OETH Funds Management

Title:

Align on parameters for OETH funds allocation

Summary:

This proposal is to align on an objective set of rules that will govern funds management for OETH in order to maximize the risk-adjusted yield and enhance transparency.

Background:

Currently, OETH funds are allocated to yield-bearing strategies based on individual governance proposals. New yield strategies are identified and then voted in by the Origin DeFi DAO. Allocation decisions such as min and max allocation and when to move funds from one strategy to another are made on a case-by-case basis.

There is an opportunity to move from one-off decision-making to following a pre-determined framework for fund allocation decisions.

Having an objective set of rules agreed upon by the Origin DeFi DAO would have numerous benefits. First and foremost, it would give users and prospective users clarity on how OETH funds will be managed. This could be instrumental in onboarding new users.

The rules would also help optimize OETH yield and risk management by providing a framework to identify under/over-allocations and opportunities for efficiencies.

What’s more, having agreed-upon rules and thresholds would allow the strategists to move quickly to respond to the rapidly evolving market landscape — as strategy yields and TVL go up and down, OETH would be poised to enter and exit advantageously.

Overview of Proposed Rules :

Allocation for OETH Collateral

By setting min and max allocations for OETH collateral we avoid frequent rebalancing, reducing costs and preserving value in minor market shifts.

1. Allocate no more than 66% of our collateral to any single LST, safeguarding against major losses from slashing or de-peg events.
2. Maintain a minimum allocation of 5% for each LST of our collateral to ensure continued exposure to all LSTs, preserving OETH's decentralized nature.
3. Ensure that a sufficient portion of each collateral type is held either in default strategies or directly in the vault, guaranteeing that 1% of OETH circulating supply can be redeemed at any time without requiring Strategist intervention.

Collateral	Max Allocation	Min Allocation
stETH	66%	5%
rETH	66%	5%
frxETH	66%	5%**
WETH	100% - LST collateral*	15%***

*For unexpected black swan events, strategists may convert all LSTs into WETH.

**Collateral such as frxETH and WETH will be held in its default strategy to avoid yield drag.

***WETH will be held in an active strategy to maximize the yield of the vault

1. Our holding of any LST should stay below 50% of its supply-side exit liquidity in case direct withdrawals to ETH are not available for the strategists in order to manage risk and ensure easy exits of LST collateral. If this 50% threshold is exceeded by 500bps the strategists will take action to exit a portion of the position.

So, if an LST has a $100M TVL in a liquidity pool with $50M in exit liquidity, our maximum holding should be $25M to prevent excessive slippage.

Supply-Side Exit Liquidity Cap	Intervention Threshold
50%	500 bps

The 500bps threshold was chosen in this case because liquidity pools can be highly volatile, and temporary rebalancing due to trading activity on the AMM may temporarily push the limit above 50%.

Exception

frxETH Supply-Side Exit Liquidity Cap	Intervention Threshold
60%	500 bps

Prior to this proposal going live, frxETH was already above the on-chain liquidity threshold. As we already have been given indications that direct withdrawals will be available soon, we should aim to avoid selling below the peg at a loss. Thus, an exception of 60% exit liquidity cap is placed on frxETH.

By the time direct withdrawals are enabled, we would ideally redeem frxETH to fall below our initial exit liquidity cap of 50% which would imply that this exception wouldn’t be needed afterward. However, if direct withdrawals aren’t made available, Origin DeFi DAO can rescind this exception in a separate proposal in order to reduce our frxETH position.

Allocation for Approved OETH Strategies

Approved strategies include pools/vaults that have been voted in by the Origin DeFi DAO and passed the testing period.

1. Maintain our share of our Convex AMO pool between 80-90%. Make adjustments if our share falls to 75% or exceeds 95%.
2. Any individual non-AMO strategy should not exceed 50% of total OETH funds in order to prevent over-reliance on one strategy and manage risk. If a pool goes 100 bps over this cap, start de-risking.
3. For non-AMO strategies, OETH funds should account for no more than 50% of a pool's total TVL. This helps avoid major slippage and liquidity issues when exiting.

AMO Strategy	Max Pool Share	Min Pool Share	Intervention Threshold
Convex OETH - ETH	Max 85%	Min 80%	500 bps

Non-AMO Strategies	Max Allocation	Min	Intervention Threshold
All Non-AMO Strategies	Max 50%	Min 0%	100 bps

Max % of Pool TVL	Intervention Threshold
50%	100 bps

Entering New Strategies

1. For new strategies, start with a test allocation of no more than 50 ETH.
2. If the initial test allocation proves successful, ramp up allocation in a geometric sequence over a two-week period at the discretion of the Strategists.

Reallocation

Reallocation parameters play a crucial role in deciding when to transition to different allocations, impacting vault performance. These parameters take into account multiple factors:

• Minimize costly reallocations by limiting them to a maximum of twice per week.
• Only switch to allocations that boost OETH yield by at least 0.05%.
• Consider the breakeven point, aiming for a threshold of 7 days.

Rule	Condition
Reallocation Frequency	Max 2 times per week
Reallocation OETH yield increase	≥ 5 bps
Target breakeven threshold	7 days

Full calculation below:

U = Collateral amount converted

C = Collateral Swap Cost

D = Days to breakeven

cAPR = current strategy APR

nAPR = new strategy APR

sAPR = nAPY(new strategyX) - cAPR

Daily Additional APR = (U - C) * sAPR * (D/365)

Additional APR = X

D = (X * 365) / (U * sAPR)

Application of 7-Day Cap

To implement a 7-day threshold in the strategy, we compare D with 7:

If D ≤ 7 (pre-defined limit), consider adopting the new strategy; otherwise, the decision to maintain the current strategy is at the discretion of the strategists.

Triggering Reallocations

During the manual reallocation phase, anyone may alert the strategists to execute a reallocation under the following conditions:

• The proposed reallocation complies with risk constraints.
• It passes the OETH yield increase threshold required for reallocation.
• It aligns with the breakeven analysis threshold.
• It’s within the reallocation frequency threshold

Once these conditions are met and a final review is conducted, the strategists have the discretion to proceed with the execution of the reallocation.