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title: Conceptualization of DAO Treasury Management

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# Conceptualization of DAO Treasury Management

## Four Functions to help manage a DAO 


### Spending

- Goal of Treasury spending is to reward contributors and attract the right set of contributors
- Grants Programs - aim to fund individuals and teams that contribute to the protocol 
    - Can outsource expertise in certain fields - i.e. Risk committee designed to evaluate asset listing, monitor reserves, and assess liqudity (See Active Management below)
- Buyback programs - treasuries are advised to buyback tokens when they trade at a signfiicant discount with a portion of protocol earnings


### Diversification / Asset Allocation
- "A well managed DAO Treasury should protect the DAO from underlying asset volatility, providing a stable and predictable asset base to plan for future operations"
- Goal is to ensure that the Treasury can continue to fund critical development irrespective of the market environment 
- Diversification into Stablecoins = first priority of many large protocls
    - Given most of crypto market is both volatile and highly correlated - non-correlated assets play a crucial role - stablecoins, fixed income products, and on-chain gold proxies
    - Stablecoin allocation should at least cover a few years of operating expenses - stability to manage market downturns and cycles
        - A lot of DAOs hold native token as majority of assets - not wise - ex. 2017 ICOs Treasuries kept proceeds in ETH, ETH Crypto winter happened and project treasuries saw their runaways shrink from 2 years to 6 months
- Benefits = maintain / ramp up spending in event of market drawndown, allow governance contributors to be fully or partly paid in Stablecoins, can earn yield on generating protocols providing liqudity on stable coin pools
- Negative = requires selling native protocol tokens - unless there is a revenue stream being directly distributed to Treasury in FIAT form
- Common practice of other DAOs (currently) is to hold L1/L2 tokens native to protocol deployed on
- If Treasury can only rely on native tokens to fund its needs, taking a huge risk that the tokens will have value relative to suppliers, contributors, etc.

### Borrowing / Lending
- Liabilities side of Treasury balance sheet is largely un-utilized
- Fixed rate secured loans, unsecured loans (DebtDAO), bonds issuance, and protocol to protocol lines of credit
- **When** the conditions are right, Treasuries should borrow
    - Different forms - one form = deposit collateral into yield generating protocol and borrowing against it
- Use cases for borrowing = fund development and operations, fund protocol acquisitions, fund yield farming with debt rather than tokens
 - **Q: In what cases should Treasuries borrow instead of spend native tokens?** 
    - Governance rights - prevention of distributing ownership and voting rights to stakeholders that don't beenfit the protocol over the long term
        - I.e. Neopolis community recognizes influx of mercenary capital users taking advantage of APY rates... 
    - Cheap cost of financing - funding expenses via debt at certain rates can be cheaper than tokens
    - Contriubtor payments - bulk of contributor payments to short term contractors/partcipants in stablecoins while long term contributors are partly paid in vested protocol tokens
    - Compounding - prevent harming Treasury returns by giving away tokens at inopportune times
    - Precents price dilution by keeping native tokens off market



### Reporting

- Can be useful to disclose Treasury performance to community members and investors - showing confidence and transparency 
- Income statement, balance sheet, key revenue drivers, salaries and priorities for the protocol

### Case Study - MakerDAO Protocol

- MakerDAO example - https://dune.com/SebVentures/maker---accounting_1
    - Dune Analytics - real time P&L / balance sheet data



## Goals of DAO Treausry Management
**Inflows should exceed outflows**

1) Portfolio of assets to have low risk and proper diversification
2) Proper liqudity management to serve the game purpose - solvency and liqudity for in-game activites
    - Liquidity = essential to onboard and offboard members from DAO activites
    - One step in achieving this = Budgeting / Liqudity Forecasting
- Summarizes current total budget (percent of assets)and then categorizes spending budgets relevant to DAO activites
- Once a budget is in place - DAO members can forecast liqudity needs
- Liquidity forecasting example - assumption in place 100% of costs are paid at beginning of the period with no revenue coverage - then DAO plans to have 110% liqudity available in stable coins before period starts
    - A constant process to consider even into future periods
    - Members of DAO = responsible for this -> Treasury then takes these mappings and manages assets accordingly
    

## Strategies of Treasury Management 

- Active Treasury Management
    - Can work with other protocols directly focused on managing a portfolio of assets and mitigating risk

- Prioirty = meeting the short term liqudity needs but planning ways to generate additional liqudity for future periods
    - If limited in reach, finding ways to stategize on borrowing / additional investment opportunity

- Treasury must determine where revenues received will be used to pay for expenses 


## Other Notable Finds / Worth Mentioning
- Will ultimatley be DAO members who decide the direction of the Treasury - to keep in mind with initial design
- Can create SubDAOs - which act as special economic zones - to create delegated authority over who can govern over critical parts of the DAO
- Rules for allocating native tokens over time can be encoded in the beginning in the formation of the DAO
- Fixed rate debt opportunities can allow DAOS to model out their cost of capital - can help fund operations, acquisitions, and other opportunities
    - Element & Yield = two examples where possible




## Questions Relative to Neopolis 

- Q: What percent of earnings will be re-invested? Does there need to be a defined percent or a target percent?
- Q: Will Revolt Land be placed in the Treasury?
- Q: What borrowing/lending protocols will be used to earn yield on assets?
- Q: If an Active Management strategy is chosen - is it necessary to establish a SubDAO that posesses certain authority over certain finanical capabilities (i.e. asset allocation) - is this necessary?
- Q: What happens if a DAO passes a proposal for an upcoming liqudity forecast and then finds themselesves unable to fund given proposal? 


**Q: What type of strategy / approach to DAO Treasury Management does Neopolis seek to implement?

Managing a Treasury is both an extensive and crucial task to the development of the ecosystem.


## Articles/Resources to Consider

- https://medium.com/hedgey/the-dao-treasurer-series-part-1-fundamentals-f6fcefefaad0

- https://blog.bancor.network/healthy-liquidity-why-is-it-important-for-dao-treasury-management-70308bf56d37

- https://medium.com/bankless-dao/the-bedrock-of-dao-treasury-diversification-eb3e06a7424c

- https://docs.debtdao.finance/lending/how-to-lend

- https://shreyashariharan.com/2022/04/15/building-an-economy-within-a-dao/

- https://blog.tally.xyz/the-search-for-sustainable-liquidity-9d592b4fa650

- https://openorgs.info



