A Quick Overview of DAO Treasuries
Entering into the web3 world comes with a vast array of terms, which can sometimes be overwhelming and difficult to sort through the technicals, it’s simply a whirlwind! However, one word you need to know is DAO Treasuries, an up and coming trend and the future of crypto space!
Even after the FTX crisis, DAO Treasuries now have over $9 billion USD in AUM, nearly $7 billion of which is liquid, the rest being vested (the allocation of some percentage of tokens before ICO or to contributors). This impressive feat is spearheaded by a few large DAO’s, namely Uniswap with $2.7 billion in AUM, BitDAO with $1.7 B and ENS with $1B. These three alone make up almost more than 50% of the total DAO assets! The rest of the contributors to this space are smaller, with only 184 out of the 2000+ DAO’s having over $1M in assets. Not only this, but most of this DAO Treasury is in the DAO’s native token.
These treasuries are able to make money through the selling of their DAO tokens, which are then converted to stablecoins, and can be further converted into fiat currency. The second most used DAO treasury denomination is in stablecoins themselves, which serve to reduce volatility in the treasury. DAO’s are also able to make money through their own revenue generation systems. An example of this would include Investment DAO’s (check out our article on them here!), where returns are generated through the DAO Treasuries activity. To monitor different protocol on-chain revenue, Token Terminal is a good place to go!
Deep Dive into DAO’s (DDD): Storage of treasury assets
You personally probably have tried hot wallets like Metamask and Trust Wallet, or cold wallets like Ledger. At a personal level, yourself holding the private keys of your own wallet won’t be any risk other than leakage. But at a group level, like a company, organization, and DAO, you won’t give the private key to any single person to avoid stealing. Ever imagine how we should deal with the private keys and access to the treasury wallet?
Existing solutions of wallets for a group of people are in two types – custodial and non-custodial. Custodial wallets are run through a centralized company, such as Fireblocks and HexTrust, that act as a custodian to hold your digital assets. In other words, you nor anyone in the group need to hold the private keys, but the custodian holds it for you. However, keeping assets in a centralized company defeats the purpose of a ‘decentralized’ system and it is a costly service for small DAOs and businesses, which brings us to our next option.
Non-custodial wallets for groups like Gnosis Safe’s multi-sig breaks down the private key into different separate keys, and selecting a few people to hold the separate keys. When a transaction needs to go through under multisig, those few people sign together. Multi-sig currently serves as the industry norm for group treasury asset storage, but this solution also creates other problems like key-man risk, rug pulling, and efficient bottleneck which we explain more in another article here.
The answer to “How should we deal with the private keys of a group treasury” is that no-one should be holding the keys at all, we’ll explain more in the coming parts.
Deep Dive into DAO’s (DDD): Reporting & Transparency
Since DAO’s are relatively new in the space, reporting and transparency are imperative to incentivize new investors who are only just dipping their toes.
DAO Treasuries exist on the Blockchain, which means the information is available for all to read. It is fundamental to the nature of DAO’s that this is the case, and there are a variety of ways you can access this information.
The first of these is DeepDAO.io. This website is a comprehensive dive into the DAO’s that are reported by the site, showing things like the treasury value, top investors, members, governance, proposals and more. While many choose this route, there are other methods and each DAO can choose their own method to report. Another site, Dune Analytics shows more comprehensive information of what exists in the DAO treasury, in an albeit less user-friendly manner.
If the treasury you want to monitor isn’t on any existing tools yet, a bit of coding and technical knowledge might be needed to extract the data. Existing DAOs are currently reporting in their own ways, like AAVE have contributors to write the Financial Reports. However, the details and reporting method varies among DAOs, making metrics included highly doubtable. Issues like accounting volatile assets, separation of expenses, token earnings, etc. left unstandardized. We’re foreseeing a reporting standard to arise anytime soon.
Deep Dive into DAO’s (DDD): Allocation of Assets & Treasury Management
The allocation of the DAO’s assets normally depends on the policies of the DAO itself and what type of DAO it is. Here’re some types of allocation:
Staking is the most common investment in the DeFi world. People often have less active management after staking the assets, just waiting for the yields to be distributed. However, the risk is earning yields but losing on the price drop of the asset. Another thing to consider is that not all platforms support multisig wallets, some DAOs would transfer money to a person’s EOA to do staking, which weakens the treasury safety.
2/ Buy NFTs
No matter collector DAOs or other kinds of DAOs, buying NFTs artwork is one of the common asset types they choose.
3/ Buy US treasury bills
While not every DAO is able to do this, MakerDAO, the DAO behind stablecoin DAI, bought US$500m short-term United States Treasuries and corporate bonds. https://cointelegraph.com/news/makerdao-goes-ahead-with-500m-investment-in-treasuries-and-bonds Although the money doesn’t come from the DAO treasury but their collateral reserves, this is a big step towards tokenizing off-chain assets.
4/ Active trading
Very few DAOs are doing this, because of two reasons: 1) lack of speciality, 2) limited by the governance tools and framework. Trading requires skills or simply putting money to financial institutions funds for professional managers, not many DAOs are seeking such solutions. Also, embracing decentralization, trade authorization would be a pain for multisig treasuries and limited to governance voting. A lot of time is wasted waiting for signers and voters to pass things through. ADAM Vault provides a Budget system that could solve this problem, read more in the last part.
5/ Do nothing
Most of the DAOs are choosing this method, sitting tight with their own tokens and stablecoins in the treasury.
The Future of DAO Treasuries – Jobs and Beyond
With DAO Treasuries comes the need for people to manage it, for which treasury management becomes a relatively new but growing demand in the space. The current market consists of smaller DAO’s looking for individuals to manage their treasury and DAO operations. Job descriptions include: maximizing capital efficiency, ensuring liquidity, looking over and through proposals within the DAO, staking native tokens, among other things.
Many of these positions require financial management backgrounds, as well as competencies in the web3 world. Though niche, jobs as such pay similar if not more to other middle-level financial management positions. This growing demand may also drive compensation up, and being a part of a DAO in and of itself gives access to the DAO treasury and value derived from it.
Some places to look at for DAO Treasury jobs could be https://web3.career & https://remote3.co/web3-jobs though there are many more jobs available outside of them. Checking a DAO’s discord could also give you access and insight into what roles are hiring related to DAO treasuries.
Get a decentralized treasury on ADAM Vault
We discussed how the treasury works and the current landscape. Although it’s still early for the treasury world, there’re gaps within the treasury hostage, reporting, and management. ADAM Vault is created to tackle the above problems, bringing treasury management to a new level.
Different from the existing norm, ADAM Vault allows DAO and organizations to use smart contract Budget proposals to regulate outflow and expenditures, replacing multisig. The smart contract outlines the conditions like where, who, and how much to spend. And the Budget must be put on vote. This is easy to use along with high security and safety, with no one holding the private keys to the treasury. DAO members could appoint treasury managers or on-chain investments teams through Budgets. Treasury reports will be generated timely in the dashboard.
At the end of the day, understanding why decentralized treasury management is the future is the first step. Learning how and why they work can give users an insight into the different aspects of web3 treasury, and why it’s the safest option for any DAO treasury or web3 community. Find the treasury management that works for your organization, and watch how transactions become more effortless and transparent.