Reallocate funds from Morpho Compound USDC to Morpho Aave USDC

Summary

We currently have $251,816 USDC that is allocated to the Morpho Compound USDC strategy. As Compound aims to get capital to leave the pool, we would be better off reallocating this capital to the Morpho Aave USDC strategy.

Background

Our current investment in the Morpho Compound USDC strategy is yielding diminishing returns due to Compound's focus on V3 while trying to phase out capital from their V2 USDC money market. See the proposal here, which directly affects USDC suppliers. This shift has led to decreased performance in the current V2 USDC pool where we have funds deployed. Also, Compound is actively changing the reserve factor of pools in order to incentivize people to migrate their capital from V2 to V3 which the cUSDC pool has been directly affected by in this proposal.

However, the Morpho Aave USDC strategy is showing robust performance with a recent surge in yields driven by heightened USDC demand. Although this spike may not be permanent, it is anticipated that the Morpho Aave USDC strategy will continue to outperform the Morpho Compound USDC strategy over the long term, thus offering a more advantageous yield for OUSD.

Recommendation

Reallocate $251,816 USDC from the Morpho Compound USDC strategy to the Morpho Aave USDC strategy. This will increase the OUSD APY by an estimated 14 bps according to current rates.

Additionally, we don’t have to worry about having funds in a strategy that is actively being phased out by the protocol they are residing within.

Analysis

The current Morpho Compound USDC strategy yields 2.42%, significantly lower than the 13.84% yield of the proposed Morpho Aave USDC strategy. It's crucial to note that yields fluctuate; the Morpho Aave USDC strategy consistently earned between 3.5% to 7% over the past month, surpassing the current strategy's performance. This suggests a more stable and superior yield for the Morpho Aave strategy, even if yields normalize in the future.

Strategy	Current APY	30-day Avg APY*
Morpho Compound USDC	2.42%	2.35%
Morpho Aave USDC	13.84%	13.51%

*per Defillama

In addition to the higher yield potential, switching to the Morpho Aave USDC strategy offers the added benefit of accruing MORPHO tokens. Unlike the Morpho Compound USDC strategy, which does not generate MORPHO tokens, the Morpho Aave USDC strategy enables us to accumulate these tokens over time. This not only diversifies our income streams but also aligns with long-term value creation for OUSD. Hence, the transition to the Morpho Aave USDC strategy not only presents a superior yield perspective but also enhances our investment strategy through additional token accumulation.

Implementation

If this proposal passes, the strategists will go ahead and withdraw the funds that are residing within Morpho Compound USDC and reallocate them to the Morpho Aave USDC strategy.