The utilization of DAO treasuries
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October 18th, 2022

When I first learned about the size of DAO treasuries, I was surprised at how many DAOs there are and their total value. Then, I dug deeper and learned about the current utilization of these funds, and I was truly shocked.

According to DAO analytics site DeepDAO, there is currently $9.7 billion held in DAO treasuries as of October 17, 2022, across all networks. These figures are the same as in March 2022, and considering the current market environment that we’re in, it is good to know that there’s some stability that we can count on.

That said, the top ten treasuries are all on the Ethereum blockchain and account for over 70% of the total value held in DAO treasuries today.

The goal behind writing up this post is to dig into the utilization of DAO treasuries. To do so, I’ll be taking a look at the following topics:

  1. Goals for DAO treasuries as per my conversations with treasuries themselves

  2. Asset allocation and utilization of these treasuries

  3. Diversification opportunities, including borrowing

Many will agree that we’re super early when it comes to DAOs, and we’re even earlier when it comes to treasury management. The majority of DAOs that I’ve spoken with over the past few months have mentioned that although they’re still figuring it out, now is the right time to discuss and test new avenues.

Even so, DAO treasuries know what the ‘why’ is behind their strategies, and that’s to preserve the longevity of their treasury as well as sustainable asset appreciation.

Here’s a rundown of the information that I’ve gathered

  1. DAO treasuries want to preserve the longevity of their funds

  2. According to Messari’s crypto report 2022 (see page 154), many DAO treasuries have almost 100% of their treasury allocated to their native token

  3. Current macro environments continue to be incredibly uncertain

    1. Even though we’re in a clear recession, the US continues to deny this in light of the upcoming midterm elections

    2. There have been no clear signals from the Federal Reserve on pausing interest rate hikes, meaning that fear continues to dominate the market

  4. Given most crypto assets are correlated to Bitcoin and the S&P 500, native tokens of these DAO treasuries take the biggest hit. The chart below shows the TOTAL3 Chart, which is the total crypto market cap excluding $BTC and $ETH which has fallen by 57% since this year’s all-time highs in April

Source: TradingView TOTAL3 Chart
Source: TradingView TOTAL3 Chart

The question now: Do treasuries need to sell protocol tokens to continue to survive in these difficult times, or is there another way?

As Ryan Sean Adams, co-founder of Bankless DAO said, “The liabilities side of treasury balance sheets is largely un-utilized. As there's more clarity on spending and asset allocation for protocol treasuries, the next area of focus will be treasury liabilities. This includes fixed rate secured loans, unsecured loans for highly rated treasuries, bond issuance, and protocol to protocol lines of credit. When the conditions are right, treasuries should borrow.”

Simply put, when the interest rate paid on the loan is cheaper than issuing tokens (equivalent to equity financing), it makes sense for DAOs to pursue debt financing. This is true especially when markets and token prices are down and you’d be giving away a lot more tokens compared to a few months ago.

At PWN, we’re obsessed with enabling cryptonatives to never sell their crypto again. We want to provide cryptonatives the services that traditional banks offer people who have real estate, physical art, or other assets. We want to empower them to not have to go through the stress of selling without the risk of being liquidated on price spikes.

So what would be the step by step case if a DAO wanted to issue a bond?

  1. Issue a proposal and with the DAO’s feedback decide on:

    1. Use of funds

    2. The amount of funds to raise

    3. Maturity date of the loan

  2. Post the loan request on PWN. This request is off-chain and therefore requires no gas fees. The DAO would be posting how much they’re looking to borrow, the amount of collateral, and the maturity date of the loan. Note that on PWN, there are no whitelists, which means any ERC-20, ERC-721, or ERC-1155 (either on its own or as a bundle) can be used as collateral

  3. Review the loan offers posted by various lenders. Some may accept the same terms as the loan request; others may post counter-offers

  4. Once the right loan offer has been chosen, accept the loan offer which would be an on-chain transaction and would require gas fees to be paid

In September 2022, Nation3DAO issued a bond to raise 50,000 USDC on the PWN protocol. To learn more, you can read the full summary of the deal and read the proposal on Nation3DAO’s forum.

We’ve seen this use case play out well for DAO’s, and PWN wants to help.

Get in touch with PWN on Twitter (or myself directly at @dipilalwani) if you have any feedback or would like to discuss this opportunity in further detail.

Best,

Dimple


PWN is a hub for peer-to-peer lending backed by digital assets. Use your NFTs or any token as collateral and invest in fixed interest loans and generate attractive returns. PWN makes this possible with no liquidation risks. Check out the PWN platform today.

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