How Can a DAO Treasury Hedge against Market Volatility Using Options?
A DAO treasury can hedge against volatility by buying put options on its non-native assets like ETH or BTC. A put option gives the right, but not the obligation, to sell the asset at a predetermined strike price, thus establishing a floor for the asset's value.
Alternatively, they can use zero-cost collars by simultaneously buying a put and selling a call. This strategy protects the treasury's downside while limiting upside potential.
Glossar
DAO Treasury Benefits
Allocation ⎊ DAO Treasury benefits, within cryptocurrency ecosystems, represent the strategic distribution of capital to foster protocol development, incentivize participation, and ensure long-term sustainability.
Securing Asset Value
Security ⎊ Securing asset value involves implementing robust measures to protect digital assets from theft, loss, and unauthorized access.
Dao Treasury Health
Metric ⎊ Dao Treasury Health is quantitatively assessed by analyzing the composition and stability of its asset holdings against projected liabilities.
DAO Treasury Holdings
Allocation ⎊ DAO Treasury Holdings represent the strategic deployment of capital within a decentralized autonomous organization, functioning as a core component of its operational and growth framework.
Dao Treasury Growth
Capitalization ⎊ Expanding the DAO treasury requires sophisticated deployment of existing assets, often involving low-risk yield generation strategies or collateralized lending within established DeFi parameters.
Put Option Mechanics
Mechanism ⎊ Put Option Mechanics grant the holder the right to sell the underlying crypto asset at the strike price, making this instrument valuable when the market price falls below the strike, providing a direct hedge against depreciation.
Decentralized Finance Risk
Systemic Vulnerability ⎊ Decentralized Finance Risk encompasses the novel threats arising from the composable, permissionless nature of DeFi protocols, including smart contract failure, oracle manipulation, governance attacks, and liquidity pool insolvency.
Crypto Derivatives Usage
Hedging ⎊ Derivatives provide essential tools for portfolio managers to isolate and neutralize specific risk factors, such as directional price movement or basis risk between spot and futures markets.
Treasury Asset Volatility
Volatility ⎊ Treasury Asset Volatility measures the degree of price fluctuation in the digital assets held within a protocol's treasury, typically quantified using standard deviation or historical variance.
Hedge against Inflation
Mechanism ⎊ A hedge against inflation is an investment mechanism designed to maintain or increase real purchasing power during periods of rising general price levels.