author: Scoopy Trooples (@scupytrooples)
discussions-to: PIP 3 - AWP++DeFi
The Ray Dalio AWP is a historically high-performing portfolio that captures much of the gains of broad markets while offering safe hedges, such as gold and bonds in the basket. For only a small increase in risk, the AWP/DeFi basket would substitute much of the bond positions in exchange for interest-earning tokens in the DeFi ecosystem.
The AWP++ basket is an alternative proposed by PieDAO, which incorporates cryptocurrency into the basket to take advantage of the asymmetric upside they present. The main weakness of this portfolio is the heavy allotment of bonds, which are at near-historic low yields and could very well turn negative if central banks are asked to stimulate and prop up weakened economies. The AWP/DeFi basket would follow the AWP++ basket closely, and would consist of the following allotment:
-10% Crypto Basket
-6.75% Commodity, Broad Diversified
-6.75% Commodity, Gold,
-27% Equity, U.S., Large Cap
-10% Bond, U.S., Long-Term
-3.5% Bond, U.S., Long-Term
-25% DAI utilizing the DSR
-10% In a stable coin yield seeker, such as iearn.finance
These numbers are rough, and I may consider removing bonds completely, but remain for now as they are typically the safest hedge.
The motivation behind this is to create a slightly more risk-on basket in comparison to the AWP++. The main risks inherent in this basket are smart contract, regulatory, and or governance risks in the MakerDAO protocol, as well as any contract risk in the yield-seeking protocol. The benefits, however, are that DeFi interest rates are rising precipitously at the same time that bond rates are reaching historic lows. If current economic trends continue or worsen, then it is likely that interest and yield vehicles in the DeFi space will outperform bonds in the future as well.