Hello all, Juan Montoni from Ethos Intel.
While I’d welcome more detail on the first point, I’d like to share feedback on the second and a few related items. I began by outlining ways to improve the efficiency of the risk parameters so the IPS more precisely reflects the transactions we can execute and better aligns them with the Endowment’s return objectives and risk appetite.
I then proposed an approach to achieving a reasonable, predictable, and sustainable level of income, as specified in the IPS. Finally, I suggested to use a protocol that already complies with the IPS and, based on data from recent months, is consistent with the stated investment objective.
Reviewing the IPS
- Removal of “cash and carry” as a “permitted operation” or specificity of application of this operation.
Just to align the discussion, let’s define “cash and carry”: cash and carry applies to derivative products. Combination of a long position in a stock/index/commodity and short position in the underlying futures, which entails a cost of carry on the long position. Also known as cash and carry arbitrage.
As it is quoted on page 8: “Cash-and-carry trades” is one of the allowed strategies. It can conflicting with risk objective: As stated in the IPS, “No speculative trading activity should be conducted, with the exception of rebalancing between ETH and stablecoins.”
Both funding farming and price arbitrage between assets would have exposure to liquidation risk that puts the DAO’s principal capital at risk. In addition, it may fall under speculative trading activity.
Suggestions for specifics if it is still necessary to maintain the cash and carry option listed in the IPS:
- In which situations cash and carry could apply
- Minimum margin limits
- Protocols in which they could be executed
- Specification on liquidity pool operations
Although we have several general guidelines on maximum allocation percentage per LSD protocol (Investment objective, page 6), maximum allocation per protocol, and even interaction limitations in “blue chip” protocols, it may be valid to list specifications for when this type of operation becomes valid.
Suggestions for pool specifics:
- Mention of the need for asset price correlations to mitigate impermanent loss
- Mention of permitted pool model (v2/v3/v4)
- Definition of blue chip applications
The IPS defines the limitation of interactions to “blue chip” protocols as a parameter. Currently, there is no regulatory body or document categorizing which applications are blue chips and which are not. Although there is consensus on some protocols in this category, it is important to have an actively curated list of applications allowed for interaction.
Specificity suggestion:
- Define “blue chips” protocols and its parameter, metrics and needs to be aligned with this category.
- Definition of permitted stablecoins
The “Asset Allocation Guide” in the IPS cites “Stablecoin equivalents: USDC, USDT, DAI” as a reference for stablecoins permitted in the fund.
The creation of a curated list of permitted stablecoins not only sets standards for the IPS and the Ethereum ecosystem of high-quality stablecoins (due to the relevance of the DAO), but also provides clarity for the Endowment to access products that can deliver higher performance without necessarily increasing exposure risk.
Specificity suggestion:
- Instead of quoting “Stablecoin equivalents,” create a list of approved stablecoins
- This list could aggregate parameters for interaction or even a section dedicated to exhibit a position on allowance or prohibition of interaction with yield-bearing stablecoins or other stablecoin types
Revenue predictability with equivalent risk profile
As it is stated on “Investment Objective” (page 6): — “The fund’s returns seek to provide a reasonable, predictable, and sustainable level of income.” I believe that Pendle products (PT and LP) could match with these requirements and be a match with a wide variety of stablecoins, even the most secure ones.
Addition of interactions to the Pendle protocol
- The Principal Token (PT) product allows stablecoin yields to be fully predictable, sustainable, and transparent. In terms of predictability, this product allows us to know the annualized return, return for the contract period, protocol fees, and slippage even before making an allocation.
- It is still possible to use the LP (liquidity provider) function, have reasonable returns, and no impermanent loss since we would have a fixed income product + underlying stablecoin.
- In 2025, the protocol surpassed the $13 billion TVL mark, an indication of product maturity that may fit the DAO’s demand requirements.
- With a list of “allowed stablecoins,” as mentioned above, it would be possible to expand the capacity for yield operations without the need to increase exposure to new stablecoins, since the Pendle Finance protocol offers contracts that are linked to the yield of various stablecoins.
With an active curation list, covering both protocols and approved stablecoins, we will be able to reach a much higher and more targeted level of diligence aligned with the DAO’s objectives. This will allow us to switch, within the pre-established limits, between strategies that at times may provide higher returns and, in more delicate moments, may offer greater security.
I look forward to feedback on this comment so we can introduce direct ways to enhance the Endowment’s performance while following the current risk dynamics.