Idea: Generate USDC revenue through $ABT covered calls
Intro I am excited to share an innovative idea on achieving sustainable yields by employing so-called on-chain covered call strategies without counterparty risk.
Idea The idea is to leverage a portion of Arcblock's treasury for covered call lending. This approach involves lending out a smaller part of currently idle $ABT tokens. By doing so, Arcblock can generate significant upfront revenue in USDC (see below). The earned USDC can be immediately utilized for community needs. And unlike a simple token sale, covered call lending enables the treasury to diversify its holdings into stable assets without an immediate market impact.
Benefits
• Idle $ABT tokens can be used to generate upfront USDC revenue • Immediate revenue and liquidity for operational and developmental activities • Diversification of the treasury into stables • Tokens don’t need to be sold, thus there’s no immediate market impact
Example Scenario The diagram below shows indicative upfront premiums (as of 13. February 2024) that the Arcblock treasury (or any other large token holder) could earn across various loan duration (Days to Expiry) and upside cap (Relative Strike Level) combinations.
For instance, lending $100k of $ABT for 90 days with a 110% strike could yield around $20’200 USDC upfront (equal to approx. 82% APY). After 90 days, two outcomes are possible:
a) If $ABT price doesn’t increase by more than 10%, Arcblock treasury receives the originally loaned $ABT tokens back b) Else, Arcblock receives $110,000 USDC (110% of the initial loaned $ABT tokens’ value).
The stablecoin premium is paid upfront, immediately, and irrespective of the outcome, providing a strategic benefit over merely holding $ABT tokens. Additionally, it is crucial to note that Numerai can freely select both the duration and strike level.
Conclusion This proposal outlines how the Arcblock treasury can generate USDC cash revenue by using idle $ABT treasury for covered call lending. This approach not only diversifies the treasury but also avoids market impacts that could arise from outright selling $ABT tokens. I’d love to hear the community’s thoughts on this idea and more than happy to outline a detailed draft.