[Temperature Check] Treasury Management: Should Radicle earn yield with its USDC?

The Radicle Treasury currently has over $20m of USDC, the source of which was the original bootstrapping process done on Balancer.

There has been some discussion in the community around whether USDC should be put to productive use. As of now, these funds are sitting idle.

Before we discuss which protocols to deploy Radicle’s USDC to, it’s worth discussing whether Radicle’s stablecoin balances should be put to use at all. There are good arguments for and against it, which is why I wanted to start a formal discussion around the topic.

Pros

  • Meaningful Yield Opportunities: USDC rates on Compound and Aave are consistently 4% (not counting rewards), which is attractive relative to earning nothing at all (i.e., the status quo).

  • Offset ongoing expenses: Assuming rates stay at 4%, $20m of USDC would generate $800k in annual interest, which can go a long way towards funding governance-led initiatives like grants or growth.

Cons

  • Loss of principal: There is no such thing as free money: depositing funds in yield-bearing on-chain opportunities can be risky. There is a low (but non-zero) chance that some of the deposited principal is permanently lost due to liquidations, hacks, or exploits.

  • Not of essential importance right now: Radicle is playing a long game over the next decade. Getting adoption and user onboarding to features like Radicle Orgs should be the priority, and spending time on incremental improvements like yield programs may not make a significant difference in the grand scheme. For example, will generating an additional 4% on USDC really be a make or break it decision for Radicle long term? Probably not.

What does everyone else think?

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Hi Derek!

Great quick write-up.

Some thoughts below.

I think the most important point you raised is that it is not of essential importance compared to investing directly into Radicle itself.

In a normal business, I’d approach this balance between investments by finding out what the life-time-value (LTV) of a single Radicle user is, estimate how many new users we could acquire from various initiatives, and budget accordingly. If the average ROI across all project in the pipeline is greater than 4%, I would perhaps completely throw out the idea of earning yield.

I think we need to have a much better understanding of the Radicle user base and of how people use the product at all to start any such analysis. We’re simply not there yet because the product is not fully launched (e.g. Funding isn’t quite there). There’s nothing wrong with this, it’s just the way it is. We’re very much in an exploratory phase.

Added to that, this isn’t a normal “business” and the model we’d want to build for this sort of assessment is probably different. This itself is a really big topic that’s worth brainstorming about (once we have more data points).

If we’re in agreement with that, but also in agreement that it could create a 4% return, I’d say putting a side a nominal amount – not the full $20M – is perhaps the best option. The reasons for this would be:

  • We still want the treasury to have liquidity to invest back into Radicle
  • We want to manage the non-zero risk of loss of principal
  • We’re in this “exploratory phase” so perhaps best to look even at the yield idea as but one small project to create passive income for the treasury

If we put 20-25% of the treasury towards this, we could get back $150-200,000.
Like you noted, even this amount could go a long way in paying for grants, bounties, and the like, all without much added overhead.

What does everyone else think?

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That’s a great summary of the trade-offs @derek .

I am supportive of this proposal, ideally with a number of small, controlled experiments. My main motivation is for our community to learn how such strategies work in practice for the future.

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Hey everyone,

I’m part of the scribe’s guild from Boardroom and also dipping my toes into Radicle for my personal projects.

I believe there were a couple of discussions (a proposal from Gro Protocol and Vestun - there’s also llama) regarding treasury management.

Maybe making a decision on getting them onboard might be a good idea?
Or creating an open competition of sorts for the best strategy for this particular issue?

There’s also Open-Orgs that show splits of other DAO treasuries: https://openorgs.info/

Hope that helps.

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