Allocate treasury held $ARB to D2 Finance's ARB++ vault

Multi-option vote: Allocate treasury held $ARB to D2 Finance's ARB++ vault

Overview

Plutus' treasury is mostly in $ARB which currently is not in the team's view in a position where converting it to e.g. $ETH or $USDC would be feasible.

To keep exposure to $ARB upside while making it productive there are several options on getting yield while keeping exposure to the base asset through e.g. liquidity provision, lending, and options.

To maintain a well hedged and optimized portfolio of productive $ARB we suggest to allocate a portion of the productive treasury to D2 Finance and specifically with the base asset of $ARB in their ARB++ vault.

D2 manage risk and seize market opportunities with impressive returns since launch.

Liquid treasury glossary

(all values reflect prices on 2024-07-07)

Wallet	ARB Amount (wallet/pooled)	ARB Value	Total value (wallet/total)
MS1	20,350/118,120	$13.8k/$80.3k	$229.3k/$445.2k
MS2	1,385,130/1,434,200	$941.9k/$975.3k	$956.5k/$1,008.1k
FC1	0/0	$0/0	$52.1k/$599.8k
FC2	0/0	$0/0	$0/$42.8k
FC3	0/0	$0/0	$0/$8.3k
xGrail	0/0	$0/0	$0/$178.5
Total	1,405,480/1,552,320	$955.7k/$1,055.6k	$1,237.9k/$2282.7k

With $750k worth of productive treasury allocated to CLAMMs there's $487k liquid assets left in the wallets ready for quick allocation.

ARB++ glossary

The ARB++ Vault is designed to capture multi-year growth of ARB while capitalizing on options mispricing in volatile periods. ARB++ mimics the payoff and user experience of single-sided ARB staking.

Strategy: Capitalize on optionality, concentrated liquidity, and reward mechanisms in leading protocols such as Camelot, GMX, Dolomite, Silo, and more.

Goal: Outperform the average user's Arbitrum ecosystem allocation on a risk-adjusted basis over the long run.

Risk: Delta exposure is 20% to 60% of ARB, but averages lower downside volatility due to efficient use of optionality.

Link to their gitbook

Link to their medium launch article

Risks (Plutus team analysis)

Allocating to this vault exposes us to three (3) types of risk:

1. Smart contract D2's ETH++ and Rodeo++ contracts have been audited by Paladin. These are the same used in ARB++.

Further, D2 uses battle tested and audited third party contracts within their trading sandbox with dependencies like Camelot, GMX, and Lyra. The risk related to each of these is small and they mitigate risk by only having whitelisted addresses able to call contract allowlisted operations.

Considering the above we feel the risk is acceptable.

2. Counterparty

Will D2 do a good job managing our funds? The public ARB++ vault performance has been top notch and the strategies they use to hedge their positions are proven in hedge funds in TradFi. Our conclusion is they are very knowledgeable and skilled at what they do.

Feel free to drop in their discord and drop questions about their strategies, performance or all other questions you may have and draw your own conclusions.

After reading their material and getting a run through from their team on their products, we see no reason to assume they will not continue to perform well. The performance of the vault will naturally be closely monitored and will be verifiable on-chain for everyone to stay up to date on its performance.

We will also issue monthly updates on all of the productive treasury performance.

3. Market

We already have market exposure by holding arb. Essentially we would be lowering our market risk with D2's risk adjusted allocation strategy.

Conclusion

Considering the material available and deep-dive given by the D2 team to us we see the ARB++ vault as a great fit for our productive treasury and feel confident in allocating a part to the tailored industrial investor vaults that D2 provide to larger allocations.

Based on the backtested performance (123% APR) and the vault's high annualized yield in the optimal volatile conditons of the latest epoch (229% APR) we believe that a conservative yield estimate of 30% APR is guaranteed in as good as any market conditions, keeping us on track by providing a minimum yield of $30k-$60k annual dividends to bPLS depending on the size of the allocation decided by this vote.

By allocating $200k-$400k worth of ARB we expect great annualized rewards and have less market exposure risk at the cost of some added counterparty and smart contract risk.

We feel this is an acceptable trade-off. The rewards will be split between the treasury and bPLS holders 50/50.

There is also synergy in the fact that D2 use Stryke's CLAMMs in their v0 vaults and our allocations provide liquidity that they can use to hedge the ARB positions on Stryke, generating fees for plsSYK and premiums for the CLAMM ARB LP of the productive treasury.

Proposal

Allocate $200k, $300k, $400k, or $0 worth of $ARB to an Institutional vault on D2 finance to be used as $ARB base asset to allocate in ARB++ starting with the next epoch.