Remove Risk-3 From OUSD Curation and Focus Allocation on Risk-1/Risk-2

Proposals
1

Summary

This proposal updates OUSD’s risk policy by removing Risk-3 markets from active curation and focusing allocation on Risk-1 and Risk-2 markets.

The intent is to improve risk-adjusted yield by excluding markets with higher tail risk and limited incremental benefit, while improving the flexibility to allocate across Risk-1 and Risk-2 based on yield, liquidity, and market capacity.

Motivation

  • OUSD is positioned as a stable, risk-aware yield product.
  • Current market observations indicate most target outcomes can be achieved using Risk-1/Risk-2 markets.
  • Maintaining Risk-3 adds complexity and additional downside pathways that are not currently justified.

Proposed Policy Change

  • Remove Risk-3 markets from OUSD active curation.
  • Keep Risk-1 and Risk-2 as the main active allocation buckets.
  • Allow dynamic allocation across Risk-1 and Risk-2 without fixed hard caps, based on:
    • risk-adjusted yield
    • withdrawal/redeemability conditions
    • market liquidity and capacity
    • ongoing risk monitoring

Scope

This proposal is policy-only.

Included:

  • Risk framework update for OUSD market curation.
  • Post-vote curation/configuration changes by the relevant curator/operators.

Not included:

  • No OUSD contract upgrade.
  • No tokenomics change.
  • No change to OUSD core redemption design in this vote.

Implementation (Post-Snapshot)

If approved, execution is performed as curation/configuration updates:

  1. Remove or disable Risk-3 markets from OUSD active curation.
  2. Reallocate any active Risk-3 exposure into Risk-1/Risk-2 markets.

Risk Levels (Definitions)

Risk Level 1: Secure, battle-tested platforms with deep liquidity and long history of stability.

Risk Level 2: Includes well-established protocols or newer versions of Risk-1 platforms. Higher yields come with a small amount of additional risk.

Risk Level 3: Emerging protocols and newer assets with higher yield potential but limited stress-testing.

More information on Risk Levels:

Risk Management

This change is intended to reduce portfolio complexity and tail-risk exposure.

Key controls remain:

  • liquidity-aware allocation
  • active monitoring and alerts
  • operational discretion to de-risk when market conditions deteriorate
1 Like
2

Tail risks aren’t only limited to emerging curators in DeFi. Established platforms in Risk-1 and Risk-2 share overlapping infrastructure and collateral dependencies, meaning full concentration there doesn’t eliminate correlation risk, it just hides it. Rather than removing Risk-3 entirely, we recommend capping allocation at 5%, sized so that a worst-case loss is immaterial to the portfolio while preserving an uncorrelated yield source and maintaining strategic optionality.

1 Like
3

I appreciate the feedback. I see the tradeoff differently: in practice, adding a Risk 3 bucket introduces meaningful additional risk and allocator complexity, while the incremental yield has not been a core driver of OUSD performance.

A key point is market positioning. Today, most products are clustered at either very low risk/low return or high risk/high return. This proposal is designed to keep OUSD in the middle: a product with a strong risk-adjusted yield, supported by Risk 1 and Risk 2 assets, and without the operational overhead of a Risk 3 sleeve.

That matters even more in a cross-chain setup, where allocator complexity compounds quickly as USDC is deployed across multiple chains. In that environment, simplifying the framework improves reliability and clarity of governance without sacrificing the core yield profile.

We can always revisit Risk 3 later if market conditions change and there is clear evidence that the additional complexity and risk are justified.

1 Like