Reallocation of USDT to DAI and USDC

Proposal Summary I propose adjusting OUSD’s stablecoin allocation to reduce our USDT concentration, diversifying more into USDC and DAI strategies. This shift aims to balance potential risks while maintaining attractive yields for our holders.

Context OUSD is designed to offer the best risk-adjusted returns, growing in value through yield optimization strategies. Despite the satisfactory yield surpassing U.S. treasury rates, we recognize an opportunity to further optimize by reducing our dependency on Tether (USDT) without compromising on the yield. Our current allocation is distributed as follows:

77.6% USDT 12.52% DAI 9.88% USDC

Why Now? Tether was trading below the other stablecoins in value and it didn’t make any sense to take a hit on our collateral value at that time as it would adversely affect OUSD holders. Tether's recent stabilization above its peg signals an opportune moment to diversify our holdings. While a significant portion of our USDT assets are tied up in profitable Morpho strategies, our 77.6% allocation to USDT presents an unnecessary risk. Therefore, I propose restructuring our collateral to:

• 50% USDT
• 25% DAI
• 25% USDC

This reallocation not only mitigates potential risks but also leverages the dependable 5% yield from the DAI DSR strategy. Nonetheless, I suggest that we retain substantial involvement with Morpho strategies to accrue potentially valuable MORPHO tokens in the future.

Maintaining a 25% allocation each to DAI and USDC based on this allocation helps to distribute risk, given their direct correlation. We should aim for this distribution by performing this transaction unless there are compelling reasons to suggest anything else.

Implementation Upon approval, this plan authorizes the strategists to perform a transaction that reduces our USDT exposure which creates a more balanced allocation based on the proposed distribution above.

The USDT allocation that gets swapped into DAI is expected to fully go into the DAI DSR. Meanwhile, the USDT that would be swapped into USDC should be distributed evenly (50/50) between the Morpho Aave USDC and Morpho Compound USDC strategies.

The Morpho Compound USDC strategy will in this case retain a lower allocation than the Morpho Aave USDC strategy as it has a history of a lower 7-Day Moving Average Supply APY than the Morpho Aave USDC strategy which leads to a higher average base APY for OUSD.

We want to avoid the swaps being too costly for the protocol in case an imbalance takes place before this proposal is approved. I recommend a budget of around $500 which would be 0.0113% of the swap value which is more or less aligned with swap fees + gas

Swapping 1,992,665 USDT to DAI would cost around $170 (to achieve 25% DAI allocation at the time of proposal) Swapping 2,413,401 USDT to USDC would cost around $225 (to achieve 25% USDC allocation at the time of the proposal)

By doing so we have a more diversified allocation with a yield that remains attractive for OUSD holders.