MMPie (Money Market Pie)

Disclaimer: This is an expansion of a comment I made on the USD++ Migration and Rebalance thread. This thread’s purpose is to expand the discussion beyond the rebalancing of USD++, and to consider change the framing into it’s own product.

Proposal: Money Market Pie (MMPie)

Rationale

Money market funds (MMF) are a key part of TradFi infrastructure, offering an easy product where clients can earn the current market risk-free yield with a simple product that offers very high liquidity. They are routinely used by both institutional and retail consumers in order to earn safe yield on cash-on-hand. Using MMFs these clients that don’t have a professional treasury can earn the market return on money, without having to directly trade a diversified pool of securities. Such a solution is not currently present in the DeFi ecosystem.

PieVaults can offer such a solution, MMPie, with battle tested technology that is almost purpose built for the problem on hand. I believe an USD stablecoin based Pie, with simple and transparent investment strategies for the tokens in the main DeFi platforms would be in demand by market participants that want to keep some liquidity outside of crypto-market volatility, while earning a safe return. Potentially, it might be more gas efficient to use MMP, rather than a portfolio of deposits in different DeFi platforms.

Picture a DAO’s treasury, which has raised capital in order to fund future development, and has voted to keep a certain % in USD. Rather than earning no return on that amount, or doing the market research on the current market yields and the vetting & due-diligence on each liquidity pool the DAO is looking to invest in. By simply purchasing MMPie, the DAO can earn a safe and reliable return, delegating the work to PieDAO’s transparent governance, which responds to investor’s wishes through simple market incentives.

Money Market Funds are a 4.6 trillion USD industry, with 31% of that being retail, and the rest institutional clients.

Index Composition

MMP’s suggested composition would be equal weighted positions in the two major stablecoins:

  1. USDC (50%)
  2. DAI (50%)

Open to discussions about other potential stablecoins to include.

Return Expectations

I believe that they key feature that makes the product investable due to its low returns relative to the current crypto market is safety, and thus each yield generation strategy that is included in the Pie must truly increase the diversification of risk, be thoroughly vetted, and have a very strong track record prior to inclusion. Therefore, as a start I would consider only investing in Compound and AAVE. These two platforms have very high Total Value Locked, and have survived the recent downturn with no major technical or liquidity issues that I’m aware of. According to https://loanscan.io/, these platforms APY’s were volatile earlier in the year, but have since stabilized into the low single digits for these stablecoins.

With current yields, and a 50/50 weight on Compound and AAVE would give the following expected gross return (Edit: Following a comment on Discord, I sourced the data myself, and included the yield from governance token distribution at current prices):

Which, when compared with TradFi money market funds are yielding (0.08%), is a very attractive yield, on a decentralized platform.

Details
Smart-contract: PieVault
Rebalance: Monthly (?)
Cap: Unlimited
Strategies: Discussed above

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Does that low yield justify taking what little risk there is though? There’s much higher yield elsewhere

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Thanks for the reply Bozo. Recognizing that there is relatively safe & higher yield available in the market currently, I think there is demand for the highest safety yield in a liquid, diversified, and simple product like $MMP:

  1. Compared with TradFi high liquidity safe returns, a 4% return is excellent.
  2. While most large DAO’s treasuries hold their own tokens, I have seen and excpect more DAOs to choose to keep a portion of their raised capital’s purchasing value fixed in USD terms by holding stablecoins directly, thus earning 0% return. $MMP offers similar safety, but with a positive return. (See IndexCoop (Address), DxDAO (Address))

I’m seeing that $MMP could be a useful composable part of the DeFi ecosystem. A really safe place to park your cash while earning some return.

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This indeed seems to be a promising market niche. I guess ensuring really high liquidity would be a linchpin for success.

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I’ve just found a relevant article that I thought I could share; it’s a Bankless newsletter issue “How DAOs should approach treasury management”. It discusses how DAO Treasuries are a key part of their future, and the article highlights a specific pillar of treasury management that $MMP can directly address: “ensure that critical expenses can be funded even if the protocol token has a significant drawdown”:

The first priority for many large protocol treasuries is to diversify a portion of assets into stablecoins. The stablecoin allocation should at least cover a few years of operating expenses for the treasury.

Diversifying into stablecoins provides a protocol DAO with the following benefits:

  1. Maintain or ramp up spending in the event of a significant market drawdown
  2. Allow governance contributors, grant recipients, and security bounty recipients to be fully or partly paid in stablecoins
  3. Enable yield-generation on Yearn, Aave, and Compound
  4. Provide liquidity on stablecoin-stablecoin pools

Eventually, we’ll see on-chain money market fund products that help treasuries allocate to stablecoins and optimize yield. For example, the Stable Yield Index proposed by Index Coop is a product that aims to generate the highest risk adjusted stablecoin return.

