By Wen Moon and Steven-T
May has been incredibly boring for the markets. As I predicted in the last treasury report, we ended up trading sideways for the entire month. However, this lack of volatility is truly unprecedented. Here is Deribit’s historical volatility index, which is reaching ATLs:
As for the Treasury, it has still been an interesting month. For one, UmamiDAO has started scaling into it’s own vaults using the treasury, this has provided a slew of public performance data to look at here.
Secondly, GLP APR has been down this month, this very much due to the low volatility environment since users are closing and opening positions less frequently. We have been looking into solutions for the treasury for this. We can expand on both of these points later.
First, let’s take a dive into May’s numbers:
Overall Performance
Treasury value, excluding UMAMI token holdings:
- End of April, $5.61m
- End of May, $4.96m
In the month of May, there was a Net Treasury loss of $643,054 or 11.47%.
For comparison:
- The total crypto market cap was $1.163T on April 30th and $1.103T on May 31st, which is a net decrease of 5.16%. (market cap calculated by TradingView).
- The price of Bitcoin was $29,254 on April 30th and $27,079 on May 31st, which is a net decrease of 7.43%.
- The price of Ether was $1,871 on April 30th and $1,874 on May 31st, which is a net increase of 0.1%.
The treasury faced a loss greater than the market, however, the vast majority of this loss came from esGMX (280k loss) which is an un-hedgeable and illiquid position given there is no way to close the loop (without vesting). The liquid GMX was adequately hedged. The remainder of the loss mainly came from the ARB holdings, which we will be looking into ways to hedge over the coming months.
Gross Yield: $35,354 at time of writing, which constitutes a 8.5% APR return for the whole treasury.
- 18.36 ETH ($34,407 )
17.52 wETH from GLP, 9.59 wETH distributed to marinators
0.84 ETH from Uniswap - 0 esGMX ($0)
- Uniswap ($4,259)
0.84 ETH
505 USDC
378 ARB
111 UMAMI
Net Yield was $17,376.85 using Gross Yield — Marinator Payout.
Expenses: Umami’s OpEx was $136,800 in May. The monthly USDC break down:
Fixed OpEx was $132,600
Variable Expenses $4,200
Asset Appreciation for Umami’s treasury is a net depreciation of -$523,631.59 or 10.5%, using this formula:
Asset Appreciation = Net Treasury Gain — (Gross Yield — Expense Outflows — Marinate Payout)
Treasury Breakdown
Currently the breakdown of our treasury is as follows:
Note: the snapshot is taken from midnight UTC on May 31st, which is why the last Umami Vault scale-in of 250k is not included.
Liquid Runway: is $3,109,213. or 19.4 months (assuming monthly opex of $160k). This is the value of any blue-chip liquid treasury holdings. It constitutes our GLP position; treasury stables + ETH; GMX hedges and our Vendor positions. It does not include ARB but does include Umami Vault positions.
GLP & GMX
As mentioned previously, due to lack of volatility and velocity with which users are opening and closing positions on GMX, GLP’s APR has been down this month, averaging at around 12% APR.
It’s important to remember that these kind of months will always come, but to remain proactive we have been looking at ways of hedging our yields. I’ve really been impressed by Pendle as a method of achieving this, but there are many protocols we are looking at in this space.
As a result of the dropped yields on GMX and delays to GMX v2 release, the price of the GMX token from 73$ to 54$. This affected out illiquid esGMX holdings but our exposure to liquid GMX is already quite low and well hedged so did not have an overall effect on our liquid treasury value.
UMAMI Liquidity Pools
The implementation of new UMAMI and ARB LPs brought back a sweet taste of in-range liqudity.
We will continue to optimize the pools while protecting the treasury against impermanent loss. Also, we will be scaling liquidity with volume. As some alpha, we may have some more liquidity deals coming soon with our trusted partners!
ARB strategies
To hedge ARB, we have a number of different options but there are drawbacks to each. The first big contender is using Gains. This is great since it has great liquidity, low fees or sometimes even pays us to short, and does not affect the ARB price which is positive-sum to the ecosystem. The drawback is that GNS does not allow contracts to trade on the platform, and unfortunately a multi-sig counts as a smart contract. This means the only way to use the platform would be if the DAO allows the Treasury Managers to hedge using EOA.
The second protocol we are looking at is Lyra. Lyra has options available for ARB. The benefits here is that the market is positive-sum and allows us a lot of flexibility with constructing payoff profiles. The drawbacks are that options have very specific profiles and therefore may not provide the same 1-to-1 protection a perp would. Additionally, Lyra’s ARB options are not currently available on Arbitrum.
We will keep looking for more potential protocols to hedge on. The three most important factors to consider are: Safety, Liquidity and Cost. If a proposal is required to execute on certain strategy, we will post it accordingly.
Umami Vaults
Of course, the big news of the month being the treasury deposit into the vault. At last, the DAO is able to view the REAL performance of the vaults in production! The contributors are incredibly excited and pleased with the results of the testing so far!
Everything is working as expected, and at the time of writing the SEC just served Binance and CZ with a lawsuit, which certainly effected the markets but our vaults are still performing incredibly in the face of such news.
A few things I want to quickly highlight. Firstly, we have scaled the vaults in a skew which we think reflects demand (e.g. USDC much more deposits than LINK or UNI). This reflects in our APRs exactly as we expected. The vaults are designed to give a relatively higher APR to the least deposited vaults, which explains the insane numbers we see from the LINK and UNI vaults. This will help incentivize more of those depositors which makes the entire strategy cheaper for ALL deposits, regardless of deposit asset!
Secondly, this statistic is a very important one to track to verify the effectiveness of the internal netting strategy. As you can see, internal netting even with skewed deposits has an incredible capital efficient and cost-reducing effect. Currently, the vaults enjoy 45x less collateral and fees than competitors.
Finally, to remind everyone once again that the sample size for these deposits is still very small. Therefore, the APRs may be biased and should tend and average towards 20%+ in the longer-term, which is expected.
Final Thoughts
Looking to the future, we hope for volatility to return to the markets, which may be the case as the Binance vs. SEC saga unfolds. We may be looking at ways to take advantage of these low volatility environments, if they seem to continue.
A proposal has been posted to the commonwealth to seed the vaults with some of the Treasury’s esGMX, so make sure to vote on it when it’s posted to snapshot. If it passes, do not be surprised when seeing a dip in treasury value next month due to the transfer.
For the treasury, we are excited to utilize some of our partners in the coming months to help us hedge different areas of treasury activity and helping deepen overall liquidity.
That concludes this month’s report. As always, feel free to reach out to us regarding any questions or feedback. See you next month!
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