The Runway Contract: Build a stable treasury using your native token
In this article, we lay out the Hedgey conditional agreement protocol, and how it’s being used by DAOs & Token Teams to build stable financial runways by using native tokens to generate treasury-diversifying stable coins/network tokens (ETH, XDAI, MATIC, AVAX, FTM, BSC)
The problem facing DAOs and token teams today
If you’re a DAO or token team, you have real costs. Payroll, management, legal, code audits, etc. create substantial ongoing costs for treasury teams. These costs often require USD-equivalent capital which can be in short supply for cryptonative treasuries. This creates a major obstacle for long term DAO viability.
In their 2021 research, Messari highlighted just how large this issue has become. As shown below, a snapshot into DAO treasuries shows that even the largest projects hold a substantial amount of treasury in their native tokens.
While this problem may be overlooked during periods where markets have upward movement, when markets are not moving up, most DAOs are left with substantial operations costs and very few pathways for generating the funds required to cover USD-equivalent costs.
“..the issue of systemic risk in a treasury of 100% $UNI tokens, where there can be and have been significant drawdowns that directly effect the spending power and run way of the community treasury” — (Feddas, Uniswap Treasury proposal, 2021)
So Whats the solution?
Today, if a DAO wants to build a more stable treasury their main vehicle for doing so is through market selling tokens or OTC trades. This can have negative ramifications from the impact on price to the reception from the community. While many community members want their DAOs to succeed, the act of selling tokens on the open market is often restricted to the point of not being a viable option for treasury diversification.
This is exactly why we’ve created the conditional agreement framework
What the conditional agreements allow DAOs to do is generate stable coins and network tokens (effectively diversifying their treasury) while avoiding market selling tokens and brunting the load of negative price impact and public perception that goes along with it.
This particular agreement, The Runway Contract, is designed specifically to allow teams to generate more-stable treasuries today in a low risk vehicle. It allows anyone to publish their own agreement (100% permissionless protocol) using their native token (any token on 5+ chains) directly to the Hedgey Smart contracts and all front-end UIs that share Hedgey contracts with interested buyers.
Let’s look at a sample agreement:
In this agreement, the native token holder wants to generate $5000 USDC for their DAO. To do this, they lock up 800 idle “XYZ” tokens for a maximum period of 3 months. If someone is interested in buying this contract, they pay you (via smart contract) $5000 USDC directly to your wallet.
Now, if over the next 3 months “XYZ” does not reach $23 per token, the contract expires and you are able to unlock your tokens and keep you $5000 USDC.
Whats the downside? In this type of agreement, there is no risk of liquidation. There is no downward price movement that would cause you to lose custody of your tokens. The only outcome where you do not receive your 800 XYZ is in the condition that they are purchased from you for $23 USDC per token. In effect, this means you are paid $5000 USDC + sell are able to sell your tokens above market prices in the future.
In both outcomes, the reception by communities is stronger. In the condition where tokens are sold, they are sold at a guaranteed above-market rate without having a negative price impact on the tokens current price. Furthermore, these sales accelerate treasury diversification reducing the need for extended sales during bull runs.
How do I make my own agreement?
Unlike protocols that require intensive coding or new token generation, Hedgey conditional agreement can be created and shared with 1000s of interested buyers in under 5 minutes. The agreements live on 100% permissionless smart contracts(think Uniswap) and require no paperwork, contracts, or custodian.
Step 1: Visit hellohedgey.com and choose what agreement you want to generate.
Step 2: Follow the read me for your specific strategy (for diversifying treasury
Step 3: Follow the steps to generate your own agreement using our interface.
Step 4: Tweet us at twitter (at)hedgeyfinance
Hedgey conditional agreements were designed to give DAOs more control over their futures. By diversifying treasuries with a more healthy mix of USDC/ETH to token, communities in any market condition have the ability to sustain and grow.
Over the coming months we’ll be putting out even more resources to help you diversify and grow your treasury. If you have questions or want to set up a meeting, feel free to book us on our Calendly
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All investments involve risk, including the possible loss of principal. Nothing mentioned by Hedgey Finance INC should be considered financial advice. Investors should consider their investment objectives and risks carefully before investing.