Maple Finance - DAO Treasury Management Panel
Primer: DAO treasuries are growing larger by the day. How can we optimize the value captured in these treasuries? Join Sidney Powell, Auryn Macmillan, Shreyas Hariharan, and Sam Cassatt as they discuss their thoughts and strategies on this matter, with the host Andrew Thurman.
Speakers
Host: Andrew Thurman
Tech reporter
Formerly worked as a weekend editor at Cointelegraph
Was a partnership manager at ChainLink
Co-Founder of a smart contract data marketplace startup
Panelist: Sidney Powell
Co-Founder of Maple Finance
Panelist: Auryn Macmillan
Gnosis
Former pro basketball player and shadowy super coder
Currently working on the Zodiac standard for composable DAO tooling at Gnosis
Contributes to CLR fund in his spare time
Panelist: Shreyas Hariharan
Founder of Llama, works on the building blocks for DAO treasury management
Active contributor in many DAOs, including Aave, Uniswap, Gitcoin, and Friends with Benefits
Panelist: Sam Cassatt
From Neptune DAO, a DAO that aims to invest in various liquidity opportunities in the DeFi ecosystem
Founder of Aligned Capital
Former CSO of ConsenSys
What Is A DAO?
Auryn
Traditional organizations lean on a legal structure provided by a government in some jurisdiction to enforce its rules
A DAO chooses a radically different jurisdiction — deploys part of its operational rules onto a public blockchain
Shreyas
A DAO is internet native
Ownership and membership is a key element of DAOs
Do not want to give a technical definition for DAOs. DAOs could even be a group chat that has access to a multisig for some decision making
Sam
DAO stands for Decentralized Autonomous Organization
In the early days, there have been talks of The DAO, which was designed to be a decentralized venture capital organization. It failed at what it was doing
In a DAO, the top level decision making structure doesn't even necessarily need to be a human being. It could even be an artificial intelligence
In practice, a DAO consists of a group of human beings voting together or having joint control of a multisig wallet
There are also different legal instantiations of DAOs
Neptune DAO is a LLC that has members. The LLC decides to do whatever it does through an on-chain voting process that is codified in the legal documents that define the LLC
Creation of DAOs is motivated by the ethos of decentralization
Why Would A Profit-Seeking Organization Seek To Form As A DAO Instead Of A Corp?
Sam
The goal of a number of protocols is progressive decentralization. DAOs are structured to facilitate this process
For example, Neptune DAO is profit-seeking yet is formed around a community-oriented motive. This structure allows them to crowdsource intelligence and analysis and to produce something that's greater than the sum of their parts
Human organizations proceed at the speed of courts/boardrooms/human beings articulating themselves. In contrast, DAOs can theoretically proceed at the speed of code
Auryn
One big reason that a lot of organizations choose to operate as a DAO is that a DAO can be used to embody a shared belief about how the organization should operate
What got him excited about DAOs is that they are non-exclusive and permissionless. Anyone can enter or exit a DAO. These features make DAOs to have the potential to become more equitable organizations
Another benefit of DAOs is that they can be widely distributed geographically. Organizations can span multiple countries, jurisdictions, and cultures
A lot of people in the world do not have access to some kind of legal structure. DAOs are able to provide these individuals with a viable alternative
Sidney
DAOs provide a new framework for people to collaborate across different countries in a way that a LLC would be too slow and cumbersome to do
Current State Of DAOs
Shreyas
Broadly classifies DAOs into DeFi protocol DAOs (e.g. Uniswap, Aave, Compound) and social community DAOs (e.g. FWB, Forefront)
In DeFi protocol DAOs, the initial technology is created by the core team or a labs entity. Improvements, if any, come from the team itself, and not the DAO. Thinks that this will change in the future
Generally, DeFi protocol DAOs has governance over 3 things:
Protocol upgrades
Meta-governance (e.g. reduce the vote threshold, etc.)
