A Wake-Up Call for DAO Treasury Management / Conor Gilmore

Transcript

uh my name is Connor I head up marketing at Avalon Garden enzyme avant-garde is the core developer of the enzyme protocol enzyme is an on-chain assay management solution built on ethereum and also deployed on polygon so if you're attending an eth event I'm pretty sure that you're familiar with what a dow is but on the off chance that you're not Dows differ from sort of centralized entities and that they are obviously decentralized in terms of their organizational structure and governance you know there's a shared ownership in terms of decision making and obviously there's different ways that you can vote to pass kind of changes within the Dow a number of different systems and

mechanisms there we won't go into that in too much detail but there's a big problem when it comes to Dow treasury management if you look at Dow treasuries across the ecosystem on average they're down about 90 percent since their all-time highs and I think there's several different reasons for this one of which is the there's very little diversification when it comes to Dow treasuries so oftentimes you'll see that Dao as you know very overly exposed in their native token and when the crypto Market goes down 90 percent you can imagine that that native token will also drop 90 and as a result the treasury is now in a pretty precarious situation the second problem is that governance is incredibly slow and inefficient when it

comes to treasury management so a lot of dows will use a multi-cig and that requires a signature on every single transaction so if you're looking to execute an on-chain treasury strategy and you have like five different signers across the world in different time zones and you need to get that transaction signed off you know for every single transaction that you're doing that's obviously incredibly slow and inefficient and the last one is just that Tech skills don't equal Finance skills so while you have some incredible Founders out there in the D5 space just because you're incredibly tech savvy the doesn't necessarily qualify you to manage millions of dollars in treasury funds so let's take a look at a real

world example a few months ago I think it was back in March usdc obviously de-pegged it went from obviously a one one to one peg down about 10 cents to 90 90 cents 89 depending on the exchange I don't know how many of you guys are active on crypto Twitter but at the time it was kind of you know pandemonium everybody was freaking out we thought this was the end of crypto there's a few tweets here that you can see people kind of you know very concerned Patrick got my favorite tweet though he says sometimes things have to get worse before they can get even worse and that kind of sums up the mood of crypto Twitter at the time everybody thought you know this was the final dagger in the coffin we'll get back to that in a second but I think it's important to

remember that in the case of potentially a stable coin de-pegging at the consequences can be pretty dire obviously because Dows keep a lot of their treasuries and stay coins if you were to have a situation where a stablecoin depegs AKA like usdc for example that then puts the Dow at serious risk but the the underlying mechanisms here that make this such a problem is that many Dows simply can't act quickly enough when there is an emergency situation so for example the usdc d-peg a lot of dows couldn't have acted quickly enough to get out and swap into a different asset this obviously poses a significant risk to their treasury Holdings and ultimately puts the perpetuity of the Dow in danger so I

wanted to give you guys a real world example following on from the usdc DPAC this is the ens Dow forums so ens Dow obviously a very large Dao ethereum name service I believe they have 100 million plus in treasury funds they were holding about 17 million dollars of usdc when the d-peg happens now obviously that's pretty concerning for the Dow you can see here that Gary started the conversation in the forums he said look circle's short about 3.3 billion dollars the usdc pack is off by about three percent we obviously need to start thinking about what the solution is here and how we can essentially solve this he's asking all the right questions here so he says look what do we think about

this well who controls the decision making what decisions would need to go to a dow vote and ultimately like what options do we have as a dow in case the situation gets worse how can we kind of pivot and get out essentially the conversation continued throughout the night because obviously this was sort of you know happening live right in front of them so I think during that first post usdc was down about three percent now it's down seven percent you can see the sort of Wheels starting to tick in people's minds like okay look we've got 17 million dollar exposure here we need to find a solution to this so he's just kind of bringing that back up again and finally a few pages down in this thread conversation we do get an answer from Alicia and she says the usdc

from the recent swap is sitting in the ens Dow wallet which is controlled by the ens Dow if there is a plan to do something with that usdc it will take about nine days to execute seven days for the vote once it's on chain and two days for the time lock now you can imagine that if the usdc d-peg situation got progressively worse having to wait nine days to swap out is probably not going to be a very optimal solution for you um and then finally one final uh post here from excesser who's another member of ens Dao usdc is going to collapse period we must have conversation now or watch it all burn I thought that was a pretty uh pretty funny in hindsight I

guess knowing that usdc didn't depag so what are the lessons from from this uh this story well obviously they had a 17 million dollar exposure to usdc The crucial thing here and I bring this up about ens down not to sort of disparage them they were asking all of the right questions but the structure of the Dow itself simply limited what they were able to do so no amount of Desire can make up for kind of you know the limitations of the Dow itself and obviously this would have put a significant risk on their treasury Holdings so this whole story and conversation brings up what we like to call the Dow treasury dilemma and there's several questions that come up when you are a dow and you're looking