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This is a really interesting concept for Defi. Monkey market funds are typically used as holding places for cash. From my experience in investing outside of crypto, it’s better than money sitting in a checking/savings account (inflation eats away at purchasing power), but is not locked up, such as with CDs or equities. Very good explanation of that @saganaki. :grin:

I like the concept and would love to have an option for that in Defi. I think this could also compete with Cefi offerings such as BlockFi or Nexus, even though their stable coin yield is around 8%+.

In meat space, money market funds usually have other very short duration debt to gain yield (like CDs, repo agreements, commercial paper, etc.). Is there any equivalents in Defi to these types of debt instruments?

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TLDR:

  • Liquidity very important for this Pie.
  • Alpha Homora V2 seems like a reasonable potential candidate as a strategy for the stablecoins in the Pie, does anyone have any experience with the protocol? Could the core team develop strategies for it?

Replies to prior responses to the Proposal:

Agreed on the promise of the market.

Re: Liquidity There should be enough liquidity in the token such that slippage losses are minimal. A concept in money market funds is that they should not “break the buck”, that is redeem less than you put in. Within the realm of possibility this should be a goal here as well. Another reason I’m leaning towards AAVE and Compound because redemptions in these strategies are likely to be the most liquid and reliable in times of stress.

Thanks! I agree this would be a good option for DeFi.

Re: Duration I’m interpreting your last paragraph as suggesting that we could potentially obtain some more yield by taking on a bit of credit/liquidity risk, but reducing the duration of the commitment to compensate for it. My thought on this is that both AAVE and Compound are already 1-block duration debt. Thus, relative to investments I originally proposed, I think that other options would increase the credit/liquidity risk and at best keep the duration constant. This is fine, as long as the yield/risk/duration tradeoff makes sense.

Here are the top lending platforms according to DeBank:

Given that Maker and Liquity are stablecoin platforms, I took a look at Cream V2 and Alpha Homora V2:

  • Cream V2: DAI and USDC deposits pay around the mid 6% currently. However, they were hacked a couple months ago, and the current number of users seems very low. I’m not sure it currently seems like a good idea.
  • Alpha Homora V2: DAI deposits pay 7% and USDC 9.22%. Reasonable but relatively smallish size.

Just wanted to say that all of this sounds great! I really like the conversations lately about DAO’s planning for the long term and I think Pie DAO could really build a moat as the go to place for other DAO’s as well as outside institutions. I’m fairly new to DAO’s so I’m sure there’s a lot of them out there that I’m unaware of but I haven’t heard of any other DAO’s actively trying to fill that niche. If anyone knows of any or of any other places to look to read up on conversations in the DAO community about Treasury risk I would love to hear what others are thinking on the subject too.

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I like the idea a lot! It’s hard to compete with Curve though…

Thanks! I agree that PieDAO could be a key player in this space. This Messari enterprise article may talk about this, but it’s an expensive subscription that I will not be getting.

Thank you. I took a look at their numbers for tonight, and the base yields of Curve’s 3pool (DAI+USDC+USDT) are lower than the expected number I posted originally (0.6% vs 2.46%), and with the CRV distribution it’s still below (3.33% vs. 4.24%). The high returns (8.34% currently) come from staking the LP token, which would be significantly less liquid. I believe that this + USDT composition would make it not desirable for the purpose at hand.

Most of the constructive criticism about $MMP I have received has been about it’s low expected return. Perhaps a small proportion of the Pie could be invested in Yearn (9% right now), which would increase the yield.

What do you guys think?

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Personally, I would keep it as simple as possible and don’t build in any elaborate yield boosts, since it’s meant as a highly liquid storage for things like emergency funds and not primarily to generate yield.

Hey, appreciate all the effort put in.

A few things to consider:

  1. 50% / 50% DAI/USD is relatively low cost and effort to enter individually. Given pricing changes are minimal it may not provide enough service as currently laid out.

  2. The demand for stables is split. As seen on the poll in the linked USD++ there is a pretty heavy split in how risk is assessed where some value yield more and others value security more. I see these two segments of demand being met by different products. While I’m less familiar with traditional finance, I interpret this proposal to lean towards security over returns.

  3. There are several ways to effectively enter the USD money market game. Curve’s 3Pool being the most famous offering swap fees between USDT, USDC, and DAI.
    .
    There are other curve pools like crvSAAVE which is sUSD and DAI earning interest in AAVE and crvCompound earning on USDC and DAI in compound. In previous attempts to reform USD++ we were not able to get the push into Curve pools due to the USDT risk and lending alone wasn’t exciting enough a product to gain strong votes.

