DappCon 2023: DAO Treasury Governance: Best Practices For Risk Management And Execution

Transcript

hey all right cool let's uh get this panel started um yeah we will talk about um Dow treasury Dow treasury management and yeah onchain uh treasury management and kind of instead of doing an introduction I would ask each of one of you to kind of describe uh how they got involved I probably start with Mona because I believe you were kind of the earliest so I remember back at least well you even said 2016 you started so maybe you can just give us a short overview of your journey from there to here yeah so um at the beginning at the end of 2015 I I had just uh closed the hedge fund which I tried to start which

was a complete failure and uh one of the biggest uh challenges I faced was the operational and administrative headaches for small to mediumsized managers so I actually uh closed it down and was was going to take a year off and just try to recover um but uh about one month in I discovered uh blockchain and became completely obsessed with um the space uh saw that if the future of assets is digital then we can automate the entire operational administrative side of asset management we can aggregate processes and we can uh disrupt a lot of intermediaries so in uh I think it was officially July June or July 2016 I founded melport and we did a token generation event one of the first I

think and uh we yeah we then later rebranded to enzyme and uh Still Still Standing great great good M uh what was your first touch Point into the topic of well Dow treasury management yes um karpi started with agnosis so karpat is a spin of agnosis we started with the management of the diagnosis treasury so back in that moment was around 20 20 we're experimenting with a lot of safe tool tooling and then we started evolving working with other D and and in that moment we started realizing that there are a lot of um uh

Financial functions that are not being covered by most of these Dev teams so we started covering a lot of functions from the traditional CFO uh functions so and then we started working with other DS and we found that there are a lot of positive s games but and and yeah anything related to let's say investment traditional investment banking so you can think of debt Market risk management Capital preservations so this is how we evolve into building Financial products and services in addition to our main goal which is to preserve um the Dow funds for yeah for the mission of the Dow cool

Mark um you well are well known participant in the other da and community so maybe you can tell us what was maybe a first moment when inside of AA people realized well we kind of have a treasury and we might need to make decisions about it it's actually a good journey of decentralization when you think about it because even my role I started like one of the earliest member of the a companies which are are the creator of the a protocol and then deploy it and then uh with de centralization become a more and more involved with a uh decentralized autonomous organization and with av1 there were zero treasury management

because defi was nothing in 20 January 2020 def was nothing and even the way the protocol generated fee was like uh a very different mod that what we have now but starting from 2021 with iv2 uh fee started to be accumulated continuously by the protocol with the at token system I will not go into the technical details because we we have better things to do but we took the design decision as a d and it was a d decision not a company decision it was the process of decentralization already in 2021 to basically collect the fee in a tokens so basically the Dao itself became an a user and a liquidity

uh uh Pro provider provider yeah and uh and basically it makes sense a DA should believe in his own product and a DA should make the money work with the treasury uh from the yield as any other user because that's the point of Defi and decentralization the Dao should be a user like everybody else and the rules of the game are the same for everyone and and I will finish on this because it's a long answer uh no we are in 2023 and we are on av3 and the protocol is profitable so the DA has service provider and the da spends money and the DA has Revenue like reserve Factor cated on interest and there's a surplus so what do we do with the Surplus and because we all Dow I don't have an answer and the company doesn't have an

answer because it doesn't work like that when it's decentralized the answer Ki or other service provider go to the other governance and say hey let's do something with that money and then as a DA we vote and we decide what to do with it and I think it's a it's oh it should work it's a progressive decentralization Journey I'll I'll take a comment you just made here uh uh on on on well when we were in the room and you said kind of well right now as a DA you can easily or well you have access to things like let's say this maker stability fee uh rate where you get um 5% so maybe uh that kind of opens the question to you

uh where would you see is the need or I I guess you are making the point Dow should still go beyond that um or maybe what's what's the answer to that I think my me me personally I I I I I don't think a DA's job is to to x 3X 5x are treasury at all uh it's uh actually the opposite I think that's extremely irresponsible um I think the the Dow should be looking to preserve Runway to uh achieve certain strategic goals and uh put Capital to work now there is a room for risk in every portfolio it just needs to be sized appropriately um so it's all about sizing and taking the holistic approach but I think you know the majority of ad's assets should be in

