Enzyme as a Treasury Management Tool for DAOs

We recently wrote about the challenges we’ve been facing as a DAO. One of these challenges has no doubt been DAO Treasury Management. Shortly after decentralising the protocol, we never imagined that our main source of funding (our native token $MLN) would shrink so much in value the way it did. You never do expect these things to happen. In this blog post, we’ll talk about why we’re so excited about Enzyme as a treasury management tool for DAOs and about the steps we’re taking to manage our treasury more sensibly from now on.

Trustless relationships

Ever since we first set out to build Enzyme, we’ve always tried to find a way to preserve a trustless relationship between the manager of a vault and the investor in a vault. A lot of careful thought and design has gone into our protocol architecture to ensure that we are able to preserve this trustless relationship, especially given the complexity that arises with the many different types DeFi protocols we have integrated today.

But what about the relationship between a DAO’s Treasury and it’s token holders? Isn’t it the same thing? The types of ‘trust guarantees’ that stakeholders of a DAO want, are largely the same types of things as an investor would want when investing in say, a fund. Namely;

• Security in place to ensure the persons responsible for managing the strategy can not misappropriate funds
• Confidence that the funds are being put to work in a strategy that is pre-approved by the governance process
• A way to delegate day to day management efficiently
• Ability to restrict, pause or remove delegated permissions if certain thresholds or parameters are not adhered to
• Full transparency, real-time reporting and analytics
• Non-custodial to fit the spirit of DeFi
• Access to all the major opportunity protocols and opportunities in DeFi (trading, farming, liquidity provision, borrowing and staking).

Enzyme as a Treasury Management Tool

As it happens, Enzyme can already provide these features today. Here’s a list of some of the most interesting ones;

Delegation of trading
Ability for a contract (eg. gnosis SAFE, Open Zeppelin governor or other) to own the vault but delegate trading (trustlessly) to a third party.

Programmable risk management
Ability to restrict and specifiy certain allowed or forbidden investment behaviours (eg. delegated trader is only allowed to earn yield on USDC with Yearn, Compound, AAVE and Idle. Trading tokens is allowed, but only to farm the COMP, AAVE and IDLE tokens).

Fail-safe
Ability to pause delegated trading permissions if a delegated trader accumulates more than x% in trading slippage as a result of their trades on a 7 day rolling basis. ‘x’ is definable by the DAO.

Full transparency & historical reporting
Real-time overview of what is happening and ability to track historic metrics (eg. performance, volatility, trade history, etc) which are provable on-chain.

Real-time 24/7 valuation
Live valuation of vault at all times regardless of the nature of underlying DeFi activities.

Non-custodial
Completely non-custodial solution which works with multiple wallets, multi-sigs and other contracts.

Access controls
Ability to restrict access controls by using whitelist.

Moving our Treasury Management to Enzyme

Similar to other DAOs we have historically not devoted a lot of time towards our treasury management strategy because we’ve been so focused on other priorities (eg. building!). However, council members feel pretty strongly about avoiding another crypto winter unprepared. So we’ve been actively discussing what ideal portfolio allocation should look like for us and how we should manage. Before we get to that though, maybe a quick word on the principles of our thinking towards treasury management;

• Diversification (whilst largely staying long our own token)
• Capital efficiency (assets should be earning yield where possible)
• Strategic (explore strategic swaps where it makes sense)
• Future proofing (creating a reserve for tough times)

The way we have decided to achieve these goals in the first iteration of our treasury strategy is by implementing the following portfolio allocation;

This is going to be done through an Enzyme Treasury Management Vault which will secure our non-operational holdings. There are a few interesting characteristics about the vault.

1. The treasury management vault is controlled by the Enzyme Council’s Gnosis Safe
2. The Council has pre-approved the high-level allocation & investment strategy (as described above)
3. Execution of this strategy will be delegated to one of the Council members (Avantgarde) for efficiency. For the avoidance of doubt, Avantgarde can not remove funds to it’s own address as this is not permitted by the protocol
4. If desired, Avantgarde’s permissions can be tightened at the discretion of the Council Safe(eg restricting it to the protocols and assets it can or can’t trade)
5. The Council can revoke control or change permissions at any time
6. The Council will have the option to introduce a new policy CumulativeSlippageTolerancePolicy later in Q4 which will pause trading & other DeFi activities on a vault if there is a more than x% move in NAV. An acceptable x% is definable at a Council level
7. Other types of policies can easily be programmed on top of these

Future directions & building on this

We’re pleased with our starting portfolio but we’ve identified a few different ways we can further expand on our portfolio and we’ll be tackling these integrations in the coming weeks ahead.

• Enabling for Bancor LP pools (where impermanent loss is subsidised with Bancor tokens)
• Possibility to borrow stablecoins against MLN and earn yield on them. We’ll be enabling this feature later in Q4 as part of Sulu
• Further enhance yield on ETH in Curve pools by integrating with Convex
• Explore integration of Orion which currently has very high yields.

Enzyme has always been purpose built for asset management and we’re confident that it can offer the best DAO treasury management tooling in the space today. However, we recognise that the DAO tooling around it could still be enhanced. Fortunately, one of the ecosystem builders Avantgarde Finance will be tackling this as a next step.

Join us on that journey

If you’re part of a DAO that is wondering what treasury management tooling to use in general, get in touch. We’re looking to build tools that people will actually use so if you’ve got a use case in mind and you think we can build together — let’s partner! Get in touch with Avantgarde Finance via email.