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Credmark Treasury Management Cycle I

Cycle

Deployment Date
TBD
Cycle Length
30 days

Capital Allocation

TOTAL (USD)
1,000,000
Low Risk
700,000
Medium Risk
200,000
High Risk
100,000

Risk and Yield Parameters

Risk Profile
Max VaR (Annual)
Yield Target (Annual)
Low Risk
1.5%
3%
Medium Risk
10%
20%
High Risk
25%
50%

Goal

For this first cycle we decided to keep things simple!
We only planned 3 activities:
  1. 1.
    Lending.
  2. 2.
    Holding volatile assets.
  3. 3.
    Providing liquidity to DEXes.
We chose these because we could:
  1. 1.
    easily compute the VaR on a portfolio basis using historical data, and
  2. 2.
    estimate yields based on current market conditions.

Details

Risk Profile
Target Capital Allocation (in $)
Actual Capital Allocation (in $)
Low
700,000
700,000
Med
200,000
230,000
High
100,000
70,000
TOTAL
1,000,000
1,000,000
Risk Profile
Target VaR
Projected VaR
Diff
Low
1.5%
0.74%
-0.76%
Med
10.0%
47.61%
37.61%
High
25.0%
52.96%
27.96%
Weighted AVG
10.2%
15.18%
4.98%
Risk Profile
Target Yield
(Annual)
Projected Yield
(Annual)
Diff
Low
3.0%
3.26%
0.26%
Med
20.0%
42.29%
22.29%
High
50.0%
70.26%
20.26%
Weighted AVG
10.2%
15.26%
5.06%
Risk Profile
Target Yield
(Cycle)
Projected Yield
(Annual)
Diff
Low
$1,726
$1,873
$147
Med
$3,521
$6,861
$3,340
High
$2,406
$3,174
$768
TOTAL
$7,653
$11,908
$4,255

Commentary

Asset Diversification

As part of this cycle we diversified $3,000,000 worth of treasury assets. This was intended to address concentration, protocol, and regulatory risks. It also sets aside tokens to cover transaction fees. This diversification has no material impact on the treasury management overall.
This is a summary of our closing positions:
Type
Asset
Proportion
Value
Stablecoin
USDT
20%
$600,000
Stablecoin
USDC
20%
$600,000
Stablecoin
TUSD
9%
$270,000
Stablecoin
DAI
20%
$600,000
Stablecoin
PAX
7%
$210,000
Gas
MATIC
1%
$30,000
Gas
Solana
1%
$30,000
Gas
ADA
1%
$30,000
Gas
ETH
6%
$180,000
Fiat
USD
15%
$450,000
TOTAL
100%
$3,000,000

VaR

All VaR figures were computed on a portfolio basis using one year of historical data. When an asset or position didn’t exist for that full period, we used proxies. All of the historical data used to compute our VaR figures can be found here.
The obvious thing to note in the tables above is how much more risk we were willing to take compared to the target. We discussed this at length.
We believe that our computed VaR values are greatly exaggerated. We used a year’s worth of historical data because that would be the norm in traditional finance. Traditional finance, however, doesn’t deal with the level of volatility we see in crypto. As an example, ETH increased in value 20x over the course of the year.
We considered shortening the historical data period but realized that it would not be conservative enough. In future we will likely move away from computing VaR using this technique.

Yield

We are projecting significantly greater yield from our medium and high risk positions than our stated targets. This is because markets are relatively frothy at the start of this cycle. Any downturn will bring us closer in line with our targets.
In future we will likely adjust yield projections using historical data.

Investment Positions

Investment position details can be found here in the “Investment Strategy” tab. Some of our decisions are likely to raise eyebrows. For example, why would we provide ETH/BTC liquidity if our projected annual return is 15% while our VaR is 79%? We reviewed the historical data and we believe the computed VaR is far too high given recent market conditions. We also believe that potential returns are significantly higher.
Looking at the “APR Source” column in the “Investment Strategy” tab, you’ll notice that “Research” is used for about a third of the positions. More information can be found in the “Investment Rationale” tab, but we have to confess that some of those values are the result of “educated guesses” after spending time with a variety of investment tools. We expect to provide more rigorous analysis in the future.