Treasury Management Strategy

After the timely withdrawal of UST from Anchor and the subsequent Luna meltdown, New Order has been risk off without any further yield strategy considerations. As the yield in the market has suppressed, the smart contract risk of interacting with various protocols was not sufficient to cover the proposed yield. 

Since the recent market stability, growth in on-chain transactions, and risk-on behaviour - yields have grown. As a result, we want to propose the following treasury strategy to ensure stable growth. 

Proposed Strategy: Hedged GLP strategy on GMX 

The following strategy entails depositing half of treasury's USDC ($2m) in the GLP vault and hedging the exposure of volatile assets in the GLP with a short position on Perpetual protocol.  

GLP acts as a market-maker for GMX margin trading, collecting trading fees, and losses of traders. 

Holding GLP entitles the depositor to the following rewards:

• Platform Trading Fee's 
• Losses of Traders
• esGMX emissions 
• Value appreciation of the assets in the GLP pool

Holding GLP entails the following risks: 

• Distributing profits to traders
• Value depreciation of the assets in the GLP pool
• Smart Contract Risks 

On average, GMX traders are overwhelmingly net negative. GLP holders are the effective counter party to all GMX margin trades, yielding substantial returns when traders are unprofitable. Though, holding GLP also exposes users to volatility risk of the underlying pool. 

The current GLP composition is dictated by the following ratios:

• BTC: 28%
• ETH: 25%
• USDC: 36%
• USDT: 2%
• FRAX: 2%
• DAI: 5%
• UNI: 1%
• LINK: 1%

To achieve a market neutral strategy, the exposure to the underlying volatile assets (BTC, ETH, UNI, LINK) will be hedged using Perpetual protocol. The hedging strategy entails shorting the exposure using a Perpetual Short trade that will be rebalanced on the weekly basis (more often in times of high volatility). 

Estimated Returns: 

Assumed strategy yield: 

1. Funding rate based on relative weights: -7.6%
2. GLP Yield in ETH: 29% (Aug 3rd, 2022)
3. Net Delta Neutral Profit: 21.36%

Note: Model does not include yield from accumulated esGMX, presenting a conservative calculation. 

If the proposal passes, funds will be allocated to an Arbitrum Multisig (GLP Purchase) and an Optimism Multisig (Hedging strategy on Perpetual). Please leave any comments below.