something uh you know risk-free rate at least and if you can outperform the risk-free rate slightly by having a small portion of your uh Assets in uh something a bit riskier that's fine but you have to you have to take the holistic approach to portfolio allocation and and I would actually go go a step further and and and or answer similar different and say kind of even that where you say it should be simple you could kind of just take the uh the D savings rate 5% but even that is kind of if you actually have to do it it it's it's not that simple because you still have to Define rules of well can who's allowed to execute that when would you switch to something that like like if if if a offer 6% then should you switch how

often should or maybe you can expend on that kind of the complexity of even kind of just earning the risk-free rate yes but the thing is we we need to make sure we need we have the the Dow's goals in mind and we we're not trying to really build any type of hedge funds we're not trying to compete for yield so so I'm I'm very very much in line with with Mona Mona mention key thing here is Runway then there is some extra um risk appetite and yeah then we can think of some volatile assets and some other yield opportunities but the main thing is you know the treasury it's uh to to fulfill the emission of of the Dow

that's either grants development and definitely not not not to compete for yield and I think it's like it's important to for each and every Dow or project uh depending where they are in the the spectrum of their decentralization journey to Define where are their risk appetites I have like a few example like should you go for more and more yield like U two stories I want to share like uh because I love those protocol Nam like uh it's good experience and bad experience like the protocol that do the a stable coin historically they deposit their treasury into and did like direct deposit into a and at some point they Implement a new

uh treasury management system that was looking the best yield on chain and they decide to move the treasury from a to Yer unfortunately two weeks ago ER got act and they basically lost all the money on this obviously they find the money back and the all story ended well but the difference the premium on yield was 1% so they basically rised dozens of millions of dollar for one more per yield is that something you want to do on the other opposite side when you can make 3.5 or 5% uh on a on MSR is it worth the risk for your treasury if you are a young project that just raised money from investor and still have to deliver your MVP and find product Market

fit maybe it's okay to earn zero and get eaten by inflation because you cannot take the risk to fail you cannot take the risk to a it going getting ared or something bad happen in mea and I think it's fine too because so many young project in the ecosystem got completely raged by Uncle during the terror Luna story because they were raising money and depositing that into Teran Luna to make 20% because it was Sound Investment to to make 20% on their stab coin and then when teror Luna happened the project was dead and so many had this risk so it's it's important for every single project to Define what is their risk appetite where they are in their decentralization journey and who takes

the decision is this a company taking the decision is it the Dow taking the decision and what do they want do they want stability do they want to preserve processing power of the Dow or did they want to expand the capital and the treasury of the Dow and maybe just as a a step before that even I think because a lot of DS don't do this it's just like financial reporting like if you don't have financial reporting if you don't know what you're spending what you're spending on what's your forecast to be spending it just doesn't I mean you can't actually even think about managing a treasury if you don't know what you're dealing with so having your financial reports in order uh is is key right yeah maybe let's let let's talk about that one because I would say first of all that is one of the um yeah kind of big

big things that uh or big big benefits that in principle all funds are on chain and you might think well therefore it's obvious kind of what a dow has and kind of you can immediately see it but maybe the reality is more complex than that and you can yeah talk about that to that I think anyone who's tried to analyze what a dow is spending you know is it just a foundation is their Foundation what are the multi sigs that the data is just not there and even if it is there sure you can see what's going in what's going out but you don't have any idea what those payments are it could be a loan it could be which is coming back it could be a salary it could be uh a one-off strategic payment so if you don't have proper reporting uh to state

what it is you're spending the numbers are meaningless sure you can see the absolute numbers going in and out but you know there's no there's no story there just a bare minimum having a budget like right now and that's something we are working on because the a is like one of the largest da in the ecosystem and one the largest def protocol the Avid doesn't have a buet I have I cannot tell you what's the aid uh is like uh prising to spend in 2023 2024 exercise no idea we have good reporting like because laama started the work and token logic which is like a new service provider to the Dao did some kind of a reporting to how much the da is actually making how much the da is actually

spending with service providers so when I say the da is profitable it's a back by actual figure but there's not actual budet like we are so immature as an ecosystem obviously it's step by step like the whole ecosystem is two years old or three years old but uh we have definitely a margin for pration and maybe both of you can also kind of share a bit about well obviously you're building or kind of trying to solve that with uh well reporting tools um of course there is still one missing part for most of these Dows there is a an important um um part of the ecosystem which is centralized exchanges that's still the part we we lack a little bit

