Carnation’s Umami Community Treasury Update — March 2022

Carnation’s monthly treasury update for Umamies.

Henlo Umamies!

March has been an incredible month for the Umami Finance project & community.

We launched our highest-APY product yet, the mUMAMI Autocompounder, rolled out a gorgeous new landing page (looking cute, Umami-chan!), and announced some exciting partnerships with Arbitrum projects, including TracerDAO & GMX.

Behind-the-scenes, the team has also been working hard to make sure Umami’s Protocol Owned Liquidity is generating as much yield for our community as possible! From now on, I’ll be providing a monthly update regarding treasury allocations and performance.

Overall Performance

Treasury value, excluding UMAMI and ARBIS tokens holdings:

  • End of February, $5.61M
  • End of March, $5.90M
  • A Net Treasury Gain of $290K (or 5.16%)

For comparison, the total crypto market cap Feb 28 was $1.912B and on March 31 was $2.053B, which is a net increase of 6.87%.

Umami has a risk-hedged treasury strategy that uses derivatives to protect Umami’s assets from market volatility. As a result, when the market drops, Umami’s treasury value will be far more stable than the wider crypto market. But it works both ways: Umami’s treasury will also lag the crypto market during big upswings.

Gross Yield ($302K at time of writing):

  • 46.78 ETH ($161K)
  • 25.41 ETH distributed to Marinators ($87.5K)
  • 20.3 ETH available for reinvestment ($73.5K)
  • 3023 esGMX ($128K)
  • Uniswap V3 fees ($13K)
  • 2.29 ETH
  • 334 UMAMI

Net Yield is $214.5K, using Gross Yield — Dividends

Expenses: Umami’s OpEx was around $125K in March. This includes compensation for full-time team members & contractors, as well as business expenses like email and communication platforms. Umami is also pursuing a code audit & exploring creating a legal DAO entity in the Cayman Islands, both of which incur significant costs for the treasury.

Asset Appreciation for Umami’s treasury is a gain of $300.5k, using this formula:

Asset Appreciation = Net Treasury Gain — (Net Yield — Expenses)

Treasury positions and changes:

Currently the breakdown of our treasury is:

  • 75% GLP, GMX, esGMX
  • 10% CVX
  • 5–10% Liquid funds for Uni V3 LPs
  • 3–5% Hedged short positions (Tracer 3sETH/USD; 3sBTC/USD)
  • <5% MAGIC/ETH LP, DOPEX, gOHM

Major Treasury Allocation Adjustments in March

Dopex ETH SSOV → GMX GLP

We have unlocked the 210 ETH locked into the Dopex SSOV & redeployed it to GMX’s GLP after deciding the Dopex’s ETH SSOV, while a great product, isn’t the best fit for Umami right now.

Returns on the Dopex ETH SSOV vary widely depending on which ETH strike prices are selected at the time of deposit. Plus, the ETH SSOV vaults require one month timelocks. In the long run, we would re-examine the SSOV strategies if the treasury had a large sum of ETH that would be sitting idle for more than a month. But right now, we are still iterating & adjusting our treasury allocations as we work to optimize returns for the community. We prefer more liquid positions for the time being.

GLP has been a staple of Umami’s treasury strategy. It is high yielding (>40% APR), diversified and risk-hedged (~50% of the GLP index consists of stables). It’s also quite liquid, allowing the team to withdraw GLP assets & redeploy them anytime.

USDC → Tracer Perpetual Pools

Our 3x sETH hedge was really helpful when the market tanked on the news of the conflict in the Ukraine region. Our hedge of $200K went up to $350K, and was yielding around 100% APR in TCR tokens.

Where we noticed a gap in our execution was that we didn’t act quickly enough to take profit when the hedge increased in value. Since then, the market has bounced back, and the USD value of the pool tokens has declined significantly as a result.

This has been the single biggest drag on our overall portfolio performance in March. Our team is taking steps to prevent this from happening in the future. Steven-T, Umami’s Uni v3 LP manager & a talented technical analyst, has set price ranges for exiting/entering Tracer Perp Pool short positions to allow us to act more decisively in the future.

