Decentralized Autonomous Organizations (DAOs) empower individuals to collaborate and operate an organization through open-source code and a network of participants who collectively govern its activities. These entities are native to the internet and function without a central authority, embodying decentralization, transparency, and global accessibility.
While dao in blockchain are still in their early stages, they have found application in a diverse array of projects, spanning from DeFi protocols to venture capital funds and online communities. Their promise and innovation lie in their decentralization, transparency, and worldwide accessibility. However, effective treasury management is a critical determinant of a DAO crypto growth and sustainability. It ensures that financial resources are utilized in alignment with the organization’s mission and goals, thereby fostering long-term success. Conversely, neglecting treasury management can lead to the demise of a dao treasury. Consequently, prioritizing treasury management and implementing necessary measures for efficient fund utilization are imperative for dao treasury management.
This article delves into the appropriate strategies for managing DAO treasuries and outlines essential best practices essential for ensuring the enduring success of these decentralized entities.
Managing a DAO Treasury Effectively
Given that DAOs are still relatively novel, established techniques for DAO treasury management are somewhat limited. In this section, we will explore fundamental strategies that can aid dao crypto in proficiently managing their financial resources, thereby empowering them to achieve their long-term objectives.
1. Grasp Key Treasury Management Principles:
There are two pivotal principles applicable to treasury management across various organizations:
Embrace Long-Term Vision: Dao treasuries often operate in cycles or sprints due to their inherent nature. However, the most successful DAOs establish enduring communities, and this same perspective should extend to treasury management.
Diversify Your Holdings: Diversification is crucial to mitigate risks and cope with the pronounced asset price volatility prevalent in the cryptocurrency market.
2. Securely Store Your DAO Treasury:
Nearly all Dao crypto opt for storing their treasuries in multisignature (multisig) wallets. Multisig wallets offer several advantages, including:
Enhanced Security: Funds are secured within a smart contract, verifiable on the blockchain. Private keys are not managed by wallet providers, and no funds are stored within web browsers.
Collaborative Access: Multisig wallets facilitate shared ownership, allowing multiple team members access to a single company wallet.
Built-In Key Recovery: In case a user loses their private key, other wallet owners can assist in recovering access by adding their new accounts to the multisig wallet.
Gnosis Safe multisignature wallets, a trusted choice in the field of dao treasury management, secure over $100 billion worth of assets and enjoy widespread trust within the DAO community.
3. Diversify Treasury Holdings:
While it may initially seem prudent for decentralized autonomous organizations to predominantly hold their native tokens, this approach carries inherent risks. Relying solely on native tokens in your portfolio can expose the organization to significant vulnerabilities. For example, if the value of the native token were to decline by 30% due to various factors like marketing, management, bear markets, or competition, the overall portfolio value would also plummet by the same percentage. This could prove catastrophic for any organization, decentralized or not. Hence, Dao treasury should always ensure they have the flexibility to meet their financial commitments, emphasizing diversification as a risk mitigation strategy.
The Complexity of Managing dao treasury management
In recent years, the most prominent decentralized autonomous organizations (DAOs) have amassed substantial amounts of value, with DeFi dao treasury managements collectively exceeding $9 billion. On average, as of mid-2022, each DeFi DAO was managing over ~$100 million.
However, despite their considerable capital, the management of DAO treasuries is far from straightforward.
In contrast to conventional centralized crypto companies that often maintain significant cash reserves, a mere 23% of DAOs held stablecoins as of June 2022. Furthermore, a staggering 85% of DAOs concentrated their treasuries in a single asset.
Remarkably, numerous dao in blockchain exclusively held their native tokens within their treasuries. These very tokens, susceptible to substantial drawdowns of 80% to 90% during bear markets, jeopardize the ability to sustain essential expenses.
Ironically, trading treasury tokens for stablecoins is often met with resistance and controversy. Such actions can trigger strong reactions from the token-holding community and significantly impact token prices.
Consequently, DAO treasurers find themselves navigating a challenging path, caught between the need for financial prudence and the complexities of community sentiment.
Tools
Treasury Management Solutions: For Dao crypto looking to streamline and simplify their treasury management processes, a plethora of tools have emerged to alleviate the complexities involved, ranging from diversification strategies to comprehensive reporting solutions. Yearn-Yearn represents a hands-off solution that offers Yield-as-a-Service (YaaS) through a range of backend yield strategies. Yearn accepts deposits in various currencies, including $ETH and $USDC, as well as blue-chip assets such as $UNI, $LINK, and $COMP, along with an assortment of Curve LP tokens.
Conclusion
Dao treasury managements hold significant importance within the organization, serving as the financial backbone for funding development, expanding the network, conveying its core values, and ensuring sustained long-term success. As Dao in blockchain continues to gain popularity and accumulate valuable experience, it is probable that we will witness the emergence of fresh and improved best practices in the realm of decentralized autonomous organization treasury management.