Treasury (e.g. what do you do with this shared pool of assets, etc.)
Social community DAOs are much more lightweight and bottom-up driven. Collaborations and contributions are very fluid
Room for improvement:
DeFi protocol DAOs: Room to make it more effective, community-driven, and decentralized
Social community DAOs: Make more things on-chain. DAOify things more
Auryn
Introduces a 3rd broad category of DAOs: mechanistic DAO
Would put the Bitcoin and Ethereum networks into this category of DAOs
It has a rule set that's defined by the protocol and people are participating out of their self-interest to create a secure network. Can be justifiably called a DAO
Sam
There is a diversity of the motivations for the DAO
Was a founding member of Moloch DAO. Their goal was to provide funding for public goods
Finds VitaDAO really cool. VitaDAO is used to publicly fund biopharma life extension, which are domains that normally do not get much attention from VCs
Infrastructure For Decentralized Treasury Management
Auryn
Gnosis has been building the Gnosis Safe for the last couple of years. It has become the de facto standard to store funds in a decentralized way
In August 2020, he started to observe a pattern:
Organizations began spinning up Gnosis Safes with a handful of trusted signers to distribute trust amongst more than a handful of people
Spinning up Snapshot instances to give the community a tangible voice
This combination became a critical piece to enable DAOs
Gnosis has been working on standardizing some of the tooling. This would hopefully make the ecosystem more composable
Working on the Zodiac project: module interface for a Gnosis Safe —> plugging in other mechanisms as the DAO grows
Example:
Start out with a multisig
Spin up a Snapshot
Install reality.eth module and set a Snapshot plugin called Safe Snap (allows for the triggering of the Gnosis Safe to make transactions from the Snapshot interface)
Limit scope of what the multisig signers are able to do (e.g. they can only veto malicious proposals)
Has plenty of flexibility. Users can plug in Aragon DAO to their Gnosis Safe. If they decide that they no longer want it anymore, they can migrate over to Moloch DAO
Can also shift governance from Mainnet to somewhere cheaper to execute (e.g. xDAI). Hence, assets could still remain on Mainnet but execution could happen elsewhere
Best Practices For Treasury Management
Sam
There's a wide range of stuff that DAOs engage in that they call "Treasury Management"
For Neptune DAO, their goal is to manage their treasury in a way that provides liquidity to startups and protocols
What a lot of protocols do in their initial launch is to allocate some of their treasury to incentivize users to come on board (i.e. if you use our protocol, you can get some incentives from our DAO treasury)
In providing liquidity, Neptune DAO is exchanging some of their treasury for another DAO's treasury
Another thing that DAOs do is to help support the community and the user base around their protocol. They can create a fund to help people build on top of their protocol
A 3rd way is to approach it similarly to normal corporate treasury management. Ensure that the value stays high and lives in perpetuity, much like an endowment
Token Swaps Between DAOs
Andrew
Two different DAOs can swap their native tokens with one another to diversify their treasury as well as align their DAO with the success of another DAO
Sidney
When managing funds, you're going to bucket things in terms of their risk:
Low-risk allocation in money markets like Aave and Compound
Low-to-moderate risk allocation, which is where Maple Finance fits in
High-risk allocation, which is where DAO token swaps come in
Token swaps can be used to pursue 2 aims:
Business development and ecosystem growth. The token swap is used to foster a partnership with other DAOs in the ecosystem and ensure that they each have long term alignment
More akin to equity/venture-type stake. This would fall into the higher risk bucket. Therefore, it would be prudent to have only a small percentage of the DAO treasury allocated to this
Important to always take a holistic picture of your DAO treasury
Current State Of Treasury Management From A Tooling Perspective
Shreyas
Llama has been working with DAOs on building treasury strategies and reporting requirements
Data is available on-chain but tagging is not standardized. Hence, on the reporting side of things, it is quite difficult and things have to be done manually
Auryn and himself spoke on this before. Potential integration with Safe Snap where the reporting tag from a Snapshot proposal gets fed into the Gnosis Multisig transaction
