Yam Quarterly Treasury Report — Q2 2022
Preface: Cryptocurrency is very volatile. All numbers reported in this report is a snapshot of value on 06/1/2022. All assets will move up and down in value, and expenses and income are determined in US Dollar equivalent at the time of the snapshot.
Introduction
I’m happy to share the quarterly update for the Yam Treasury where we review DAO income, expenses, assets, and team contributor changes. While the numbers below are objective, the analysis and interpretation is my own and I do not believe that I or anyone “speaks for the DAO.” That it a privilege reserved for the collective of token holders via the ratification of governance votes.
Link to Google Sheet for 2022 Q2: https://docs.google.com/spreadsheets/u/1/d/e/2PACX-1vTO2Do9HZ5RHdB2znHpwhVlfNAw29WSDccvtDnTpbGYNlU6V-WA56__2hjjlh07iIE7eJcJijdTlNdE/pubhtml#
Another quarter is in the books, and while the YAM token price has continued to fall from Q1, it dropped less than the overall market. While the treasury fell as well in the past quarter, the YAM treasury is still healthy and was buoyed by the stable-coins in it. The treasury, and its ability to pay contributors and invest in new projects is key to the continued growth of the DAO. Revenue continues to be non-existent and we have challenges to solve. Those of us working on the reorganization of the DAO to assure it is built on a solid foundation of decentralization, accountability, and openness have made a lot of progress. We have started to roll out the changes that have been designed. This is the foundation we believe is necessary for Yam DAO to reach its potential to add value and generate revenues in the future.
Total Revenue: $414.02
Operational Revenue
The DAO earned the following revenues from the products that it has developed.
- YamDAO earned $414.02 worth of Sushi Tokens from its YAM/ETH SLP incentivizer.
A total of $414.02 was earned in Operational Revenue in Q4, 2021.
Investment Revenue
The DAO uses its treasury to invest in different products and services that help grow the DAO and bootstrap its products.
- YamDAO earned interest from sushi and its stablecoins deposited in Yearn Vaults, but those are accounted for in general treasury growth due to how they rebalance internally.
A total of $0 is shown as earned in Investment Revenue in Q4, 2021.
Context
The only directly realized revenue this quarter came from the Sushiswap LP incentivizer. The price of the sushi token and the issuance rate from the sushi incentives program has dropped in the last few months and this revenue is minimal. While it is unlikely that we will find an incentive program to match the early days of sushi farming, the reward rate should no longer be a factor when considering new options for YAM liquidity.
YAM Synths, which was our highest revenue generator (both operational and investment) in Q4 of 2021 is currently inactive. YAM synths is waiting for someone to come make a proposal to work on it. No current contributors are doing so, but the prior work is open source so it is open to anyone to contribute to using the new grants model.
In Q3, the treasury will be earning revenues on it’s UMA holdings by voting in DVM disputes and UMA governance, which is an initiative that I am heading up.
The DAO owns other interest bearing assets: $1.635M of USDC in Yearn, 123.8 ETH in Yearn, and ~34,033 xSushi. But these assets do not show up as revenue due to the way the contracts work to automatically compound the interest.
Total Expenses: $125.864.16
In the quarterly report, expenses are broken down both by contributor compensation and general expenses, and by USD and YAM expenses. Contributor compensation is paid to individuals who have worked on different aspects of the YAM DAO, typically in a combination of USDC and YAM. General expenses are the costs required to run the DAO and include gas costs for transactions, hosting and infrastructure costs, and other day to day expenses. These are paid in YAM where possible, but are also sometimes paid in USD or ETH.
USD and ETH Expenses
A total of $98,870.86 was spent from the treasury on Q1 expenses, including contributor compensation and general expenses. The lion’s share of these expenses are payroll expenses, paid in USDC.
YAM Expenses
A total of $26,993.30 worth of YAM was spent from the treasury on Q1 expenses, including contributor compensation and general expenses. The dollar value is determined by looking at the TWAP price at the Q4 snapshot date, which yields $0.11.
Delta of Income vs. Expenses (excluding YAM): -$98.456.84
Delta of Income vs. Expenses (including YAM): -$125,450.14
Context
Most of YAM’s expenses come from paying contributors to the DAO. This money spent should have a high upside as just 1 successful product can lead to significant revenue growth and potential token price appreciation. Given that compensation costs are the DAO’s main costs, we are continuing to look to ways to make contributor compensation more efficient and transparent, while streamlining the work that needs to be done. The Re-Org that is currently being rolled out tackles these issues and empowers token holders to make the determination of whether contributor expenses are worth the cost.
