Treasury Management For DAOs

Where DeFi and DAOs Intersect

Special shoutout to Cooper Turley and James Waugh for their help!

As Ethereum’s application ecosystem continues to develop, the worlds of decentralized finance and decentralized autonomous organizations inch closer and closer together. At Set Protocol, we are constantly thinking about the ways in which we can add value to not only our current users, but the broader community as a whole.

DAOs have cemented their importance in the broader ecosystem by leading everything from creating incubation spaces for decentralized applications on Ethereum with Metacartel, to governing DeFi protocols like dxDAO. The capital pledged by members when joining a DAO are critical in funding such activities, and so far all funds have been strictly kept in ETH.

While there are philosophical benefits to having ETH exposure, it endangers DAOs to excessive currency risk without proper treasury management. Having 100% of working capital in a volatile asset may hamper the ability of DAOs to continue their operations — whether its hosting events, funding projects, or even compensating members for their efforts. Treasury management is an active part of most off-chain organizations’ daily operations, and we’ve seen it in the crypto space with the Tezos Foundation taking an incredibly active role in managing their ICO proceeds — leading to one of the strongest ecosystem balance sheets after crypto winter.

Such risks are well known to DAOs and their members. But the operational problem is huge — even if DAOs wanted to more actively manage their treasuries, how would they? Submitting a proposal to swap from ETH to cDai requires a long voting period and social coordination challenges. Even beyond that, who would be responsible for timing such trades, aggregating onchain liquidity, and making sure slippage is as minimal as possible? As DAOs inevitably grow, increase their membership, and become more complex, the importance of treasury management, as well as the difficulty in solving it, compounds continuously.

This is where DeFi can provide major value to DAOs. The DeFi space has evolved tremendously over the past year to enable traditional off-chain financial operations in the on-chain world. A big theme of some of these developments has been risk management. DAOs have the opportunity to leverage these new protocols to effectively combat such complexity.

TokenSets As DAO Treasury Management

This is where Set Protocol can provide tremendous value to DAOs. Set Protocol represents the largest onchain asset management protocol on Ethereum. We enable our users to deposit ETH, or an assortment of other tokens, into TokenSets that are non-custodially managed by either predefined algorithms in the case of Robo Sets, or experienced traders in the case of Social Trading Sets. Users deposit capital and are minted an ERC20 token representing a trading strategy which can be redeemed for the underlying components at any time.

Furthermore, because Sets have already attracted the attention of major market makers and liquidity providers, we have been able to complete some of the largest trades in DeFi history at minimal slippage — not seen anywhere else in the space.

On May 13, we had a rebalance in a Set consisting of a $5M sale of ETH to USDC for an average slippage of 0.7%. Sets can manage capital more efficiently than anyone else can.

In a single proposal, a DAO can allocate capital into a TokenSet of their choosing, which is automatically managed much more efficiently that any one else can do via on chain mechanisms. Whenever the DAO so chooses, it can sell a TokenSet for its underlying components to access liquid working capital. Alternatively, the DAO can actually choose to make grants in the form of a TokenSet if grantees want to risk manage their grants, a double improvement in efficiency.

DAOs of Tomorrow

This is just a high level introduction to the value Set Protocol can offer DAOs. Soon our social traders will be able to vastly outperform ETH and actively create bespoke strategies to manage DAO treasuries — whether it be optimizing for long ETH exposure, or minimizing drawdown risks.

Regardless, the notion of being able to practice efficient treasury management in a passive, permissionless fashion is not one which should be ignored. As your DAO continues to grow, sustainability is key to unlocking a decentralized future. At Set Protocol we’re here to help.

If you or your DAO are interested in integrating TokenSets in your Guild Bank — give us a shout! We’re always keen to explore new ways to help enable the distributed communities of tomorrow.