Original compilation: aididiaojp.eth, Foresight News
Original compilation: aididiaojp.eth, Foresight News
The market has sunk into a deep bear, and many DAOs and their contributors are starting to wonder if they can survive this long crypto winter.
This article provides a basic framework for understanding the health of DAOs. Whether you're an investor, contributor, or user, everyone can use tools like Dune Analytics to view DAO funding information. We monitor and track the financial health of DAO organizations through dashboards to judge which projects are built with the goal of sustainable development and long-term success.
The Importance of DAO Treasury Analysis
DAOs are organizations that use tokens to incentivize specific behaviors. People often work for The DAO in exchange for DAO governance tokens or other native cryptocurrencies such as MATIC and ETH. All DAOs offering compensation of any kind require a treasury, without a treasury the DAO would not be able to pay contributors or fund the project. Unless the DAO has missionary-like contributors, the protocol will be hard to get off the ground.
This is why understanding DAO treasuries is critical to determining their place in the cryptoeconomy:
Does The DAO have enough stablecoins? If not, in order to continue to operate, they will sell governance tokens and dilute the holdings of holders.
Does the DAO hold a small amount of governance tokens? If so, they have less power to vote for initiatives that are critical to growth.
Sometimes the DAO treasury can be difficult to identify, because the assets may be scattered in multiple contract addresses, for example, according to openorgs.info, Uniswap has five treasury addresses.
The health of the DAO treasury is not only important to investors, but equally to users and contributors. This article will provide some of the tools used to analyze the DAO treasury, and highlight some of the details to be aware of when analyzing the health of a DAO.
Identify Treasury Assets
DAO assets can be broken down into four components:
stable currency
stable currency
Blockchain's Native Token
Tokens from other partners
DAO governance token
DAO governance tokens have the functions of providing liquidity, voting and investment, etc. Governance tokens are usually used to motivate users to participate in the agreement. Like equity in an early-stage startup, a DAO will own many tokens, and if the DAO holds some other assets, those assets can often be exchanged for startup capital to pay contributors.
Governance tokens are usually highly liquid, and if the amount of token unlocks is very high, contributors will often choose to sell their tokens in exchange for stablecoins. Unless there are equally powerful mechanisms to increase demand, holders will sell before the price falls further due to increased supply.
Taking BANK as an example, the transaction volume in the past year:
More detailed market trading volume, taking the past 30 days as an example:
DAO tokens shall be considered the cryptographic equivalent of shares and discounted as DAO assets. A DAO can issue new tokens or change contracts, but like a business wouldn’t list stock as an asset on its balance sheet, a DAO shouldn’t list governance tokens.
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If there is a downturn in the market or some kind of hack causes the project to desperately need a large sum of money, the DAO will dilute the share of existing holders by selling governance tokens and cause huge downward price pressure. Most DEXs do not have enough liquidity to face a massive token dump. Hasu on DeFi Treasury Bondsnew mental modelpointed out:
Imagine Uniswap trying to sell 2% of the funds, when the transaction is executed through 1inch, the order will be routed to many on-chain and off-chain markets, and the impact on the price of UNI will be close to 80%.
stable currency
stable currency
The second most common asset in DAO treasuries is stablecoins, which include stablecoins such as DAI, FRAX, USDT, and USDC, which are usually pegged 1:1 to the U.S. dollar.
Since encrypted native assets are very unstable and have huge price fluctuations, including Bitcoin and Ethereum, they will also be affected by market fluctuations and transactions like risky assets, so holding stable coins can help reduce the volatility of national debt.
The DAO should keep at least some stablecoin in the treasury for paying contributors and hedging against market risk.
Maker, for example, has amassed a net gain of $7 million from 2018 to 2020. Maker uses these assets to buy and burn MKR tokens, as required by the protocol. However, on Black Thursday (March 12, 2020), the crypto market plummeted. Due to network congestion, Maker failed to liquidate its underwater positions, resulting in a loss of 3 million DAI.
If at this point they held 7 million DAI and used it to pay off bad debts, Maker would be left with $1 million, plus another $3 million in stablecoins, and the supply of MKR tokens would not change at all.
Or to put it another way, the assets held by Maker could have added $4 million in additional value.
If the DAO hopes to survive the next few years, it must survive bear markets and black swan events. DAO cannot rely solely on governance tokens to protect against risks, otherwise it will appear that the tokens will be sold at the bottom in the worst case and bought back in the best case at the top. It is desirable to hold stablecoins to reduce treasury risk.
Note: Stablecoin selection is also critical, if you hold UST during the decoupling event (May 7th) then by May 9th these tokens will drop in value by 65% compared to 95% at the time of writing .
