Motivation

You may not have noticed but we are in the midst of a significant bear market for the price of BAL. This fact combined with the desire to expand the number of contributors in the Balancer ecosystem has led the Treasury subDAO to explore ways to bolster the DAO’s stablecoin reserves. One possibility is through the use of a Ribbon Finance treasury vault for BAL.

The DAO would deposit BAL into this vault and sell monthly calls - two quotes provided by Ribbon are as follows:

• Using a strike 25% out of the money, we can expect 3.17% yield per month -> 38% APY
• Using a strike 50% out of the money, we can expect 0.91% yield per month -> 10.92% APY

Ribbon vaults operate using cash settled options rather than physical settlement. This means in the event of the option expiring in the money the vault would transfer the cash value of the option (denominated in BAL) to the market maker. Effectively if the price of BAL goes up significantly during the month we will incur a loss then continue as normal and sell the next month’s call option. In comparison, physical settlement would mean we are obligated to sell all of our BAL at the strike price (minus slippage) if the option expires in the money.

Ribbon has signaled they are prepared to support cash or physical settlement - in both cases any BAL transferred to market makers in the event of a call option expiring in the money would be market sold. This is why slippage is taken into account when the market makers will quote us the price for the physical settlement option.

The exact amount of BAL to use for this is up for discussion. 500k BAL has been discussed but we could go as low as 250k BAL. The collected premium would be in USDC and would be available to withdraw from our vault every month.

Assuming we deposit 500k BAL, that represents around 12% of the BAL in the treasury valued at ~$4M ($8 BAL). A 38% APY would lead to a gain of ~$1.5M and 10.92% APY to a gain of ~$436k.

Risks

• The Ribbon Vault is exploited and we lose our entire deposit
  • Nexus Mutual offers insurance on Ribbon Vaults which does cover their treasury products. This is an option the community can consider. For reference, the cost is 50.79 ETH for 1955 ETH worth of coverage for one year.
• The price of BAL rises significantly during the month
  • We will incur a loss if we use cash settled options. Assuming we sell calls 25% out of the money: +50% at expiration -> ~9.7% loss. +100%, ~32% loss.

Specification

If this vote passes, the DAO will allocate 500k BAL to sell monthly calls 25% out of the money with cash settlement. The DAO Multisig would transfer 500k BAL to the Ribbon Vault. The address of that vault would be independently confirmed via at least two sources.