Idea: Generate USDC revenue through $RAD covered call lending

[dominic]

Intro
Based on recent discussions on Discord, it has come to my attention that the Strategy Committee is actively exploring and discussing different ways how Radworks can approach treasury sustainability throughout 2024. In light of this, I am keen to present an innovative proposal on achieving this objective by employing so-called covered call strategies.

Idea
The idea is to leverage a portion of Radworks treasury for covered call lending. This approach involves lending out a smaller part of currently idle $RAD tokens. By doing so, Radworks can generate significant upfront revenue in USDC. 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 $RAD 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 16. January 2024) that the Radworks treasury could earn across various loan duration (Days to Expiry) and upside cap (Relative Strike Level) combinations.

For instance, Radworks treasury lends $100k worth of $RAD for 90 days at a 110% upside cap. In turn, Radworks treasury gets approx. $14k USDC upfront.

If the $RAD price remains below 110% after 90 days, the originally loaned $RAD is returned. If it exceeds 110%, Radworks treasury receives $110k USDC (and still keeps the initial $14k USDC upfront).

Conclusion
This proposal outlines how the Radworks community can generate USDC cash revenue by using idle $RAD treasury for covered call lending. This approach not only diversifies the treasury but also avoids market impacts that could arise from outright selling $RAD tokens. I’d love to hear the community’s thoughts on this idea and more than happy to outline a detailed draft.

[abbey]

Hi @dominic !

Thanks for your post!

You are correct, the Strategy committee is going to be actively exploring what “sustainability” means for Radworks throughout 2024. This includes identifying potential treasury management strategies and supporting the development of community-led proposals alongside of the Governance Committee.

Personally, I am not an expert on call lending (or any financial management strategy for that matter) so probably can’t provide any productive feedback on your proposal, however we’re in the process of bringing on additional expertise within the Strategy Committee so that we will be able to start evaluating and activating community-proposed strategies.

I think the best next step would be to revisit this once we’ve initiated this traunch of work (sometime later in Q1). Then, it would be great to get this proposal in front of the stakeholders who can evaluate it more thoroughly.

If you have any other examples of this strategy active in the wild please share here - it would be great to read up on it more.

Thanks!

[dominic]

dear @abbey many thanks for your feedback, much appreciated! and more than happy to walk you through covered call lending in more detail if helpful!

Additionally, I wanted to mention that our recent proposal regarding the EVMOS treasury utilizing covered calls has been successfully approved. You can find more information here: Commonwealth

One last point: considering the current high volatility of $RAD (see below) and the potential for significant upfront premium/income your treasury can generate, please let me know if you think a detailed discussion over a call would be useful at this point in time.

[dominic]

hi @abbey happy friday - it’s been a while and I hope everything is coming along well on your side!

just quickly wanted to check-in on the above and ask whether you already got a chance to discuss your treasury strategy for 2024! would love to continue the convo and discuss how we can potentially support you guys!