamiliar users, Tricrypto represents a position that is composed of ⅓ USDT, ⅓ wBTC and ⅓ ETH. This position allows the DAO to be more directionally exposed while still muting volatility. You can find more information on how the Tricrypto 80-20 vault has performed in various market conditions here.

As of June 8th, 2023, the Tricrypto vault is generating ~7.95% APY (3.94% from Curve Emissions, 0.77% from 3CRV LP Fees, and 3.24% from Rage LP Fees) which outpaces most Tricrypto yields in DeFi by up to 20%. The vault achieves this by utilizing a rebalancing operation and updating ranges for its concentrated LP position. Of note, the current yield is near the lower bound of historical yields due to current sideways market conditions. The vault has historically outperformed Tricrypto by 8-10% over the last year, and the average yield has ranged from 10-15%. While higher APY opportunities may exist, they are typically unaudited, low TVL or carry additional leverage risk. The Rage Trade team has also reiterated its plan to retroactively airdrop $RAGE tokens to early supporters. This may provide a material boost to APY which cannot currently be measured, but should not be ignored.

Motivation

Both BTC and ETH are foundational assets for many crypto portfolios. While the DAO holds a considerable amount of ETH, this Tricrypto position would increase our BTC exposure. This also provides a new avenue to earn yield on BTC, which we are not currently earning with our wBTC holdings. While Tricrypto does carry IL risk due to price fluctuations of BTC and ETH, these assets have been highly correlated over long time periods. IL is unlikely to be realized unless there is a material deviation between BTC and ETH over the long term. Short term deviations won’t lock in any losses unless we actually withdraw and break the Tricrypto position. This means the DAO can appropriately time its withdrawal to minimize IL as long as the long term correlation between BTC/ETH remains intact.

Yield Farming Criteria

• The Rage Trade has a smart contract audit by Peckshield for the Tricrypto 80-20 Vault.
• Rage Trade’s Global TVL is $11.3M, therefore the max allocation threshold is $0.68M USD (6%).
• Rage Trade’s Tricrypto Vault has $7.5M TVL, therefore the total deposit cap is $1.125M USD (15%).
• Rewards paid in native Tricrypto LP tokens, which are automatically re-staked.
• Rage Trade is compatible with Gnosis Safe.
• Although the proposed deposit amount exceeds the TVL thresholds, an exception will be granted with the passage of this governance proposal given that insolvency risk is minimal. Unlike bridging platforms like Stargate, where liquidity is moved across chains, this is a simple deposit strategy that does not result in movement of funds across chains.

Pros

• Adaptability: Unlike other vaults in the market which are typically static, this vault has the ability to react to evolving DeFi conditions.

• Isolated Risk: At least 80% of the assets in the vault are allocated to external yield-generating LP tokens, reducing the exposure to risk associated with concentrated liquidity provision on Rage.

• Organic Yield: The attractiveness of this opportunity is not contingent entirely on temporary token incentives. Depositors earn yield from multiple sources. The reason why this vault has been able to outperform Tricrypto and other Tricrypto DeFi farming opportunities is due to the fact that it accrues fees from Rage LPs. All yield is auto-compounded back into the Tricrypto LP position.

• $RAGE Airdrop: Participating in this vault, in addition to our prior participation in the GLP Risk-Off Vault, will position us well to potentially receive an airdrop of the $RAGE token when it is announced.

Cons

• Exogenous Risks: The strategy is subject to exogenous risks, such as potential downtime of the Arbitrum network, which could deviate the expected UNI v2 payoff. Additionally, specific yield-generating assets may carry their own risks, including impermanent loss, which could affect the overall strategy's performance.

• Market Volatility: Like any investment strategy in the crypto space, the 80-20 Vaults strategy is exposed to market volatility. Significant price movements of ETH and other assets can impact the overall performance and returns of the strategy.

• Yield Generating Asset Risks: The strategy relies on external yield-generating assets, and their performance is subject to their own risks and market conditions. It's important to understand the specific risks associated with these assets (BTC, ETH and USDT) before participating in the strategy.

• Smart Contract Risk: Rage Trade’s smart contracts or the smart contracts deployed by Curve could have unknown vulnerabilities. Rage Trade’s contracts for the Tricrypto 80-20 were audited by Peckshield and have been in production for almost a year with no exploits and considerable TVL (peak 10M).

Next Steps

A high level summary of how the investment strategy will be implemented:

• A deposit of 1.5M USDC will be made into the Tricrypto 80-20 vault by transferring our deposit over from the Risk-Off vault.
• A review of the position’s performance will take approximately 30 days to determine if the position size should be increased, maintained or reduced.

Voting

This is a DAO Proposal that was drafted by Noodles, Dash and Avi on 6/8/2023. After 5 days of community discussion, the proposed edits were incorporated and consensus was reached. This vote will be subject to a 24 hour warmup period, followed by a 3 day voting window.

If you agree with this proposal, a [YES] vote would confirm the following:

• Migrate 1.5M USDC from the Risk-Off Vault into the Tricrypto 80-20 Vault on Arbitrum

If you disagree with this proposal, a [NO] vote would confirm the following:

• Withdraw 1.5M USDC from the Risk-Off Vault and DO NOT deposit into the Tricrypto 80-20 Vault

Eligibility

All users with an sJADE balance on Avalanche and Binance Smart Chain will be eligible to vote.

Copyright

Copyright and related rights waived via CC0.