HackMDMolochDAO Annual Report
Treasury Burn Rate Scenario Analysis
This analysis aims to show the different scenarios regarding MolochDAO's treasury and its grant allocation. Specifically, it considers three main factors: (1) the yearly USD price increase of ETH, (2) the increase in grant budget as a proportion of the ETH price increase, and (3) the budget allocation to the ReallyBoringGuild (RBG), for managing MolochDAO's operations. The model starts from 2021 and runs until 2035.
Of these factors, the most important yet most complex factor is the price increase in ETH. It is difficult to know exact pricing trend of ETH on an annual basis given the many factors that go into its price. Modeling out a scientific ETH price prediction model is beyond the scope of this report. Therefore the main assumption that has been made is that the price will continue to increase on a yearly basis and the only difference will be how much it will increase.
Regarding the RBG budget allocation, this was kept at a constant 30%. This reflects the typical operations budget allocation of non-profit which usually ranges from 30-40%.
Lastly, the budget allocated to grants has a starting point of 20% based on 2021 numbers and is capped at 80% as it increases on a yearly basis. Without this cap, it would keep increasing past 100% of the treasury which is not possible.
Given these, the goal then for this analysis is to present a framework on how to approach the budgeting of the MolochDAO treasury on a yearly basis given possible changes in ETH price while not being restrictive on the exact allocation of funds.
Scenarios
| Scenario 1 | Scenario 2 | Scenario 3 | |
|---|---|---|---|
| ETH Price Increase | Non-Linear | 50% annual increase | Doubles annually |
| Grant Budget Increase as a proportion of ETH price increase | 100% | 50% | 30% |
| RBG Operations Budget Percentage | 30% | 30% | 30% |
Findings
Scenario 1
This scenario reaches a peak of USD 4.1 million in annual grants given by 2023. After which, it steadily decreases to less than USD 1 million by 2027 and runs out by 2035.
Scenario 2
With a more predictable and larger price increase in ETH, this scenario peaks at USD 4.8 million in grants given by 2026 and decreases to less than USD 1 million in grants by 2030. The treasury also effectively runs out by 2035.
Scenario 3
The most aggressive scenario reaches a yearly peak of USD 23 million in annual grants given by 2027 after which it decreases to sub USD 1 million by 2031. It also runs out 2035 in terms of ETH but given the high ETH price increase assumed, there is some dollar value left albeit not much to make a significant impact.
Recommendations
Further scenarios can be explored by adjusting the factors. As one can see, the change in ETH price has the biggest effect on the grant allocation. Other pricing trends can be explored based on market action and ecosystem developments that help appreciate ETH's value.
The proportional increase in grant allocation can be pushed higher as well to see more aggressive and higher impact scenarios in terms of ETH ecosystem development.
All in all, hopefully this serves as a foundational financial framework on how MolochDAO thinks about its grant allocation and strategy.
