Why DAO Treasuries Should Be Put to Work

With billions of dollars in native tokens sitting in DAO treasuries, some in DeFi are seeking ways to generate yield on languishing crypto

article-image

Source: Shutterstock

share

DAO treasuries are collectively valued at billions of dollars. A large chunk of that money sits unused, generating no yield.

Yep, DAOs are keeping their eggs in one basket, and the basket in a safe.

DAOs commonly compose treasuries of their native governance tokens. The Uniswap Foundation, for instance, has a treasury worth over $2 billion at current prices, denominated entirely in UNI. 

It’s clear that DAO treasuries would be worth far less if liquidated all at once, especially considering how shallow markets for their respective tokens can be.

Still, these monolithic treasuries often result from the tokenomics of fundraising — printing and selling governance tokens — of which the DAOs themselves retain valuable amounts.

“A lot of DAOs amass a treasury first and then decide what to do with it second,” Dan Kelleher, vice president of engineering at Civic Technologies, said.

Treasuries are sometimes understood to be a DAO’s backstop, a kind of failsafe source of liquidity. When governance tokens are growing in value, this system works pretty well. In mid-2021, the 38 largest DAOs had treasuries worth over $15 billion.

But in a slumping market, DAOs are learning the danger of getting high on their own supply. Total DAO treasury funds dipped as low as $8 billion during this summer’s crypto crash. 

DeFi is developing new treasury management methods, though. Aera, which launched on Polygon this week, uses a treasury management algorithm to move DAO funds into stablecoins and “top tier” lending protocols like Aave and Compound. 

“If market prices fall pretty quickly, protocols are at risk of having some amount of insolvent debt [if their treasuries are not diversified],” Rei Chiang, a developer behind Aera, said.

Even for DAOs that don’t have large single-token treasuries, like MakerDAO, a lot of assets tend to sit around instead of accruing value.

“Maker has billions of non-productive assets (other stablecoins) on its balance sheet that it can and should refinance into productive assets (like bank loans or loans to Coinbase),” Gregory di Prisco, MakerDAO’s former head of business development, said in a Telegram message.

Trading with DAO treasuries would be risky and could result in actually losing funds. Some flagship DAOs are instead opting for much safer bets.

MakerDAO recently approved a proposal lending $1.6 billion of its USDC to Coinbase, and invested $500 million dai in US Treasurys. Uniswap, on the other hand, is spending some of its treasury hoping to grow its ecosystem.

Hamzah Khan, the head of DeFi at Polygon, believes other DAOs should follow suit.

“Most of DeFi was built by pure engineers, and not so much by finance people,” Khan said. An engineer-heavy space is great for technological soundness, but with major financial institutions venturing into DeFi, Khan believes DAOs need to start being more capital efficient, too.

“Institutions are going to come. More sophisticated participants are going to come, and we have to be ready,” Khan said.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Tags

Upcoming Events

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Avail.jpg

Research

Data publishing costs have historically been a bottleneck for rollups, and as more rollups launch, interoperability will continue to be a major challenge. Avail presents a potential solution to rollup fragmentation through its three products: Avail DA, Nexus, and Fusion, which together aim to unify the web3 experience.

article-image

The Bitcoin halving is a spectacle that only comes round once every four years

article-image

The SEC alleges that Justin Sun spent nearly 400 days in the US from 2017 to 2019

article-image

Short-term “sell the news” reactions could follow new BTC price peaks months from now, industry watchers say — but only if history repeats itself

article-image

While crypto fundraising remains well off its bull market highs, Q1 data shows capital is returning to the space

article-image

Billed as a better BRC-20 fungible token standard, Bitcoin Runes launches tomorrow

article-image

Bitcoin miners need to explore unconventional energy avenues or be buried by the financial realities created by this halving