Our first DAO proposal! So what is the first proposed strategy? Stablecoins! They are tokens trading in a 1:1 ratio with certain fiat, in most cases this is USDC but EUR and JPY also exist. Stablecoins have low volatility but still open up opportunities in DeFi.
Assets that are acquired for this strategy are the following:
MAI, this is an algorithmic stablecoin. This means that no central governing system is in place to maintain peg. Instead the market maintains peg itself due to various economic incentives. MAI is a over-collateralized stablecoin, meaning that for every 1$ MAI in existence there is <1$ of value in other assets backing it. These assets may include other stablecoins or crypto like ETH and BTC.
USDT, this is a stablecoin maintained by a corporation. They privately manage fiat backing which is the backing of their digital counterparts
Protocols on the Polygon blockchain that the strategy uses:
Impermax finance, this is a multi-chain leveraging protocol.
Quickswap, this is one of the largest DEXes on the Polygon chain. Here people can exchanges all kinds of different cryptos.
This strategy will create an LP, this binds two crypto assets together and essentially creates liquidity for other traders to exchange one crypto in the LP for the other. Our LP will be MAI-USDT Quickswap LP. After creating the LP it will be provided to the Impermax protocol, using the Impermax protocol the LP will be leveraged 20x, this is done by borrowing stablecoins against the LP to create a larger LP position.
The returns for this position are as follows:
Last 7 days: 19.25% APR
Last 24hrs: 31% APR
The costs for opening the position will consist of gas fees to approve contract interactions and moving of funds, this will be no more than 1$.
The costs for swapping funds from USDC to MAI and USDT will depend on the size of the position, in this case we would make a profit of 0,34% on USDC→MAI swap. As well as a loss of 0,05% in the swap from USDC→USDT. These rates are variable and may change during voting time.
Below a list of risks often related to investment strategies of this type, be aware that this list is not exhaustive:
Depegging risk, while the idea of stablecoins is that they trade 1:1 with their respective fiat a situation may arise where this is no longer the case. Depegging is often in the range of 0.97-0.99:1, but there are more extreme historic events where some even went to 0. This risk may be reduced by picking larger cap stablecoins, or stablecoins which have existed for longer.
Smart contract risk, the protocols that we interact with are essentially public programs. There may be bugs in these programs that are not known at the present time but may cause the value to be drained from the protocol. To reduce this risk it is wise to pick protocols which have an external code audit, or even multiple.
Borrowing cost risk, APR/APY values are variable and not stable. This means that while at the current time the position may be profitable this may not be the case in the future. Risks can be reduced by actively monitoring position rewards and costs.
Liquidation risk, for every borrowing position there is a maximum LTV (loan to value ratio) where your position gets liquidated. Due to borrowing cost risk our position LTV may rise to liquidation level, when this happens the position is closed and a 4% fee is deducted over the value of the investment. Risks can be reduced by actively monitoring LTV and maintaining a safe margin from liquidation LTV.
Reward token price risk