The Defiant

Solving DAO Treasury Pain Points… Step by Step

Sponsored

DAOs (Decentralized Autonomous Organizations) are a web3 innovation that have revolutionised the way we think about organisational structures and governance. By leveraging blockchain technology and smart contracts, DAOs enable decentralised ownership and d...

By: Avantgarde Loading...

Solving DAO Treasury Pain Points… Step by Step [Sponsored]

DAOs (Decentralized Autonomous Organizations) are a web3 innovation that have revolutionised the way we think about organisational structures and governance. By leveraging blockchain technology and smart contracts, DAOs enable decentralised ownership and decision-making through community voting mechanisms.

However, one of the many challenges faced by DAOs is the tools and know-how to manage treasuries efficiently and professionally. Being able to plan ahead, interpret market information, give full transparency and react quickly is essential for the sustainability of DAO treasuries.

Below, we’ll explore some of the challenges faced by DAOs when it comes to treasury management, and how they can be overcome.

Not All DAO Decision Making Should be Slow

Slow decision making can have its merits when a lot of research and thought needs to be put into forming a view on something. However, there are some decisions that require quick and agile response times. Treasury management is typically one of these.

the-defiant

Managing risk requires being able to react quickly to situations; for example a stable coin de-peg, a protocol hack, or an LP pool becoming in-balanced are just a few examples of situations where you’d want to react quickly. There is no time to waste when these sorts of things occur.

ENS DAO has trailblazed DAO treasury management with its sophisticated visions of what this should look like. Earlier this year, ENS DAO experienced first hand what it was like to have slow decision making times when USDC lost its 1:1 peg. ENS DAO members flagged the issue immediately and asked all the right questions. But the underlying structure of the DAO itself limited the team’s ability to respond to the situation quickly. There was a ~9 day time-lock from decision to execution and they were unable to react in the moment. That time could have been the deciding factor between getting out unscathed and suffering severe consequences.

Efficiency vs Decentralisation

Typically the more decentralised governance is, the slower and less efficient decision making processes are. This is a well known and accepted trade off. But what if you didn't need to choose one or the other when it comes to treasury management?

One way that DAOs can optimise both decentralisation and efficiency is by plugging their governance contracts into Enzyme's smart wallet architecture. This gives them the ability to assign one (or more) dedicated treasury manager(s) with smart-contract enforced roles, permissions and stop-losses. The DAO governance contracts keeps custody and control of the assets at all times but simultaneously empower individual(s)to work within some defined constraints. Permissions are easily configurable through an interface and have been pre-audited to assure there are no backdoors. By default, this makes the relationship between a DAO and a treasury manager trustless.

DeFi AlphaPremium Content
Start for free

As a sign of commitment to becoming part of every DAO treasury toolkit, Enzyme recently launched an updated grants program where it announced it will be prioritising grants focused on integrations related to DAO tooling.

Challenges with Reporting & Transparency

The promise of blockchain technology was that we could leverage code to automate huge amounts of work and not have to rely on any single points of failure. So why are so many DAOs failing to automate these processes and/or provide regular and transparent financials? In the cases where DAOs are providing reports, are they really getting the best bang for their buck?

Less than a year ago, Llama was asking AAVE for $2.5m to conduct treasury management, growth and analytics for 12 months. Steakhouse Financial meanwhile, won a proposal asking for $322,000/year in order to take care of Lido’s treasury. To put this into perspective, the median salary range for full time CFO’s in the UK at the moment is about $130,000 (as of June 2023, based on 348 profiles, source: payscale).

Automate Reporting & Save Millions

These sorts of numbers might work for larger projects, it’s difficult to imagine these costs being acceptable more widely.

Our approach has been to automate reporting for DAOs where we can. As a smart-wallet, Enzyme is underpinned by sophisticated subgraph technology (data pipelines) which enables anyone to query any event in real time or at any point in history. This provides 24/7 provable and auditable reporting. API’s have been built to extend this into customised automated reports which can enable DAOs to generate reports at a click of a button and a fraction of the costs.

Whilst the reporting angle doesn’t cover the full stack of treasury requirements yet, it does cover a decent portion of it. There are a few high-quality reasonably priced providers we have used over the years to fill in the gaps in the other areas which we can recommend too.

Picking the Right DAO Treasurer

There are a few different DAO treasurers who have started to build a track record of experience in managing treasuries in the web3 space. Two names which keep coming up time and time again, and which offer the full spectrum of treasury services, are Avantgarde (we are biased) and Karpatkey.

Avantgarde helps manage the DAO treasury assets of Nexus Mutual, Enzyme, Ambire and works with DAOs to facilitate management whilst ensuring the DAO retains total custody at all times. The broader Avantgarde group have been the core developers to the Enzyme protocol for nearly five years and have built up an expertise in DeFi development, investing, portfolio construction, on-chain risk management and web3 tooling. More recently they’ve enhanced their stack by partnering with other DAO service providers to further enhance with forecasts, payroll, accounting, setting up and managing of grants programs and the provision of financial accounts. In 2022, Avantgarde was a close runner up to Karpatkey for the ENS DAO treasury mandate, one of the largest in history.

Karpatkey today is the largest DAO treasury manager by Assets Under Management. Having worked hard on treasury from within Gnosis, they eventually spun out and were granted the entire Gnosis treasury to look after. This was a huge sign of endorsement from the team and followed by them winning the ENS DAO mandate last year. They regularly team up with Steakhouse Financial on mandates who have a track record in financial reporting and covering the full stake of DAO treasury services.

Conclusion

DAOs are far from fulfilling the web3 promise of efficiency and transparency when it comes to treasuries. However, we’re starting to see the tooling and service provision needed to turn this around. Enzyme and Avantgarde are excited to be at the forefront of innovation in this space. If you'd like to help progress DAO tooling and services with us, please reach out.

What have your challenges and experiences with DAO treasury management been so far? Do you want to tackle some of these challenges together? Do you think you can play a part in building our stack out to further benefit DAOs?

Please reach out to us:

  • luca@avantgarde.finance
  • conor@avantgarde.finance
  • grants@enzyme.finance

For more information, you can follow Enzyme on social media here and Avantgarde on Twitter and LinkedIn.

Subscribe to DeFi Daily Newsletter and Get Smarter on DeFi & Web3.

80k+ investors informed every day.