Proposed Asset Allocation Change - USDC<>ETH Swap

glorysk87

Abstract

Our significant USDC holdings have served us well during the broad downturn the crypto space has experienced over the past few months. However, as a result our liquid treasury holdings have deviated significantly from our intended ratio of 40/60 ETH/USDC (current ratio 18/82 ETH/USDC).

As a result, we propose taking advantage of this drawdown to swap additional USDC to ETH to bring us closer in line to our intended asset allocation mix. Our recommendation would be to swap $200,000 (₁₆₀ ETH at today’s prices) to bring us to almost 30/70 ETH/USDC. This improves our asset mix, but also leaves room to swap an additional amount of USDC if ETH continues to move lower over time.

For the sake of placing limits on the proposal but allowing for discretion and flexibility by the Treasury Squad, we propose officially authorizing the use of up to $250,000 of USDC to swap to ETH at an ETH/USDC price of no more than $1,400. This proposal authorizes the Treasury Squad to use their discretion executing this swap within the limits proposed above.

Motivation

Two main reasons to do this right now:

Crypto is in a severe drawdown, with ETH down over 60% in just two months
Our asset allocation mix has become significantly overweight USDC

Success Conditions

Swapping at least 150 ETH to USDC at an ETH price below $1,300 would be considered a success.

Specification

The main vault will send up to $250,000 USDC to the Treasury Squad wallet to swap to ETH.

Launch Details

n/a

Costs

n/a

Rewards

n/a

fnkl

Sounds like a good idea to take advantage of the current market prices of ETH. I guess my only concern is timing? Do we think now is a good time to do this? 60% off ETH already sounds like a great deal, but is it worth waiting longer? From what I gather, people think this bear will be a while.

0xgregory

Unless we are planning to sell this for a profit during some kind of dead cat bounce - which I do not think we should be getting into the habit of doing - I am against deploying any liquid capital into ETH at this time.

There's NO rush to find a bottom and we don't need the ETH.

Beebs

Agree with not finding the bottom on ETH.

cheesebiz

I updated our USDC and ETH run rates to compare the impact of the proposed swap. See link: https://docs.google.com/spreadsheets/d/1res9TouVtWcIF7tUOKkZZrPW3rokUvnS/edit?usp=sharing&ouid=114448190880099494809&rtpof=true&sd=true

The impact to our USDC run-rate is a decline of about 2 months.
The increase to our ETH run-rate is an increase of 26 months.

That said, our USDC run rate is just under 3 years as is, assuming the increases projected in core team comp in 2023 and continued marketing spend. To me, this is not that long considering we do not have a clear idea of the ways we will generate revenue or the amounts of revenue we will generate. The lending program is promising but has just started. Other ideas have been discussed (charging a fee for helping people buy squiggles, selling merch, etc.) but none are near implementation yet.

It is only two months of USDC run rate but I'm a hesitant to reduce that run rate any further. While there is upside in buying ETH at a reduced price, the DAO still has significant ETH exposure with just under 900 ETH, so we will benefit from any potential rebound in ETH price.

JussaMouse

As an ETH permabull it pains me to say this, but I agree with the others. We likely have 1 year+ to buy the bottom.

glorysk87

Ok - I am still of the opinion that the optimal way to alter the asset allocation mix is in small chunks as we go lower over time (essentially averaging down in small pieces gradually) - so I still think this is a good idea.

However, we have sufficient opposition from multiple DAO members to justify shelving this idea. Maybe we can revisit in the future.