Yield management of Community Treasury using JonesDAO

Hi all, I come from defi background and would like to propose a strategy for generating yield with the community treasury while still maintaining liquidity when the need arises for newly approved funding proposals.

I’m a early investor and active user of JonesDAO, an options strategy protocol that entails depositing assets into options vaults each month. Options strategists use a risk-managed strategy using various derivative options platforms to generate yield, which can be collected at the end of each month or rolled over to compound profits. Because deposited assets mint “J-assets”, JonesDAO also has asset/J-asset LPs that allow swapping back to the underlying token at any time.

I am happy answer any questions either in the discord (jerryc#9510) or act as a Capsule House representative to work with JonesDAO.


Notes from previous thread:

This is advantageous to staking in Lido because you are must to switch back sETH to receive the APR from staking when ETH switches to proof of stake.

A potential downside is the interaction with any smart contract. From options strategy perspective, I believe there is minimal risk given the current ETH options strategy vault is risk-managed. The only thing that would require management would be bridging ETH back over to mainnet to distribute funds to approved proposals. We can also reach out to the JonesDAO team to inquire what strategy (fully deposited ETH, depositing as ETH-jETH LP) would be optimal for us.

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Cap house is probably gonna need a CFO to due diligence on wherever the eth gets placed for staking and what not. If we put a bunch of eth in a dao that loses liquidity, it could end up a disaster…

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So the name perhaps is a little misleading, this is not a DAO wherein you deposit your funds into a treasury.

Depositing an asset into a options vault mints the Jasset, which is your claim to the deposited funds. At the end of each epoch, you can collect the profits (ie. if that month had a 2% ETH yield, you now hold 1.02 of your original deposit). Otherwise, you can continue to hold the Jasset and this will continue to increase over time relative to the underlying asset if the options strategies are profitable.

If we decide we want to exit our position at any time, there is an ETH/jETH LP that properly reflects the underlying premium for the Jasset.

At no time are we locked into a treasury that prevents us access to our funds, nor will there be a liquidity issue because the LP is incentivized by $JONES emissions, which more than covers divergent loss and future $JONES will be used for revenue sharing across the platform.

Hope this helps.

I like the idea of doing some type of lower risk DeFi with at least part of our treasury since it seems like a waste to have so much there when there are so many other options out there. That being said, it would be helpful to get a sense of what all the options are and associated risk levels.

I think something that lays out here are the X Y Z variables we’re optimizing for (e.g. risk level, yield rate, liquidity as examples) mapped against options (e.g. Lido, JonesDAO) would be helpful for the group, esp since I’m guessing most folks aren’t as familiar w/ DeFi options here.

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@jshoe sure, I think there are a couple generalized strategies

  1. Staking ETH as collateral in a market maker to borrow stablecoins (ie. UCSD) to do yield farming. The level of risk depends on the yield farming, for stablecoins, the base APY is at best around 5-7%, and can be much higher for more volatile or incentivized LPs.
    -I don’t recommend this approach because you have to monitor your collateral position at risk of being liquidated and evaluating whether your yield farm is worth the time. In addition, in the event of adverse market conditions, it’s difficult to move out of your position if you’re providing liquidity for a more volatile token pair and you aren’t able to repay the debt.

  2. Staking ETH as a validator (ie. Lido finance)
    -Covered above, not a fan because the APR is low. It also requires extra management of your minted sETH and deciding what to do with it.

  3. Selling ETH for other tokens and depositing the the ETH pair into LPs for yield
    -Also not recommended as this requires constant management and requires identifying a token pair that will appreciate in value that we sell later for ETH. The treasury is also exposed to an illiquid position in the case where funds need to be distributed.

  4. Derivatives market
    -This is more or less the proposal for utilizing jonesDAO, since treasury funds are fully liquid. In addition, the funds are in a being used in a low risk position managed by JonesDAO, which is favorable given the intent of the yield farming is to make small profits. Over 2 epochs they’ been able to make decent returns, and we can certainly evaluate this upcoming epoch.

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This is all way over my head… what are the tax implications?

Beware:

  • the fees, like “4% on the initial deposit”
  • shit coins
  • shit fancy new DeFi protocols.

Staking in stable coins might be a good idea , but maybe not worth the effort if the treasury is used rapidly.

I never heard about JonesDAO and I would be very careful.

@JerryC
I like your idea…maybe starting with a small amount of funds and test your ‘system’ could be a good way to allocate without taking too much risk.
I’m new to DEFi and I notice that a lot of members of this community seems interested on learning more about it like me.
Since how long have you been involve on DeFi ?
Would you be interested on creating some tutorial for the community regarding DeFi technics and tips for beginners?
I think this would be so helpful.
Thanks

@TheLastBaron I actually don’t have an answer to that as I don’t know how Capsule House is structured. I assume this would be comparable income through secondary sales, but I’m happy for a board/founding member to step in and clarify.

@elitechimp Nothing like that here sir. JonesDAO was founded by some highly experienced members of Dopex (derivative options exchange), which is an on-chain derivatives protocol that is vetted by major defi whales (ie. tetranode and halko).
Lots of defi tokens are zero sum games because the only way tokens go up in value is through new buyers. We are not buying a token - we are depositing the ETH into a vault that uses on-chain derivative marketplaces like GMX and Dopex to create yield, of which we can collect at a later time.

@SoftAvocado Absolutely, I absolutely support sizing appropriately to test the protocol as well. I got into defi last summer, experimenting with leveraged tokens and LPs. Starting November I started to get serious about evaluating tokenomics and long term value.
What I think would work the best is making a powerpoint deck, sharing it with capsule house, and hosting an informal discussion in general chat where I share my screen and people can take notes on the presentation.

Cool makes sense, thanks for the detailed explanation! I think it might be worth doing a 101 or fleshing out the mechanics behind JonesDAO based on the comments that I’ve seen here. Most folks are new to DeFi and this strategy is on the more advanced side. But agree that testing this with a small amount as a starting point would at least be a good way to diversify and grow the treasury.

Definitely, would it be appropriate to host an informal defi chat this week? I can provide a basic introduction at least how I evaluate defi projects and how this would fit with Capsule’s community treasury.

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Yes please, i’ll attend.

I suggest that it would be preferable to keep all treasury funds on main-net for simpler management and visibility. (Jones is on Arbitrum)
I suggested a yearn vault in separate thread, and would echo that here. stETH-ETH or rETH-stETH.