Pause weekly funds allocation votes

Summary

Until further notice, stop creating a Snapshot proposal each week to determine how OUSD's collateral should be allocated across its whitelisted strategies.

Background

Since December of 2021, we've been holding a weekly vote in Snapshot to determine how OUSD's funds should be reallocated. This served us well in the early days when OUSD had fewer strategies and voter participation was higher. Since then, it has become increasingly difficult for voters to make educated decisions and governance interest has largely shifted from OUSD to OETH.

In the semi-automated funds allocation proposal, I outlined several issues with the current process. Following the approval of that proposal, we're actively working to develop the algorithm and rules for this objective funds management process to use for both OUSD and OETH in the future. However, it's likely still a few weeks away and the existing allocation process is becoming a distraction.

Meanwhile, OETH has operated quite well without a regularly-scheduled vote. Proposals are created periodically to swap one collateral type for another (and reallocate in the process), but the weekly cadence hasn’t been necessary. OUSD could operate similarly in this interim period while the semi-automated solution is developed.

Why now

Curve’s 3pool is currently skewed substantially toward USDT (63%). This is not uncommon nor a cause for panic, but it is outside the bounds of what the Strategists are comfortable with for OUSD’s risk profile. As a result, none of OUSD’s collateral is currently deployed to 3pool-related strategies (e.g. LUSD+ETH). Origin’s Convex voting power has also been directed to OETH’s Curve pool since the OUSD AMO is not currently being utilized.

Without any active AMM strategies, only money markets remain as viable options for OUSD at the moment. Voters have consistently shown a preference for allocating to Morpho strategies, whether involving Compound or Aave under the hood. In other words, the status quo OUSD allocation plan is, effectively, “put it all in Morpho”.

This situation is likely to evolve soon with the addition of Flux and the DSR, but these strategies will come with their own constraints. As discussed recently on the DeFi Community Call, we’ll be recommending that the Flux strategy be deployed with a limited allocation until additional monitoring is developed and some questions are addressed in regard to OUSG’s admin controls. Similarly, the DSR will only be useful to the extent that we hold DAI. Swapping USDC or USDT could be cost prohibitive depending on the exchange rates of these tokens at the time of the allocation.

Recommendation

Let’s leave the current OUSD collateral allocation alone until we see a prudent opportunity to adjust it. Here is what that looks like today:

Strategy	Holdings	Percentage
Aave DAI	$0	0.00%
Aave USDC	$0	0.00%
Aave USDT	$0	0.00%
Compound DAI	$0	0.00%
Compound USDC	$0	0.00%
Compound USDT	$0	0.00%
Convex 3pool	$0	0.00%
Convex LUSD	$0	0.00%
Convex OUSD	$0	0.00%
Morpho Aave DAI	$1,994,903	10.49%
Morpho Aave USDC	$1,725,626	9.07%
Morpho Aave USDT	$9,761,229	51.32%
Morpho Compound DAI	$288,693	1.52%
Morpho Compound USDC	$249,725	1.31%
Morpho Compound USDT	$5,000,192	26.29%

As rates fluctuate, anyone can create a proposal to adjust the allocation. With a specific target allocation on the table, it will be easier to objectively measure the potential outcome. For example, if the proposal involves swapping USDT for DAI, voters can measure the costs and potential benefits of such a change. This is an improvement over the weekly vote where multiple proposed allocations are averaged without anyone understanding the consequences ahead of time. This change also allows for allocations to occur at appropriate intervals, whether more or less frequent than the arbitrary weekly cadence that we have now.

This proposal will likely be followed by a proposal to disable the unused strategies and another to establish the initial rules for more active funds management in the near future.