Investment Guidelines
Our vision is to manage this vault with diversification, market exposure, and yield elements. We aim to participate in crypto market growth while maintaining a healthy exposure to cash.
We will adopt Teragon’s Balanced strategy framework for this treasury vault. The sample strategy in the chart below shows a 60% BTC and 40% cash portfolio versus a 100% BTC portfolio. It achieves similar absolute results, but the balanced strategy outperforms in risk-adjusted terms.
The vault targets a market exposure percentage, which is achieved via monthly portfolio rebalancing. This keeps the vault near desired weights and provides a buy-low, sell-high dynamic that boosts performance.
Cash held by the vault not only generates yield, but also acts as a buffer to add exposure during market drawdowns. Having exposure to cash is equivalent to having optionality (long gamma) as it allows you to buy-low sell-high algorithmically. The chart below demonstrates the value of being underleveraged in a volatile market like crypto.
Using the balanced strategy we have:
- reduced volatility but achieved similar results with less risk
- shallower drawdowns granting more peace of mind
Balanced Strategy Performance (March 2020 - June 2022)
Advanced Statistics (March 2020 – June 2022)
The other strategy we can overlay on top of the balanced strategy is utilizing options to generate yield out of market volatility.
Holding cash with regular rebalancing is equivalent to being long gamma. Long gamma essentially means betting on increased volatility. We can short gamma by taking advantage of high implied market volatility, generating yield.
Two strategies make this possible:
- The vault rebalances monthly on options expiry allowing us to sell call options on our directional assets and sell put options on our cash. This provides us with another way to rebalance.
- We deploy part of our cash and tokens into AMMs for additional yield when it is attractive