of accountability transparency and yeah I suspect hopefully most of trading volume is going to migrate to dexas but that's a challenge we have right it's these black boxes especially we have this thing with the market makers um many of them yeah struggle with reporting where what they're doing with these funds so this is one of of our goals we need to avoid as an industry you know how to avoid these FTX things again but where do you put the limit because I think transparency and theability is great but um do you care that how much uh like someone at gaunlet doing risk report for the AV is making like I don't care about

the salary I care about the BD is the bud too high too small what do we get back as a service from that budet but I don't care if they spend like $200 to buy your coffee machine in the office like I think it's more important about categorizing the payments so like you know if you say say like okay for year 0 to 5 the protocol was 95% expenditure was software development and 5% was you know bisav and after 5 years you say the protocol is more mature so should that ratio still exist or should we be more like 50% and now it's time to uh accelerate BISD uh on the protocol and so it's more about allocation of resources and total resources and thinking about you know strategically thinking where are we now in our road

map where are we now in our cycle and what do we need to money at um and uh in terms of going back to Martin's question on transparency and Reporting I do think it's important uh to especially in this like kind of you know decentralized world that we're web three world that we're building I I do think when you have stakeholders they should be uh privy to that data uh I think it's a good thing to have 24/7 transparency and historical transparency doesn't have to be at a line by line level um but you know it's something that we've invested a lot uh in with enzyme protocol as as one of the development teams behind it which is building data pipelines onchain data pipelines underpinning the protocol

which give you uh historical reporting on any metric whether it's trading nav uh you know inflows outflows whatever and also um um uh yeah just and also 24/7 realtime reporting and I think that's a powerful Tool uh that you can easily integrate with apis into other Dow tooling apps or uh even your own Dow interface yes also another thing that is super important is this accounting stuff needs to be open source so we can anybody can audit how we create these reports so this is right the the Ence of everything we do well talking about accounting how how far or how large would you say is the

gap between um yeah kind of what we do as as accounting to at least well have a sensible um kind of well dashboard or would that helps us really understand what's going on compared to what in the traditional world you would need to file I don't know kind of a file um balance and or um file that I think there's two parts I think there's asset management and uh in Asset Management I think we're there with reporting I mean obviously there's some improvements to do but you know like I said if you use a tool like enzyme that Aggregates the reporting is there the financial reports and accounting uh is much more hard to um

automate I've seen teams uh like carpet key produce reports for uh Dow treasuries that they manage uh which are great but um I leave it to Marcelo to comment on how easy or not that is to automate I think you can automate some parts of it but it always requires a certain expertise and diligence I think to check uh the data going in and verify it and produce it in a complex organizations I suspect accounting will never be able to to fully be automated and and we see that's yeah that's a global problem largest companies still cannot do it but still for yeah defi protocols that's something that that definitely have the the magic there to

have everything uh yeah 24/7 auditable maybe something you can see though and something we are seeing is tools accounting tools very similar to what you use in traditional accounting uh like crypo uh for example which um help you filter in data from wallet and then if somebody on the team is labeling that data correctly that helps reduce the workload a lot but it's uh like Marcelo said I think it's very difficult to fully automate end to end yeah previously you you have been well of course mentioning the big risks or you kind of well fill smart contract risks what would you say is a state of getting Insurance uh for for those

there's uh it's actually like the big elephant in the room for all this kind of stuff is that th are not legor entity like uh uh and that is a blocker for a lot of things and it's a source of frustration and interrogation for a lot of of details and friction so for example I'm a service provider I I have like a regular old company like the a initiative is company that invoice the DA for services that is paid directly from the smart contract of the Dow and some regulator will tell you well a DA doesn't exist so a DA is a group of people and because a DA is not a company well you have to pay V because makes

sense you cannot get back VAT on uh something that is not a company and that is not Incorporated in any country other Regulators will tell you other things and things like that and the thing is that nobody has like strong answer and if we want to have insurance that are actually regulated product if we want to have actual accounting if we want to scale and professionalize gain maturity in the ecosystem at some point we will need to Define what the Dow is because you ask 20 people in this room you would get 20 answers and none of these answer will probably match what the regulator would say so at some point we need to understand what we are talking about in

terms of Regulation to to make those thing happen and scale yeah kind of rephrasing that question uh to boss of you so I would say currently um I mean maybe there are like 20 to 50 Dows that have a treasury that might be worse managing um so what do you expect your kind of future Market is will there just be much more DS or will there be uh will there be kind of just regular companies and entities that um well start to have funds managed on chain well I we're seeing a lot of dows especially different protocols migrating into each other specialization so we

