I think it’s safe to say this has been the craziest month in crypto for a while! SBFs entire empire crumbled to dust earlier this month, and as a result we released a short update on the treasury situation. We are excited to dive a little deeper into the numbers here as we always do. As a result of the lessons we learnt from that event, we have been researching behind the scenes for more hedging avenues. I’ll dive a little deeper into how we are looking at our wealth of partners to aid us in this later in this update.
As for the full overview, lets dive in
Treasury value, excluding UMAMI token holdings:
- End of October, $5.30m
- End of November, $4.66m
In the month of November, there was a Net Treasury Loss of $639,598 or 12.07%.
- The total crypto market cap was $1.056T on October 31st and $0.900T on November 30th, which is a net decrease of 14.77%.
- The price of Bitcoin was $20,498 on October 31st and $17,166 on November 30th, which is a net decrease of 16.26%.
- The price of Ether was $1,574 on October 31st and $1295 on November 30th, which is a net decrease of 17.73%.
As you can see, the treasury performed similar to the market but in a hedged way. Something to always remember is that this number includes any expenses we paid. As we add them back later in this report it’s clear the treasury was nicely hedged against this market dump.
Gross Yield: $109,607.7 at time of writing, which constitutes a 23.5% APR return for the whole treasury!
- 65.99 ETH ($85,457)
52.86 wETH from GLP, 33 wETH distributed to marinatoors
13.13 ETH from Uniswap
- 121.86 esGMX ($5,930)
- Uniswap V3 fees ($35,224 Inc. UMAMI)
Net Yield was $66,872 using Gross Yield — Marinator Payout.
Expenses: Umami’s OpEx outflow was $223,261 in November. The monthly USDC break down:
Fixed OpEx was $200,252
Disclaimer: As last month, advanced expenses for December: $137,200
Asset Appreciation for Umami’s treasury is a net depreciation of $483,209.58 or 10.4%, using this formula:
Asset Appreciation = Net Treasury Gain — (Gross Yield — Expenses — Marinate Payout)
Currently the breakdown of our treasury is as follows:
Liquid Runway: is $3,658,407 or 14.63 months (assuming monthly opex of $250k). This is the value of any blue-chip liquid treasury holdings. This month, it constitutes our GLP position, treasury stables + ETH and our GMX hedges and our Vendor positions.
GLP & GMX
GLP data showed a large spike in daily fees due to the volatility in the markets. This resulted in one week in November where GLP was paying over 50% APR! Obviously, we re-accumulated our GLP position, from our transparency report, to take advantage of this as soon as it was possible to place hedges once again.
Stats from https://stats.gmx.io/ show GLP with fees did still outperform the btc/eth/usdc comparative index by 0.7% this month. Interestingly, we saw this month some high trader wins which is rather unseen for the GMX platform. Of course, this is always expected and it’s great to see that it did not affect GLP performance much, and even that the correlation between those events and fees earned is very high. Again proving GLP is one of the best on-chain yielding assets at this time.
As for the trades sides, we have seen very high OI and utilisations on GMX during the whole of the month. This has led to very high funding rates which provides another incentive for us to seek other hedging venues in times like this. There was also some very interesting activity when looking at the OI this month, for example a whale who placed some giant long positions and paid crazy funding for them. We will be watching these activities closely, as we always have.
Uniswap v3 & other LPs
In November UMAMI saw $6,002,000 volume traded which is higher than October’s $3,695,000. October 1st’s unlock was bullish and saw the price above unlock price just 4 days later. The increased volume can be due to FTX collapse but overall the UMAMI price has held stable against ETH.
No changes were made to the UMAMI/ETH LP ranges but 20 ETH was raised through Kromatika fee earning liquidity orders. We will continue to add supply to the market through these orders in order to raise capital for the treasury when beneficial.
Near the end of November, we announced another partnership with our friends at Camelot. Camelot has provided xGRAIL emissions for the ETH/UMAMI LP. The treasury has also separately seeded a cmUMAMI/UMAMI pool. The reason we migrated out Uni pool to Camelot was because their innovative pricing model allows for better pricing for this type of pool.
The reasons for this is because the Uni pool tick ranges does not work as well with floating ratio pools and Camelot’s v2 style pool solves that problem allowing the treasury to constantly have liquidity at the ratio “micro-tick” which provides a better UX for traders. Also the separate pricing for buyers or sellers allows us to place a fee only on those traders exiting their locked cmUMAMI positions, and allowing the arbitragers trading the other way to do so for free! This allows the arbitragers to make money as they reflect the true ratio to the pool, which in turn allows traders to exit their positions at the best price with a constant fee.
The pools have already done 160k in volume over the few days they have been active. One interesting point is that, since the treasury does not count any Umami it holds into its Treasury Value, these positions can be taken up with zero investment. We are excited to see where this partnership takes us in the future with the recent successful public sale for xGRAIL. As with other partners for seeding the pools, we also received a small partnership allocation which we will be staking for protocol revenue on the platform.