Sees 2 broad buckets when it comes to treasury management
From a survival perspective where the goal is for the treasury to last forever. In most cases, you want to maintain the treasury to fund contributors to make sure the protocol survives. Treasury diversification and token swaps would fall in this area
From a growth perspective. Even today's large DeFi protocols are still in the early stages of their growth. Most of the assets in their treasuries are left idle. Hence, they are clearly not spending enough to grow. DAOs could consider trans-ecosystem programs, fund liquidity mining, and have collaborations with other DAOs to unlock their value
Thinks that innovation needs to come from both the:
tooling standpoint
tooling that enables the actual structure of how do you make this work better (i.e. customizing DeFi legos for DAOs)
Auryn
Another point of consideration is the pace at which a DAO can operate as compared to an individual/small group of people
DAOs interacting with DeFi have to select actions that are going to be longer term in nature
Most DAOs/multisig are still grappling with how to avoid losing a bunch of funding from Miner Extractable Value (MEV). DAOs are particularly vulnerable to this as they queue transactions a lot further in advance than most other entities. They end up having to set wider bounds on the slippage they are willing to accept
Two things to help with MEV:
Gnosis Auction, where they can sell off a portion of their treasury for another asset and still avoid slippage
Gnosis Protocol V2's CowSwap DEX, where they use a network of solvers to ensure that everyone who puts in an order receives the best possible price and are protected from sandwich attacks and various types of MEV
Sam brought up the topic of private relays. Auryn still thinks that it is very difficult for DAOs to hide their transactions, especially for permissionless DAOs where it is really difficult to define exactly when a transaction is going to be executed
Shreyas brought up the example of Vitalik donating $500 million of AKITA tokens to Gitcoin. The Gitcoin community was deciding what to do with this and the discussions are on a public forum where everyone could read them. Some people suggested dumping the AKITA tokens, but AKITA holders could frontrun Gitcoin if they chose to do so. The only option is to collaborate, much like in the Prisoner's dilemma
What Else Do DAOs Need?
Auryn
One of the biggest pitfalls of most DAOs right now is that everyone needs to vote on everything. This is insanely inefficient
Yearn is doing very well in this regard. Small informed groups of people are able to make decisions rapidly and token holders are given a route to disagree with those decisions
Big fan of how Colony operates. Motions will auto-execute if no one objects to them. When objections happen, this keeps decisions relatively local to the people involved with it
Good opportunity to create mechanistic DAOs where the desired outcome is the result of uncoordinated inputs from people acting in their own mutual self-interest. Great example of this is quadratic funding, where the desired outcome is a well-allocated pool of funding to public goods
Sidney
Tools to access DeFi and other products so that DAOs can manage their treasuries
Gnosis has done a great job with their Gnosis Safe product
Enzyme has also done a great job supporting swaps and trading
Sam
Lots of resources from the normal corporate finance world (e.g. service providers, financial products, etc. that can be used to approach treasury management)
Shreyas
Besides token swaps, DAOs may also want product integrations or participation in each other's governance
Token swaps between DAOs could also be streamed across a period of time
There should also be ways to reverse the token swap or stop the token stream if things are not going well
Q&A From Public
How Do DAOs Hedge Against On-Chain Risk?
Sidney: Risk bucketing the protocols you are interacting with. For vaults where one smart contract is stacked on top of another smart contract, one has to think about how many different verticals are there and how much risk you are actually taking
Sam:
Will always try to evaluate the smart contracts using their technical abilities before entering something
Insuring on-chain activity with insurance protocols
Creating a separate pool that auto-insures the protocol. Emerging trend of protocols that are launching liquidity programs that have a self-insuring mechanism inside it using their own token. Not sure how well it would work out
Combination of insurance and risk management would probably be the right answer
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