Umami Finance — Treasury Transparency Report (FTX Meltdown)
Hey Umami fam!
With the meltdown of FTX and affiliated entities filing for bankruptcy, the events of this week have been nothing short of industry-shaking. We hope that all our community members are safe and had no funds locked on FTX or any other CeFi entity. With this major event, we thought it would be fitting to release a quick transparency report mid-month to discuss how this effected the treasury.
Firstly, the treasury team is happy to announce that the Umami Treasury has/had ZERO exposure to FTX, FTX US or Alameda Research! All the assets the treasury holds are viewable on-chain at all times, and to this day the treasury has not held any assets on any CEX or with any CeFi entity.
You can view the treasury positions in real time on Zapper from the link below (Note: for treasury accounting purposes we do not count Umami tokens for obvious reasons. As a result Zapper’s treasury total value will be higher than our reports): https://zapper.fi/daos/umami-finance-dao
For full transparency, the absolute extent that any Umami affiliated entity even touched FTX group or their products was a couple of months back when Umami Labs used FTX as a bridge to get fiat into the Labs bank account (of course, it was never used for any trading or similar). As a result, no asset was ever in the FTX account for longer than a day. Since then, Labs had the Circle account set up, and has been using that to fufill the operation. As a result, the FTX meltdown has and will not affect operations or assets of Umami Labs in any way. In fact, the devs have been heads down building even through this storm!
Back to the Umami Treasury, obviously the FTX meltdown did cause a substantial crash in the crypto markets. Although the treasury was somewhat hedged going into this, it did obviously have an effect so let’s take a look at the numbers.
Treasury value (as of 11/11/22 1:00 UTC)
USDC — $1,997,997
GLP — $1,367,150
Other — $1,187,128
What steps did we take
Overall, this news broke out relatively quickly, leaving little time to react. In hindsight, it would have been a good idea to have been hedged more but at the same time a situation like this was quite difficult to forsee.
When we did have a chance to react and attempt to hedge ourselves more against further drawdown, we noticed that GMX (our primary hedging platform) was completely allocated for its short limit. This meant that it was impossible to place any more short orders.
Given that we wanted to act quickly, using another platform would be rather unfeasible given the due dilligence that would need to be done. In addition, many other avenues we had already looked at, in the event something like this did happen, were also unusable to hedge with. For example, Lyra (an options protocol we have been extensively looking into) was sitting at 100% utilisation for both its ETH and BTC vaults.
Therefore, the course of action we settled on was to temporarily burn some GLP for USDC to reduce our treasury exposure, since this is where most of the treasuries positive delta exposure came from. This is the reason that the GLP number has decreased in the key statistics.
Going forward, we expect to reallocate the USDC into GLP plus some other strategies, as we hinted to in October’s Treasury Update, once the majority of the volitilty as a result of FTX’s Meltdown has blown over.
The ethos of our Treasury Management will continue to be “not your keys, not your coins”. As a result, we have no plans to conduct custodial activities on Centralised platforms. We also encourage the same from all our community members, if you have assets still sitting on CEXs or CeFi platforms please consider taking self-custody of them for your own peace of mind.
As a lesson to be taken from this event, the treasury team will be looking into other reliable protocols to hedge the treasury on and proactively conducting due dilligence on them to use in other Black-Swan events.
Although its hard to see silver linings in events such as these, I think there are a few important points to consider for Umami. Firstly, the fact we spent the past few months of treasury management focusing on extending a lengthy runway will likely payoff in the long-term here. It’s very likely that crypto may find itself in an extended winter, and although this event took a hit to our runway it was nowhere near as bad as it could have been if we did not take those measures to reduce the portfolio beta of the treasury and consolidate into liquid assets.
Regulatory scrutiny will likely be at an ATH for crypto in the coming months and years, and this event has added a ton of ammo to those cases. This is why it’s more important than ever to be on the right side of that when the hammer does fall. I believe our position at Umami puts us in a unique position to tackle those issues and be at the forefront of those conversations.
Additionally, our models now have an incredible datapoint to focus on when conducting our backtests and testing our strategy. We look forward to seeing how they would perform under such events!
Also, if I could end this report with a word of caution, it would be that any contagion effects as a result of this meltdown will likely take weeks or months to fully appear. Within institutions and protocols alike. As a result, the treasury will be operating with caution.
As always, I will be in the discord to take any questions and feedback. If you liked/disliked this impromtu report and have suggestions I would be happy to hear them. The treasury team is commited to providing the upmost quality and transparency within the industry.
Stay safe frens,