Proposal Title: Aragon Dao x Galleon: Delta-neutral, Yield Generating Strategy.
Authors: Duck from Galleon
Date: 23rd June 2022
- Galleon is a guild of experienced methodologists aiming to research, design, and create best-in-class thematic, leverage and yield-based structured products on-chain across all EVM-based networks.
- A Set Protocol Ecosystem partner, with seed backing from 1kx, Co-founder of Polygon, Angel DAO and Fireeyes.
- Latest product: The Basis Yield ETH Index launched on 22nd June 2022.
The purpose of the Galleon x Aragon treasury diversification is to provide Aragon with a low-risk, high-yield return on treasury assets. Given the recent crypto market volatility, Galleon has just launched a new product The Basis Yield ETH Index ($BYE): (https://twitter.com/galleondao/status/1539613237003649024?s=20&t=R4plWJxfcEk8GmlqnBx9nQ) $BYE is an ideal product that aligns with Aragon’s treasury growth goals as a candidate to generate sustainable yield for the DAO.
How does the Basis Yield ETH Index work?
$BYE is a basis trading strategy token that integrates with Perpetual Protocol V2 to create a leveraged, delta-neutral position - eliminating market price risk within the token contract by hedging $WETH spot exposure with an equivalent, levered short $vETH position. This enables holders to generate one of the highest, most organic yields in DeFi today via funding rate arbitrage.
Maintaining this target leverage ratio is fully automated, Galleon operates keeper bots that execute rebalances upon threshold breaches derived 100% from on-chain data (readable from the product smart contracts).
Generating auto compounding yield when funding is positive; inversely, when funding is negative, there is NAV decay. However, because of this Galleon wants to create the highest level of alignment with BYE holders by deploying a performance fee revenue model. Therefore there is no streaming, minting or redeem fee; the product only charges a performance fee (10%) on the yield earnt. We believe this is the fairest way to operate $BYE and Galleon succeeds when our product holders are happy.
Galleon ran backtesting against the $BYE strategy between 27th November 2021 → 10th February 2022 and the projected yield was 15%. Funding was only negative for 11% of the time and even during periods of sustained negative funding the yield was positive.
Additionally, as per R72.fi historical data for perpetual protocol for 01/01/2021 - 31/12/2021 yield generated was 40.9%, in these conditions $BYE would have generated 27% yield while remaining delta neutral.
How will your proposal, if activated, benefit Aragon DAO?
If the proposal is activated, Aragon DAO would benefit from a delta-neutral yield generating strategy. Any deployed capital from the treasury would be protected against market price risk (which is ideal in the current highly volatile market conditions) and generate an attractive APY % which would benefit the DAO’s longevity by increasing treasury ROI and TVL.
In addition to the yield generated by the product, Galleon is actively seeking an optimism grant proposal to add OP tokens via an incentives programme that will run from between 12-24 months to encourage liquidity provision for long-term alignment between LP token holders, perpetual protocol, Galleon and the Optimism Network.
$BYE Purchase Plan
- We propose an initial deployment of $1-2m, to mint $BYE from tokenSets. This would be a “test amount” for the Aragon DAO team to monitor the performance of their capital.
- After 3-6 months if the Aragon DAO treasury team are comfortable and happy with the returns of the $BYE product, we propose increasing the position to $5m.
- After a year, again if the treasury team are comfortable and happy, this number again could be further increased.
*Obviously, the above figures are fluid, whether the figures are increased/decreased at any stage of the Purchase Plan is entirely up to and at the discretion of the Aragon DAO team.
Phase 1 Purchasing
- Initial purchases of $BYE would need to be minted from TokenSets via direct issuance, as we do not currently have enough liquidity for larger entities to purchase via uniswap v3. To do this all that is required is WETH & USDC.
- Galleon is currently implementing a “flash issuance” feature for the product via our app on (https://app.galleon.community) this will enable an individual or entity to purchase via USDC only, useful for not having to have any WETH exposure prior to issuing BYE.
- Galleon will be implementing either a xtokenterminal incentivised LP pool / an Arakkis (originally Sorbet Finance) incentivised vault, we would recommend that Aragon DAO join this LP pool for additional APR (from OP incentives) once this goes live (currently going through governance).
Phase 2 Purchasing
- Discuss with the Galleon team performance/satisfaction of the product - if Aragon DAO is comfortable explore further deployment of treasury funds.
- The flash issuance contract will be up and running, therefore this would most likely be the easiest way to deploy USDC into the $BYE product (due to slippage this most probably would be best in batches).
Start 2022 June / July
Galleon prides itself on a “personable approach” to partners and investors, therefore the Galleon team would set up direct communication channels between Aragon DAO x Galleon so any queries or questions ongoing can be urgently addressed.
Galleon’s core team consists of:
- Andrew - Galleon Founder & Advisor @ Set Protocol
- Duck - Operations & Biz Dev
- Crown - Dev Ops
- Additional two Senior Solidity Developers who are joining the team as part of the Galleon <> Beverage Finance Acquisition.
- The Basis Yield ETH Index product is a fantastic, low-risk, high-yield complimentary strategy for treasury diversification that performs well in any market conditions.
- Aragon DAO would only be charged a (10%) fee on yield generated, therefore if the product is not profitable for Aragon DAO, Galleon does not earn a fee.