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)
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.
MMP’s suggested composition would be equal weighted positions in the two major stablecoins:
- USDC (50%)
- DAI (50%)
Open to discussions about other potential stablecoins to include.
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.
Rebalance: Monthly (?)
Strategies: Discussed above