Allocate more of OUSD stable coin reserve from centralized fiat-backed stable coins USDC and USDT to an algorithmically backed decentralized stable coin DAI.

Background: OUSD currently has an allocation of 44% USDC and 32% USDT representing 76% of its USD reserves. Having such a large allocation of its USD treasury in centralized stable coins exposes OUSD to unnecessary risk. Origin can reallocate these tokens without harming returns substantially. For example on AAVE, the DAI savings rate offers a yield 0.1% shy of USDC’s savings rate. Origin should decrease its exposure to centralized fiat backed stable coins to further reduce risk of de-pegging if one stable coin were to lose its peg.

Recommendation: OUSD can improve its risk profile by reallocating its stable coin USD reserves. In particular, DAI offers a secure alternative to USDC which Origin already holds a position in. Circle claims that USDC is backed 100% by cash and cash equivalents: 36% US treasury bonds and 56% in repurchase agreements and 9% in cash. User minted DAI requires a minimum of 150% collaterization or liquidation will occur (current average is 267%). Additionally, the DAI DAO has promised to maintain a surplus of $50M to ensure the the $1 to 1 DAI peg. They do this by automatically minting MakerDAO tokens and selling them. When the excess reserve gets too large they buy MakerDAO tokens and burn them to keep the supply stable. While USDC is secure, DAI has lower risk of losing its peg as it has the right to mint MakerDAO tokens to do so. While DAI is heavily exposed to USDC, this does not create new exposure to USDC as the proposal suggests swapping a portion of the USDC token reserves for DAI. Additionally, DAI is completely decentralized and governed by the MakerDAO, whereas Circle is managed by a board of directors who have final say in major business decisions. Circle can also lose access to funds not on chain, such as in the failure of Silicon Valley Bank which caused a temporary de-peg in USDC (Circle had exposure of $3.3 billion). Human error at Circle can also lead to a loss of the peg and any downturn in their cash equivalent assets (such as a sudden hike in interest rates causing un-realized losses on the bond) can lead to a de-peg and a “run” on Circle.

If approved, this proposal would authorize the following:

A swap of 894,872 USDC to 894,872 DAI: This would re-balance the Origin USD reserve to be an even three-part split between USDC, USDT, and DAI. This split between fiat-collateralized centralized stable coins (⅓ USDC and ⅓ USDT) and ⅓ algorithmically-collateralized decentralized stable coins (DAI) reduces overall risk and diversifies the Origin reserves

This swap would generate an additional 13% * 894,872 DAI in returns (following the current DSR of 13%) but would take out 894,872 * 9.03% of USDC returns (following the current yield generated from the USDC in Morpho AAVE).

The net return would be $35,526 (116,333 - 80,807). Taking this return over the current treasury supply ($8,531,109) we would expect an increase of 0.42% in the annual yield of OUSD, bringing it up to 11.74% (up from 11.32%).