to run an on-chain treasury strategy the first and most important one is how do we keep control and custody of our assets at all times secondly how do we ensure a secure delegation so if we do decide to take those funds and delegate them to a third party how can we make sure that we're not just blindly you know giving away the assets and sending them to a wallet address and having to trust that that lats in good faith also who manages the treasury so is it going to be an internal treasury officer will it be you know a third party professional manager or will it simply be the Dao via the very slow and inefficient multi-sig process and lastly what strategy are we actually going to run remember that just because

you are smart with tech and have created a D5 protocol doesn't necessarily mean that you understand the best way to earn yield and kind of grow your treasury in a conservative manner so this brings up the Dilemma itself Founders often think there's either one of two options a is that we keep full control and custody of our funds at all times but we run this via that very slow and tedious multi-sig process the second option that they think they have is a very quick and efficient delegation process but you have to sort of Outsource direct access to your funds and give that across to a third party now obviously neither of these Solutions are are very optimal and this kind of leads to a dead end in option A you

simply have approval fatigue it's just not realistic to get sign off on every single transaction via a multi-sig and in option b for some reason the Emoji didn't show up properly but you compromise security and you're not going to want to hand over full control of the Dows funds to a third party and have to trust them so what is the solution well thankfully there is a solution and it is called enzyme so enzyme as I mentioned is a unified solution for the on-chain asset management economy with enzyme there's no more endless debates of control versus efficiency you can actually get both so I'll walk you through kind of a visual representation of how this actually works so you can see from start

to finish and we'll kind of talk through it so first of all you have the treasury multi-cig now you can connect that to the enzyme app you can create and own your own Vault so a vault is essentially a collection of smart contracts that you can customize once you have a vault you can access all of enzymes features different defy Integrations 250 plus digital assets so the data would deposit their funds from the treasury multi-sig into their vault the Vault then mints erc20 token shares which uh the Dow can then self-custody in their preferred wallet in this case a multi-sig um but what's really interesting about

enzyme is that you can actually encode within the smart contracts of the Vault what a manager can and cannot do so I could say for example I want to run my treasury on an enzyme and I want to delegate it to a third party manager but I only want them to interact with these certain protocols and these certain assets and you can do that for multiple managers as well so theoretically you could have a dow treasury on enzyme with three or four different managers and they all have specific guard rails and what they can and can't do and again there's no trust involved here this is all enforced via enzyme smart contracts you could choose to delegate to a professional manager which is what we do at avant-garde treasury management Asset

Management this gives you the speed and efficiency and also if the Dow isn't necessarily proficient in treasury management it helps to have that third party to make that more effective and finally there's a important piece here as well about like deploying and updating your strategy so as I mentioned enzyme connects at smart contract level with a variety of different D5 protocols you'll see here some of the most popular names in the D5 space so you can run a very complex strategy or you could run more of a conservative strategy it's really up to the Dow and we we work with Dows to kind of formalize what that actually looks like um and we run seven sub graphs underneath the enzyme protocol so data

is pulled through immediately and um it sources everything from 24 7 net asset value reporting all your financials the different fees that you've set up in the vault um full transaction log so from inception of the Vault to present day you'll see every single transaction that has ever taken place and if you're a dow and you're Outsourcing treasury management that's quite cool because the entire Dao has one very intuitive dashboard to view performance not just at the present day but also over time across multiple protocols but there's still a few questions remaining so we've answered how we can solve the custody problem the Dallas can obviously self-custody their vault

shares on enzyme which is a non-custodial platform they can have a secure delegation by delegating that to a third party like avant-garde but who actually should manage their Treasury and what strategies should they run well as I've mentioned avant-garde we can definitely help we've been building in the D5 space since 2016. our CEO is actually the founder of enzymes so we know the protocol intimately as I've said we're the core developers so we're continually updating and adding new Integrations to the protocol we're also very active in governance across the device space we have a team of asset managers that create tailored strategies depending on the Dao's risk tolerances and what exactly they're looking for and

finally we continually review and execute on the strategy that we're running to make sure that it's efficient and delivering the best value possible for the down um yeah bespoke defy strategy you know many different options here active passive automated strategies completely up to you but we have kind of really created a One-Stop shop for your D5 Asset Management including obviously treasury management as well uh so what is the net result of this well ultimately we end up with no more uncertainties we've ticked off every single question that we have in a situation like the usdc DPAC had that 17 million uh dollar has been in an enzyme

