What comes easy doesn't last, what lasts doesn't come easy. WL sale is over but the hard/fun work has only just began.
Goal: In light of (1) we have raised a rather sizable treasury for Concave already, (2) we expect the treasury to grow rapidly after launch thanks to our smart bonding machine and our lock-staking mechanisms (more details coming soon), and (3) we have been developing & testing (good results on Franklin's personal capital to be shared soon) various portfolio management strategies, we want to define a clear framework on how exactly we want to allocate and manage the assets in our treasury portfolio from now to a stable stage after launch.
- Treasury Portfolio is defined as all treasury assets except portfolio-owned-liquidity.
- There are 3 main strategies to be deployed (1) active investment and trading, (2) stable farming and (3) delta-neutral farming at the start of the project (there will be more coming in the future)
- Coud/sert/rest of Policy are not in the picture because they are in the Kitchen preparing food/drinks for us.
Proposal on Initial Portfolio Management Plan:
- Start with close to 100% stable farming which will be split between 2 highest yielding protocol-pools in our radar (Convex UST-Wormhole & Anchor for now) at the moment. We currently gauge that splitting between 2 pools strikes a good balance between diversifying rug risks and maintaining high yield.
- Test the active investment & trading and delta-neutral farming strategies with small allocations (~$100k each) for now and slowly ramping the allocations for these two strategy up to the Initial Targeted Portfolio Allocation (see table below) as we improve and gain more confidence on our strategies and establish the proof of concept.
Proposal on Initial Targeted Portfolio Allocation Framework: The high level logics to construct desired portfolio allocation are (1) meeting all the portfolio requirements and constraints first and then (2) optimize for the highest Sharpe ratio (which measure risk adjusted return). More specifically:
- Ensure the active investment and trading is <=25% as established in Community Proposal 1.
- Ensure we have at least 50% of the portfolio in stable farming so that the Concave CO-OP can comfortably cover its operational expensive sustainably without needing to rely too much on native token emission from the start.
- Target at least 69% APR for the treasury portfolio. Why 69? I think it is a good number.
- With all above and assumptions on the the expected return/volatility/correlations of all the 3 strategies which are conservatively estimated based on recent testing results, our forward-looking understanding of the strategies, and our gauges of current macro/market conditions (we are cautiously optimistic as of 2/10/2022), we constructed the Concave Initial Targeted Portfolio Allocation as shown below.
Important things to note:
- The targeted (or desired) portfolio allocation will change through time as we continuously update our model assumptions while market conditions change and we gather more info/data (e.g. the expected return of active investment and trading will decrease while the volatility of that will increase as market turns bearish)
- The security selection within each strategy will be constantly changing at the discretion of the Policy Team who is constantly monitoring the market conditions (e.g. we will swap out certain investment when valuation or technical indicators turns unfavorable; our stable farm choice will likely shift as yields on the pools change).
- In light of anticipated fast treasury growth post launch, we do not plan to actively/aggressively rebalance (i.e. closing down existing positions). We will review the portfolio composition on a weekly basis and constantly allocate towards the targeted allocation gradually.