While the revenue shortfall of the DAO was negative again in Q2, the shortfall has been lessened, mainly due to limiting expenses. Most of the change came in the dollar amount of YAM paid out due to the DAO losing a contributor paid entirely in YAM.
The runway that the DAO has available using its treasury should extend multiple years, even in a bear market. But the treasury’s YAM reserves are now depleted. There is a new proposal to mint YAM on an on-going basis to pay contributors on a monthly basis that you can read about here.
Total Q4 Non-YAM Treasury Asset Value: $3,052,969.76
Change in Value from Previous Quarter: -$2,600,635.51 (46% decrease)
Non-Yam Assets are used to pay contributors to develop products for the DAO and for investment purposes to support the Yam ecosystem and projects.
The treasury was last re-balanced in Q3 of 2021. There is a framework to manage re-balancing and it will be undertaken upon the recommendation of the core contributors and advisors, with the approval of YAM voters. This framework is currently being re-considered and re-implemented. You can read more about that here.
We also now have a dune dashboard with current treasury balances that you can view here: https://dune.com/ethedev/Yam-Dashboard. The main treasury dashboard has also recently been updated to accurately reflect the current state of the treasury. If you find any issues please let us know in discord.
Total Q4 YAM and General Expense Fund Asset Value: $49,032.91
Change in Value from Previous Quarter: 370,000 New YAM was minted at the end of last quarter to continue paying contributors. This were 100,280 YAM left at the end of the quarter. That YAM will be depleted upon paying July compensation. If the proposal to mint YAM on an on-going basis is approved, this metric won’t me meaningful anymore.
The general Expense multi-sig has ~32,000 YAM, 10.57 ETH, and $34,370 USDC.
Context
We seem to have now conclusively entered the expected crypto bear market, with the ETH price dropping >75% from ATH and most DAO and DeFi tokens dropping even more. The YAM treasury has fallen less overall relative to ETH mainly due to significant stablecoin holdings. But the drop was still significant since many of the non-ETH and stable assets fared significantly worse that ETH.
Feddas has been working on revamping the treasury strategy, which will most likely involve a rebalance and a new asset balance. To keep up with and join in the conversation about this, check out the forum.
Market volatility will impact the treasury on a quarterly basis and we as a DAO must either accept that or rebalance more into stablecoins. My view is that we are better off being more hands off with the treasury and only rebalance when the skew from our desired allocations is significant or if we want to change the underlying strategy and composition.
Other Funds and Incentives
The DAO’s only current incentive program is to incentivize liquidity in the ETH/YAM Sushiswap pair. It currently pays out 12,500 YAM per week. About 1M of the total 1.5M YAM allocated toward this pool have been used and it is set to run for another ~46 weeks. In the Treasury rebalancing forum thread linked above, there is a proposal to stop these incentives and acquire protocol owned liquidity.
Closing Thoughts
I will reiterate my thoughts from last quarter because they still ring true:
Yam is at an inflection point. There is no denying that the revenue numbers for the DAO are in decline. But the silver lining is that they really have no other direction to go but up (Although we must be aware that recoveries are U shaped and not V shaped). A sober analysis of the revenues we were earning over the last year shows that they were not sustainable. They consisted almost entirely of liquidity mining incentives and no intrinsic revenues. YAM was born into a world where earning outsized returns on investment was relatively trivial and did not require much in the way of real products. This environment has mostly ended and the DAO will now need to move forward with the understanding that it will need to add value to earn revenues.
Above is a chart that shows revenues vs expenses for the DAO over the last year and a half. It also shows the relative treasury size (numbers on the right axis). We can see that expenses have been dropping alongside revenue, which I believe is a healthy correlation. As the DAO works to figure out how it will become sustainable in the long term it must manage expenses. Expenses don’t have much room to drop and revenues have lots of room to rise. In order to get revenues back up we will need to continue spending money to do so. It needs to spend effectively and intelligently and focus on accountability and making sure it is getting what it pays for. The DAO has the treasury to succeed. Now it needs the vision and a plan to move forward into its next stage. if you want to read more about what I think that requires, you can do so here.
I view the DAO as a living organization that needs to continue to evolve and grow in order to reach its potential. This involves continually working to improve our internal processes and workflows, as well as developing new ways in which we can incentivize outside contributions, participation, and collaborations. Together, we are defining new ways to work, create value, and organize in the Web3 space and beyond.
Thanks for reading!