Meanwhile, our devs are building deployment contracts for our treasury allowing us to more easily enter/exit Perp Pool positions (trades are far more time consuming to execute with a multi-sig wallet!)

Our team also encountered another execution issue that impacted our March returns. After minting Tracer Pool tokens, the app requires a waiting period of ~30 mins before they can be staked. With a multisig treasury & a busy team, we missed an important window to stake the tokens & lost several days of returns as a result.

We have moved the Tracer assets to a new safe requiring a 3/6 multisig for faster execution while our devs finish up the deployment contracts, which will automate the entire process soon.

Hundred Finance → Tracer Perpetual Pools & Stargate

We tested out the stablecoin lending platform Hundred Finance and found that the yield had been diluted significantly (expected 15–20% APR, received closer to 5–10% APR). The reason for the dilution is that each stablecoin pool receives a fixed amount of HND reward tokens. When a lot more supply enters the pools, the amount of HND reward per stablecoin dilutes significantly.

We discovered a good highly liquid stable yield strategy in Stargate (15–20% APR). Moving forward, we will be using Stargate as a short term USDC vault whenever we have excess stables from rolling in and out of our Tracer hedged positions.

We discovered that 3x sBTC sometimes has an even higher APR than shorting ETH. Moving forward, when adding or trimming our hedges, we will choose either sBTC or sETH depending on their APRs.

Another discovery is a Balancer pool for TCR/ETH with 80/20 weighting. This means that the excess TCR we earn can be placed into the pool to earn more TCR tokens with very small risk of impermanent loss (IL).

New Uniswap v3 LPs

Under Steven-T’s leadership Umami is working hard to scale its Uni v3 LP platform. We are also committed to making sure that all tokens, including Arbi’s Finance’s ARBIS token, have deep trading liquidity. To that end, we put > $250,000 in treasury assets into new Uni v3 deployments this month.

The new LP deployments included:

  • IMX/xIMX
  • TCR-UMAMI
  • ARBIS-UMAMI
  • ARBIS-ETH
  • ARBIS-USDC

Umami’s LP’s generated ~$13K in revenues in March & that figure is quickly increasing. We’ll be building even more Uni v3 LPs in April!

Smaller Trades (MAGIC→ ETH & Pegaxys → GLP)

We managed to sell half our MAGIC position for ETH before the market dump, and we have been LP-ing MAGIC/ETH for 90–100% APR.

We had a very small position in Pegaxys, which was performing poorly, so we cut our losses and rolled the ETH into GLP. Losses on Pegaxys were the other major drag on Umami’s treasury performance this month.

Both of those holdings (MAGIC & Pegaxys) were legacy assets that Umami had on its balance sheet before its full transition to its v2 strategy. Generally speaking, direct holdings of risk-on assets aren’t our style, especially if they aren’t generating yield, as was the case with MAGIC before we put it to work for >90% APR in the MAGIC-ETH LP.

Final Thoughts

Overall, Umami has come a long way in two short months. As recently as late January, nearly all of Umami’s treasury was not generating any yield. It also held too many risk-on assets.

Now, Umami is generating ~$300K per month, pushing ~$90,000 monthly to Marinators & mUMAMI Autocompounders & hedging out the majority of market risk with Tracer’s derivatives. We also are boosting our treasury income (and monthly ETH payouts) with revenues from Arbi’s Autocompounders & our Uni v3 platform. I expect that our new products will make a big contribution to overall treasury income in April!

We still have areas to improve on, especially speed and consistency of execution. But we expect that our new deployment contracts & improved processes for tracking treasury assets & timing trades will greatly improve our outcomes in April.

If there’s anything you’d like me to add to the next update (which I’ll ship early May), let me know! Our team is always happy to answer any questions you have, and will be providing you with more detailed updates like this one in the future.

Thanks a bunch & lesssgooo Umamies!

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Sustainable, Risk-Hedged Arbitrum Yields

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