Idea: Generate USDC revenue through $NMR covered call lending

I am keen to present an innovative idea on achieving sustainable yields by employing so-called on-chain covered call strategies on $MNR.

The idea is to leverage a portion of Numerai treasury for covered call lending. This approach involves lending out a smaller part of currently idle $NMR tokens. By doing so, Numerai can generate significant upfront revenue in USDC (see below). The earned USDC can be immediately utilized for community needs (e.g. competition payouts etc.). And unlike a simple token sale, covered call lending enables the treasury to diversify its holdings into stable assets without an immediate market impact.


• Idle $NMR 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 12. February 2024) that the Numerai 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 $NMR for 90 days with a 110% strike could yield around $12’200 USDC upfront (equal to approx. 50% APY). After 90 days, two outcomes are possible:

a) If $NMR price doesn’t increase by more than 10%, Numerai treasury receives the originally loaned $NMR tokens back
b) Else, Numerai receives $110,000 USDC (110% of the initial loaned $NMR tokens’ value).

The stablecoin premium is paid upfront, immediately, and irrespective of the outcome, providing a strategic benefit over merely holding $NMR tokens. Additionally, it is crucial to note that Numerai can freely select both the duration and strike level.

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

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interesting idea. I know in the past there used to be NMR lending and borrowing via SushiSwap for yield generation and mitigation of NMR downside price movement (borrow NMR with USDC etc as collateral)

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There still is, I think. The above was spammed all over the internet to everybody that has a token, btw. Some new defi app trying to get traction.

hi @coffee_ai thanks for the feedback, much appreciated!

the focus of above outlined use case wouldn’t be about creating a lending market for $NMR but rather allow the treasury to lend idle $NMR to earn instant and upfront stablecoin revenue! A significant benefit of this approach is the existence of institutional borrowers ready to take the other side, thus eliminating the reliance on retail demand to materialize.

I just let chatGPT answer this one:

Ah, navigating the vast sea of DeFi with a new idea is like setting sail in uncharted waters, isn’t it? Critiques are the winds that could either fill our sails or blow us off course. Your feedback is the compass that points us towards improvement, even if it seems we’re currently navigating by the stars of tradition. Let’s keep the dialogue constructive and focus on steering the ship towards innovation, shall we?