DeFi DAOs Diversify Token Treasuries Seeking Long-Term Survival

Decentralized autonomous organizations (DAOs) in the DeFi sector are increasingly moving to diversify their treasuries to ensure long-term survival.

Decentralized money market Rari Capital’s DAO is the latest to look at diversifying its treasury, launching a governance proposal that pushes for a share of its native RGT token holdings to be converted into stablecoins.

Published by Rari Capital investor Framework Ventures, the proposal advocates for the DAO to sell off up to 250,000 RGT or 10% of its holdings for USD Coin (USDC) through a public batch auction.

While the tokens would fetch roughly $8.8M at the current price of $35.14, Framework suggests a minimum bidding price of $25 per token based on applying a discount to the 30-day average price of RGT. The treasury would receive at least $6.25 million for the tokens using the discounted price.

$5M Backstop

Framework would provide a $5M backstop “to ensure that the DAO does not sell any RGT at too low of a price, while also ensuring that the treasury effectively diversifies.”

The post highlights that Rari Capital DAO’s treasury is currently 99.99% composed of RGT, asserting that “diversifying a portion of the treasury to productive assets outside of the protocol’s native token” would mitigate risk for the organization.

Tokens sold through the auction would be subject to a two-year lock-up “to ensure long-term commitment from participants” using ERC-20 tokens with vesting control applied to transfers. The proposal suggests that no maximum participation cap will be placed on bidders.

The response from Rari’s community appears positive so far, with forum-goer “CometShock” stating: “Having substantial non-native treasury assets is a key pillar to ensuring that the Rari Capital DAO can continue to fund and support its operations.”

Emission Schedule

“AverageDeFiDegen” suggested in Rari Capital’s forum that the funds be auctioned off in four batches of 62,500 RGT quarterly over one year, adding that a 12-month lock plus 12-month vesting would comprise a “healthier” token emission schedule.

Framework responded that they agree “fully” with the suggested emission schedule, and stated that it would like to gather further feedback from the DAO community regarding whether to stagger the auction.

Rari is not alone in looking to diversify the assets its treasury is exposed to, with some leading projects recently turning to venture capital to offload large sums of tokens.

BadgerDAO & Pool Together

In February, Bitcoin yield aggregator BadgerDAO (BADGER) launched a governance proposal for diversifying its treasury exposure by selling governance tokens to “strategic partners” over three months.

The move saw $21M worth of BADGER sold to Polychain Capital, ParaFi Capital, Blockchain Capital, and a notable Bitcoin whale the following month.

In May, tokenholders of decentralized lottery protocol PoolTogether (POOL) voted in favor of a proposal to sell 538,461 POOL to Galaxy Digital, ParaFi Capital, Dragonfly Capital, Maven11, and Nascent in exchange for $5.95 million in USDC.

The transactions saw 5.38% of POOL’s supply or 7.2% of the DAO’s treasury was sold to the investors. A portion of the tokens are subject to a time-lock, while another share of POOL can be deposited into the protocols pools to generate yield but cannot win prizes.

Following the transactions, PoolTogether’s treasury now holds $7M worth of stablecoins and 52% of the entire POOL supply. The tokens were sold for $13 each based on a 35% discount on the token’s then-14-day moving price average.

“Outside of helping jump-start growth, diversification of the treasury makes sense to ensure long term protocol sustainability in the event of any major 2018-style bear markets,” PoolTogether wrote.

SushiSwap Proposal Shot Down

However, a similar proposal from SushiSwap to diversify its treasury assets via a $60 million strategic fundraising round was shot down in a matter of weeks after coming under fire from the project’s community in July.

Some projects have sought to diversify their treasury portfolios to include the governance tokens of other DeFi protocols, including decentralized asset management protocol dHEDGE (DHT).

In August, the DAOs of Perpetual Protocol (PERP) and dHEDGE swapped $1,000,000 worth of their respective governance tokens, while a similar transaction worth half of the value was conducted with Mask Network the following month.

dHEDGE, mStable & UMA

In early October, Synethix led dHEDGE’s $2M “DAO treasury diversification round.” Synthetix has also taken action to diversify its treasury, selling $12M worth of SNX from its DAO treasury to Coinbase Ventures, Paradigm, and IOSG in February.

dHEDGE’s DTOP token — an ERC20 that tracks the performance of the platform’s top 10 asset managers based on a risk-adjusted score — has similarly been used by DAOs as means to diversify treasure exposure.

In May, mStable and Perpetual Protocol each invested $200,000 into the token, while Maple Finance and Horizon Finance allocated $100,000 from their respective treasuries, and InsurAce bought $50,000 worth of DTOP. The DTOP token is up 8.46% since launching on April 1.

UMA also sought to innovate a product designed for DAOs interested in treasury risk management with the launch of its Range Tokens in August. The project describes its Range Tokens as akin to convertible debt, allowing DAOs to utilize their native tokens as collateral to borrow funds without the risk of liquidation.