this is what something we're we're seeing today I suspect in the future and coming back to your your previous question about insurance I suspect this is going to be a huge industry emerging industry and and for the next iteration of defa is going to be critical insurance in the last W Market um the solutions were quite mature mostly because the market was immature we didn't have enough liquidity and and the price for insurance was too high for for to be able to ensure all of all of these um all of these DS but there are a few um teams that are emerging mostly data

analytic teams doing um uh reports doing alerts like for example we're working with Hyper native risk to redefine and a few others and this is a um I suspect all of these um teams are going to be somehow the future for the next iteration iteration of defi hopefully a more resilient one and safest one yeah um so this is where where I see something more um yeah a professional let's say and something that can eventually cover most of some systemic risks which are impossible to tackle in

trfi I suspect this is one of the directions we're taking but I'm sorry to play on the semantics here all these things are not Insurance because insurance is a term that has legal weight and the thing is that if you want actual Insurance you need like some kind of uh regulation or uh that's why like for example the a safety module is an answer to the fact that no insurance company in the world will like ensure the have a smart contract so the answer to that is to have like self- protection scheme from the commune that actually crypto active actually decentralized and I think this has weight uh so we are lucky enough to never need it to to use the safety module for the past three

years but the meod D Sur plus the modu those are like like uh grassroot native ecosystem answer but do we need to yeah go for it sorry I would just caveat though I think you know protocols like Nexus have done some great work and they did have many examples where they paid out uh you know and and uh ured the space I think the challenge uh is partly what Marcelo said which is we just don't have enough data on protocols to price insurance I want to cover one last topic because we are running out of time um so very briefly real world assets um how many what what's the percentage of of

holding real world Assets in this treasury currently zero probably or the what real world assets oh right now zero yeah um maybe just quick reality check on on enzyme kind of the zero nor St well um around 15 million something like this oh yeah okay okay oh I was she expecting it was less but not too bad not too bad but I I don't think uh I I I think there is definitely space and room for rwa I think it's just like a little bit not you know it's getting it's maturing now we just I me that was my question so kind of I think absolutely a place in a portfolio so that was my next question so what what do you expect that number to be not zero in two three years

or or do you think it's zero okay okay yeah because like to me it doesn't make sense for doubt to all directly reward asset because but it makes sense for da to have credit lines or partnership with treasury manager that holds the the real world asset on behalf but that makes more sense to me uh and there there's good Synergy but also I think we are at the peak of real world I said this is the bull market of like treasury uh stuff and the thing is that it's not normal on risk three treasury bonds to get 6% like go back in time 2 years ago or 3 years ago you were paying

to hold this kind of product one year from now do you think you still going to take have 6% on it so I'm not sure like two or three years ago that's going to be such a huge Market it's going to be a market for sure but I'm not so bullish on it cool thank you I think we are closing it here uh maybe open it up for one or two questions before we go into a break yeah over there do we have someone with a mic yeah I think right behind you thank you so earlier you mentioned um the regulatory hurdles for Dows to be compliant I was wondering um have you ever thought about uh regulated trust companies

providing services for Dow so that they can be compliant with the jurisdictions as of now or maybe different kind of corporate Service uh structures um within the context that this could be potentially a intermediate term solution just like how web 3 o is uh onb onboarding people through their email or Twitter account and uh later them allowing uh to find out about self- custody Etc so similar in that respect as a intermediate term solution and maybe any examples of dows that are currently doing this you want me to answer that was a question for me I mean I think I think

whoever can answer or wants to answer uh so I would answer but because a is decentralized my answer is basically the answer of Marill one of the da members because that's not a decision from the company or the D itself you need a vote to actually uh and the voice of the governance to have actually like n in clob everybody my personal opinion on it is maybe a bit tough but I think having a mailbox under on an island Under the Sun is not something uh we should aim for and say oh that's a definitive solution and and we have a Str man that we pay 20K or 50k or 100K a year I don't think that's the way we should be more ambitious than that we should be Anan as

the president of the defi Committee of the Adan Lobby in France that meet the regulator regularly meet the French government regularly and say if we want to have legal representation for the a or it should happen in France like completely regulated in not tax even whatever regulation and have an actual statute that can scale and be used for the next 20 50 years and be a standard for the industry so that path will take more time that path will be much more complex maybe it's 5 years from now maybe it will never happen because the politician will never accept that but I want to fight for this and I don't want to take the shortcut that's my answer

cool last one last question or cool then I think we're done and um have having a break uh right now but then see you after the break thank you thank you