Vault owned by the ens data but controlled uh you know delegated to a third party manager like avant-garde we could have swapped out of that position immediately and it wouldn't have even been an issue for the town um so if you work for a Dao if you are part of a Dao if you're interested in finding out more about avant-garde and enzyme solution I'm more than happy to have a chat uh here is a recent report that we've written how to defy simple trading strategies that generate Alpha I'm going to step out of the way so you can scan that QR code we run through three different strategies that you can use on enzyme the first one is a

composable D5 strategy so looking at various options there the second is how you can create a defy index on enzyme so this is quite interesting because you're not just holding you know like a passive index in the traditional Finance sense where you hold the basket of assets and they essentially sit there and you hope that the price increases well with D5 you can run composable strategies so for an index fund you have not just price appreciation potential but also income potential as well and then finally we are connected with a few different sort of real world asset protocols as well Maple finance and Goldfinch among others so we have a section there on how you can bring real world assets on chain so

I think we've got about five minutes left I'm happy to take a few questions if you guys do want to reach out feel free to use the contact information on the screen but otherwise let's see if anybody has any questions thanks thank you thanks oh it's not on it's done so I'm curious if your opinion in terms of doubts posting their funds into vaults and then having an additional layer of risk so if I'm a Dao I need to trust enzyme security policies and so forth wouldn't it be more beneficial for Dows to create sub safes and then having the

same mechanisms around there and still integrating with other D5 protocols have you had any responses in terms of having an additional risk yeah yeah it's a good question um I think the the main thing that enzyme offers is that um efficient delegation feature so we we thought really hard and deeply about how a potential fund manager could manipulate like the share price of a vault for example you know we've been on mainnet for four and a half years we're rigorously audited we have one of the top bug Bounties in the space so in terms of security we're I'd say one of the top tier protocols to be honest it's never really been too much of an issue when we speak

to Dallas like they look through all of our audit reports our contracts and yeah it's never really been been a blocker for us but thank you hi I'm sorry if you maybe uh answered this already at the beginning of your presentation I showed up a little bit late but uh you talked about how you essentially take the the the the the the treasury uh uh assets and then you tokenize them uh for into like uh I'm assuming an erc20 token um how do you how do you deal with uh

the valuation of this like quote-unquote makes the back of assets because I would assume that's probably going to be like a big question mark for anybody who's like interacting with this uh or is the is the newly minted token only for your purposes or can it be kind of like widely available in this space as well so the um how we calculate it would be the share price of the vault is how you determine performance and like I said we run seven sub graphs underneath the protocol so all of that data is fed through on-chain pipelines so again there's zero trust assumptions um the uh tokenization method method of the actual Vault shares so you let's say you deposit a million dollars usdc into

an enzyme Vault um that money is sitting in an enzyme Vault but what happens is we're minting token shares which you can then self-custody so that's representing your underlying deposit in the vault um and enzyme obviously is non-custodial so you have full access to those funds whenever you choose to redeem the only caveat being that certain vaults have different Redemption periods but typically it's around you know 24 hours to a week depending on the Vault that you choose so would it usually be like a single asset Vault or or do you also have like mixed asset vaults yeah I mean the Vault itself can hold as many assets as as you want it to hold the we have a denomination asset in which the share price is calculated so you would have to

set that when you create the Vault but that could be whatever you want could be graph to eat it could be usdc it could be dye and then any deposits into that Vault need to happen in that token and redemptions can either happen in that token or in kind meaning a pro-rada share of the Vault itself about how about treasuries adult treasuries that deal with for example like nfts or some sort of like uh D5 derivatives yeah yeah good question so at the moment we only um service erc20 kind of like chain link supported price feeds uh we are looking in our next version to add uh nfts pre-ico several other assets as well but that's that's not currently possible

yeah good question anybody else don't be shy foreign Ty to set up some kind of preset for the fund manager and uh actually uh like say to him what's allowed and what's not so uh I'm curious whether there are some uh additional risk mitigation techniques in in terms of uh what assets could be the manager exposed to and what could be the

waste say like in terms of the liquidity some like uh diversification of the portfolio something else it's like uh yeah good question so one other feature I think I actually forgot to mention is that there is a there's a slippage tolerance as well so if you um wanted a manager if you said for example like if this manager goes above a five percent slippage I want their trading permissions automatically revoked you can set that within the Vault it could be whatever percentage you want again kind of like removing trust assumptions and that will happen automatically thanks to the smart contracts so in terms of specific um you say liquidity percentages on different pools and stuff that's not possible currently but the slippage will apply depending on whatever they're essentially Trading

cool all right awesome all right thanks guys appreciate it [Music] foreign [Music]