This month we have tried out using Vendor Finance with the treasury. Vendor are one of our favorite partners. For those unfamiliar, vendor is a p2p non-liquidatable lending marketplace which allows borrowers and lenders to come together and create fixed-term loans by agreeing on certain parameters.
The loans possible on Vendor are very user friendly from the borrower side, and act as a short option position for the lender. This usually comes with risks, but as usual with options, its possible to use those to your advantage. The treasury is currently exploring using these to its advantage. We are looking at opportunities to lend USDC against cmUMAMI.
This is beneficial since it allows the treasury to create interest bearing limit orders, similar to KROM orders but with fixed payoffs. Therefore, we can pick a price at which we would consider decreasing the circulating UMAMI supply and reaccumulating UMAMI into the treasury as we usually would, but at the same time have this positions earning a fixed-yield for the treasury at all times regardless of if the order is filled or not.
In addition, we get to benefit from any defaults and on that note our friends at Vendor have provided the treasury with some NFT licenses for their platform which allow us to get a 100% discount on their default fee! On top of this, we get to benefit in any potential airdrop for providing liquidity to the platform.
Of course, the main benefit from this platform is that we can provide the Umami community with the ability to take loans against their staked Umami positions. As we have observed over the past months, it is undeniable that the demand has been incredibly strong to borrow here.
As with all things, these positions will be taken on in a risk-managed way and we will always be considering these as limit orders on Umami. We expect that decreasing the circulating supply at the right price here will be incredibly fruitful for some of Umami’s future plans. This position has been taken on as part of our broader strategy, as mentioned in our transparency report, to diversify our treasury into other high Sharpe yielding investments.
Continuing with our strategy of focusing on bluechip assets and extend our OpEx runway, we’ve remained under allocated to Altcoins. We have taken no new positions in this category this month but will always be keeping a keen eye on accumulating partner tokens at the right prices.
Reflections on FTX collapse
As promised, we have been looking into other hedging avenues as a result of watching how liquidity played out during the FTX collapse.
Firstly, we have been watching our partners over at Lyra Finance as they make their migration to Arbitrium. We hope that they will bring with them deep options liquidity to the chain. Options are a very different hedging perimative than perps, but luckily our team has some members with extensive options tradfi backgrounds!
We have also been following our friends at Rysk carefully. Rysk wants to grow the defi options ecosystem, and understand that requires deep liquidity. Historically the problem with on-chain options has always been its lack of liquidity. [Here] is a thread on how Rysk plans to change that. I will also be speaking on a twitter spaces with Dan from Rysk and Devin from Gammaswap about the state of DeFi derivatives where we will be diving deeper into this!
Speaking of Gammaswap, sometimes it’s important to hedge not only our treasury portfolio delta but also our gamma exposure, especially if we are looking to take non-native LP positions. For this, Gammaswap is looking to innovate and you can read more on that [here]. Also, our friends at Dopex have already been making big strides in this market with their Atlantic Straddles.
Moving away from options, our partners at Sentiment and Dolomite are looking to allow margin to be facilitated by exotic forms of collateral, such as GLP which the treasury has a lot of. Sentiment is a money market much like Gearbox and Dolomite is a perps platform like DyDx. The ability to use these exotic forms of collateral will certainly improve the capital efficiency of the treasury when done in a risk managed way. Both platforms may also be providing attractive deals for providing liquidity, which the treasury will be looking to take advantage of in the coming months! As for other perp platforms, our partner Gains Network is also moving the Arbitrum which will provide yet another excellent choice with deep liquidity to hedge on.
Occasionally, it is important for the treasury to increase it’s exposure to the market. Our perfect partner for these situations is Abracadabra who will allow us to manage cheap leveraged positions for certain high-yielding collateral, including our own vaults soon!
It’s quite obvious that, along with GMX, we have a plethora of partners on which we can hedge our treasury. It is always good to have a number of options rather than relying solely on one. Over the coming weeks our dev team will be conducting thorough technical due diligence. From this its also clear that their will be a liquidity migration to Arbitrum as these protocols find their use-cases. We are always open to talk to any other protocols for potential partnerships, so please ping me if you have some ideas!
Overall looking at treasury performance measured by asset depreciation compared to the market, the treasury performed relatively well this month. Also, the yield we generated was again one of the highest at 66 ETH and so was the volume in our LPs. In fact, we just smashed through 300 ETH distributed to marinators. These are all healthy signs as we enter the v2 vault rollout phase. That being said, the lessons we learnt from this event will also make the treasury more resistant and our strategy more robust for the next months of this bear market. This will be in no small part to the partnerships we have consolidated this month, after all, Umami is not just best-in-class for its off-chain partnerships but also its many on-chains ones!
Zooming out, watching the FED pivot to decreasing interest rate hikes over the next months will be most interesting. Although Crypto may have temporarily decoupled from broarder markets because of the FTX situation, this will likely remain a large drivers for the crypto.
See you next month! 🍔