  4. Uniswap v3 is out allowing concentrated liquidity between stables with strong fee return, and two asset pairs limit issuer risk per pool entered. V3 requires additional layers of strategies to passively handle fees which are earned externally from the LP. These strategies could be used to reinvest the external yield into productive tokens. We are seeing this already with xToken.
    .
    Given the above, and the relative fresh opportunity that is Uniswap v3, I think it may be worthwhile to restructure this from lending in compound and AAVE to providing liquidity to 3-4 stable pairs on Uniswap v3. I think this would allow us to flex our multi asset abilities vs competitors seeking to occupy the same space, tailor assets to those with risk profiles we like, and potentially include other strats to some degree when yields make such moves appropriate.

I think there will be more natural demand for a product that is less easy to replicate individually and which the economy of scale to compounding provides an advantage to pooling.

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Idk why, but this got my thinking it’d be interesting to hold a money market that just buys ETH with the interest automatically.

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Buying ETH with stablecoin interest is the idea behind Inverse vaults https://inverse.finance/vaults

I’d be interested to see a higher-risk MMPie that has a 2-8% allocation to ETH and other volatile assets. Balancer V2 pool could be an option that provides liquidity and (eventually) lending returns. A 94/6 pool could look like:

Are there other assets outside of stablecoins that could be looked at but could achieve the goal of relative stability? Or other stablecoins that aren’t necessarily pegged to USD like PAXG.

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+1 for PAXG

The Curve EURS pool, staked on Convex, could be another high-yield non-USD option.

For PAXG it would be great to earn the 5.5% yield Celsius pays, but I don’t see a similar opportunity in DeFi.

Hello everyone. I’m glad to see continued interest in this proposal from the community. I’ve reviewed everyone’s recent comments and had a call, and I would agree with most people’s thoughts, and would summarize the sentiment as:

  • There appears to be interest in developing both a safe (don’t break the dollar philosophy), and a riskier recipe of the Pie.

  • The community’s view of the balance between simplicity/safety vs. value added of my original proposal indicates that we can be a bit more creative relative to just staking USDC/DAI on Compound/AAVE. (See @BlockEnthusiast, @MobiusMan, @BVB and @fairshare above).

  • There are several stable assets that can be included and made productive, and there have been mentioned: ETH, PAXG, and EURS. With retained income there is interest to accumulate ETH rather than the native token that earned it. (See @BlockEnthusiast, @fairshare)

  • Uniswap v3 presents an opportunity for the Pies to be productive, while simplifying liquidity provision for token holders. (See @BlockEnthusiast )

Thus, I would conclude that the community is leaning towards a Pie that holds a diversified set of stable assets that earn a competitive yield, potentially including a small allocation of ETH.

Request for further feedback

  • I would love to hear more comments from the community here and on Discord regarding what other assets / strategies do you think are worthwhile including. Using this information I can make a final list that can be systematically evaluated, which can become a formal criteria for evaluating potential future components.

  • I am interested in hearing about PieDAO’s plans regarding LPing strategies on Uni v3, or if only ERC-20 token based strategies should be considered in the mean time.

  • I will run informal polls on the following topics:

Should the money market pies invest in USDT?
  • Yes
  • No

0 voters

Should the money market pies invest in non-stablecoin assets (read ETH, the gold backed asset, etc.)?
  • Yes
  • No

0 voters

Should the retained earnings (interest / lp rewards) be kept to compound in the base assets, or be converted into ETH and invested?
  • Keep base assets
  • Convert to ETH

0 voters

With a bit further feedback I think I can generate a new version of the proposal with numbers to share.

Edit: Sorry I made the poll not show the votes until close, misinterpreted the instructions. It’s too late to change now.

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Thanks for your hard work on this @saganaki! This has been a very interesting discussion, and a lot more nuanced than I would have expected at first.

Another way to look at a money market pie could be to have different types, much like in traditional money markets. Here in the U.S., we have government MM funds and prime MM funds. (definitions below).

  • Prime money market funds are typically invested in short-term corporate and bank debt securities.
  • Government money market funds invest at least 99.5% of their funds in government-backed securities, making them extremely safe investments.

Perhaps we could have a stablecoin MM fund dedicated to not “breaking the buck” (much like a government MM fund) more but has a lower yield, and another MM fund that has higher yield and invested in assets outside of just stablecoins.

Open to thoughts and opinions on this approach. :grinning:

BasketDAO recently launched a product along the lines of what we were discussing here: BasketDAO Money Market Index, investing in different Yearn vaults. It’s more like the prime money market fund @MobiusMan discussed above with a relatively higher risk profile, yielding 11.64% right now.

The post doesn’t make the governance and allocation methodology too transparent though, something PieDAO could bring to the table if the community decides to put the Money Market Pie together.

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