Blockchain Native Token
There are also native assets on the chain in the DAO treasury, which are used to pay Gas fees for network transactions. Most tokens run on Ethereum and Polygon, so these on-chain DAOs hold ETH and MATIC respectively.
When network fees become prohibitively expensive, it makes sense to hold some of these assets. Although these assets are not the same as DAO tokens, these assets are usually highly correlated, so for the stability of treasury assets, the purchase of blockchain native assets should usually be done through dollar cost averaging.
Strategic Token Swap
Another place to watch are other DAO tokens in the treasury, these tokens represent partnerships between DAOs and grant each other voting rights in the mutual governance process.
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Along the way, Makers earn AAVE tokens as part of Aave's liquidity staking rewards program, giving Makers a voice in Aave's governance process. DAOs can also spend additional funds to buy governance tokens of other DAOs, and if there is a sufficient share, the impact can be far-reaching.
In theory, they are also a way for each other to keep each other's funds safe. If you dump my tokens, I will dump your tokens. Governance token swaps increase collaborative communication between contributors and can facilitate better collaboration in the spirit of open source development.
sustainable financial planning
To be financially sustainable, a DAO should earn more than it spends. This means we need to analyze the inflow and outflow of token funds.
financial report
Looking at the DAO's financial reports is a good way to determine the DAO's financial health. by
It can be seen from the report that Yearn’s gross profit has increased after 2020, and salary and management costs have also increased at the same time. Many DAOs make their financial reports public so that contributors, users, and investors can better understand the DAO organization.
These reports will contain something more than pure data, including the breakdown of expenditures, purpose of expenditures, token recycling protocol, and upcoming decision changes to the protocol. Yearn noted in a recent report that their largest out-of-pocket spend is to the developers who oversee and manage the Yearn vault. But they also mentioned wanting to move away from compensation for managers and instead have a profit-sharing model for all DAO contributors. Additionally, Yearn records their assets and liabilities.
But these statements are subject to human intervention and errors. Another approach is to create dashboards of real-time blockchain data. For example, Maker has a dashboard dedicated to displaying real-time profit and loss data.
asset inflow
DAOs should be clear about what they earn from fees and other investments. General asset inflows can come in many forms:
agreement fee
Community members buy
Staking Rewards
Researchers can use the Maker Dashboard to find out how Maker categorizes revenue. Dune SQL is publicly available, and users can check their accounts themselves.
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They broke down the monthly interest income by asset class:
Through the dashboard, the revenue of different products can be identified. As shown in the above dashboard, Maker has several subdivided revenue streams, including pegged stable modules, real world assets, and liquidations. Dune is a useful tool, but requires some knowledge of SQL.
Asset outflow
Typically outflow details can be found not only in the DAO's treasury, but also in governance proposals and financial reports. Overall costs include salary payments, profit sharing, safety audits or grants.
Like traditional finance, we usually focus on the following issues:
What is the burn rate of the DAO?
How much money was spent and where were the funds spent?
How did spending increase or decrease?
Will this spending have a positive impact on the DAO's long-term roadmap?
Some DAOs spend funds on multiple projects and let those teams spend the funds as they please, so identifying and categorizing DAO spending can present some difficulties. To accurately identify DAO expenditures requires close attention to the DAO's governance proposals, identification of transactions in the treasury, and timely review of financial statements.
Explore The DAO Treasury
ENS
The ENS treasury holds most of the ENS tokens, and also has a considerable amount of ETH. Users must pay ETH to purchase ENS domain names.
Lido
Most of the funds in the Lido treasury are the governance token LDO. As a provider of liquidity collateral derivatives, they also hold a considerable amount of ETH. At the same time, Lido assets are more diversified, and DAI is the third largest holding asset.
MakerDAO
MakerDAO also has a large number of governance tokens MKR, but it does not show stablecoins such as USDC and DAI held in the peg stable module (PSM). Understanding how each product affects the total holdings of the protocol is also an additional concern for analysts.
Bankless
Although BANK accounts for 80% of the DAO's treasury, it is more diverse overall than the example above. However, the Banklss treasury does not hold stable coins. If a black swan event occurs, the purchasing power of the BanklessDAO maintenance project will drop significantly.
Rook
in conclusion
in conclusion
Investors, contributors, and users can use the DAO treasury to understand the financial health of the organization, but they still need to be cautious. Some DAOs have various project incomes, and there will also be some expenditures that are beneficial to long-term growth, but they are not in the balance sheet. Table summary notes.
When doing financial planning, it is important to keep asset diversification in mind, if the DAO governance token is highly correlated with other assets in the treasury, it will be negatively affected by market movements. DAOs can hold liquidity tokens to generate income.
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