Are DAO treasuries diversified? Observing recent trends

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Blockchain
Are DAO treasuries diversified? Observing recent trends

To operate effectively and with longevity, most DAOs raise a treasury. The way that treasury is used defines the DAO: Are many members participating in the proposals and voting regarding treasury distribution? Is the treasury diversified? What are the funds used for?

According to stats gathered by DeepDAO, out of 10,863 DAOs commanding a total treasury of $11.3b, only 2,311 DAOs have significant assets under management, with just 123 managing over $1m. Over 9.3m votes were cast for over 94k decisions, which is far from evenly distributed.

Common treasury uses

Since treasuries tend to hold mostly the DAO’s governance token, one obvious use of the treasury is to encourage liquidity of the token by supplying liquidity to various pairs for the governance token on multiple exchanges. 

Similarly, a DAO may want to bring more attention to its governance token and make it more desirable by rewarding yield farming. DAOs do need to be careful about diluting their token’s value if they allow too much mining too fast. 

Marketing is another natural application of treasury funds. DAO marketing often focuses on partnerships, community engagement programs, and sponsorships — all of those cases best paid out in the governance token to increase the number of holders.

Treasuries are also used to pay the salaries and bounties of core team members and other contributors. What could be more powerful in demonstrating that an organization is decentralized and autonomous than having the members propose and vote on the compensation for contributors?

Treasury diversification

Holding most of the treasury in your governance token makes logical sense since it costs you virtually nothing to mint it, and you want to show its strength and legitimacy by holding a chunk in the treasury. 

But it’s very risky to rely on one token and not hedge against the volatility of its price action. Some DAOs diversify by holding stablecoins (usually pegged to $1) and (or) blue-chip cryptocurrencies like bitcoin (BTC) and ethereum (ETH). 

Some DAOs hold sTokens representing a staked crypto, often a staked stablecoin, giving the treasury a base asset deemed relatively stable while also providing yield. This is important since every treasury needs to grow via new revenue, from yield, fee collection, or other sources. Otherwise, operational spending will empty the treasury.

How can DAO treasuries get better?

The most practical thing is to make DAO treasury management more efficient. Many DAOs already use Gnosis Safe tech. Some tools, like Coinshift, build on top of that with more efficient payroll and other treasury management services. Efficient treasury management brings DAOs a few steps forward. But how can there be an actual leap forward? 

For that, it helps to think conceptually, understanding what the treasury is uniquely capable of achieving. For example, rather than only rewarding contest participants with the governance token, why not reward DAO members for submitting proposals, voting, and executing them?

That’s the approach taken by the DAO Treasury Management protocol that DeXe DAO is bringing to market in 2023. DeXe’s DAO builder allows for flexible reward setup and easy treasury management. But to make it effective, it helps to have suitable options at the beginning of DAO creation. Want to use ETH as your governance token? Go ahead. Want to create your own? No coding is required. Want to use NFTs to give the most dedicated community members more governing power? Done! 

One glaring problem with treasury management is that each DAO usually focuses on solutions within the silo of its own DAO or even its products. And yet, what’s the harm of benefiting from outside offerings that produce financial gain for the DAO?

Solutions like DeXe’s allow any DAO member to create a proposal for interaction with any other DAO protocol. If it passes, smart contracts will implement the integration. So if a DAO wants to earn interest by lending on Compound, it can be done.

At the end of the day, a DAO is only as strong as its treasury. To fund more research, development, community-building, and much more, a treasury needs to be robust, diversified, and quick to take advantage of market opportunities — while still being governed in on-chain, decentralized, autonomous ways. Then it can help the DAOs grow.

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Dalmas Ngetich

Dalmas is a very active blockchain and cryptocurrency content creator and highly regarded Technical Analyst. He is a Mechanical Engineer by profession and an activeTrader, whose first encounter with Bitcoin was in 2015—and by accident. Ever since, it has been an exciting journey where life-long friendships have been forged, and careers made and strengthened.