DAO Treasury/Balance Sheet Management
Recommendations and guidance for DeFi protocol DAOs on various instruments that could be used to manage balance sheets/treasuries.
Though this heavily abridged version contains many of the key takeaways from the main report, detailed assessments of the many available instruments and their risks are only in the full report.
The purpose of any protocol DAO is to manage and govern its protocol in perpetuity. Protocol DAOs therefore need to capitalize themselves in a way that not only ensures their ongoing operations can continue, but also lets them invest in their protocol’s future growth — this is not dissimilar to how corporations think about capitalizing themselves. Much the same as how traditional corporations can use retained earnings, equity, and debt to finance themselves, DAOs also have a similar universe of options:
As can be seen in fig. 1, however, many DeFi DAOs hold nearly all their treasury assets in their native token. Given their operating expenses are denominated in USD/fiat, another sustained bear market might force DAOs to sell native tokens at “fire-sale” prices to finance their normal operations. DAOs therefore ought to generate multiple income streams (i.e., protocol revenue and yield from investments) that can cover these operating expenses; but since the treasury will need to have an asset base to generate yield/non-operating income, DAOs also ought to consider conducting token sales or issue debt to create this asset base.
