⭕ [RFC] Treasury DAO Charter

In the proposal to create the TreasuryDAO it is stated that the TreasuryDAO will “make discretionary decisions in allocating capital assets in line with discretionary powers granted through governance, including allocating treasury assets in whitelisted protocols up to a defined value to build a productive treasury, and approving funding for pre-approved DAO expenses. A complete record of discretionary powers should be created as part of this restructure.” Proposal There are both many details to work out in this vein as well as bigger questions which need to be addressed. The aim here is to get to consensus about approach rather than specifics. Then greater focus can be placed on the tactics of an individual strategy. Enumerated are key treasury strategy design choices. Listed underneath each design choice are specific examples or further questions.

  1. Is the treasury’s purpose to secure funds in order for the protocol to be self-sustaining (e.g. pay for future protocol development)?

    • If this is the case, much more detail is required about the operational costs. It would greatly influence the treasury’s need to secure stable coins and thus influence its approach.
  2. Should the treasury ever be used for incentivising users to use the mStable product?

    • This could be in the form of MTA emissions or boosting imUSD yield by holding mUSD or incentivizing mUSD/3Curve or holding CVX and voting for mUSD/3Curve.
  3. What tokens does the Treasury have interest in accumulating?

    • Governance: MTA, BAL, AAVE, CVX, CRV, FXS, SNX.
    • Stables: mUSD, 3Curve, sUSD, GHO, Frax, FPI.
  4. What token distribution does the Treasure aim to achieve?

    • 50% Stables: 25% 3Curve, 15% mUSD, 5% sUSD, 5% GHO.
    • 50% Governance: 25% MTA, 10% AAVE, 10% CVX, 5% FXS.
  5. What rate of accumluation is appropriate?

    • If currently 10% stables and 90% governance, should the Treasury acquire 75% Stables, 25% Goverance until it is closer to the desired 50/50 split?
    • Should the Treasury use a TWAP to determine whether it is a good time to acquire Goverance tokens? (e.g. if Gov tokens are below 60 day TWAP 55% Gov/45% Stables etc.)
  6. Does the return on investment impact the desire to hold a given Governance token or stable?

    • mUSD/3Curve can yield high yield in CVX and CRV
    • CRV can yield high in CVX, CRV, and 3Curve
    • FXS can yield high in CVX, CRV, and FXS
    • stkAAVE can yield AAVE ~6%
    • stkAAVE will be collateral for GHO
    • GHO will likely have a Curve LP
    • Frax has many pairings available but is less desirable because only partially collateralized
    • staked MTA can yield MTA ~30%
    • locked CVX can yield CVX ~4% and CRV (plus bribes)
  7. Does the treasury want to focus on expanding DAO to DAO relationships?

    • ROOK usage of mSave
    • Balancer token swap
  8. What will be the whitelisted protocols for available for usage? What will the process of adding or removing them be?

The focus at this point should be developing questions such as those enumerated. These design questions can then be honed to develop a charter for the TreasuryDAO. Then a priority can be established for specific types of tactics and the protocols used for them. The trade off of yields, risk, and marketing can then be discussed and more dynamic.

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I think this is a great conversation starter and there are indeed many questions that are not easy to answer.

This would come back to the overall mission of the TreasuryDAO, maybe it would make sense to codify them in a proposal, so we have clarity about the topline level. And from there the other question you posted are then also easier to answer with the mission in mind.

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We actually have a mission statement from a while ago that we publicized internally and on our Medium. With the new restructure and signers, of course some parts are outdated.

Maybe we can use this as a starting point, and then iterate on this to create a new document that we can then codify and put on IPFS?

In general, I think this is a great idea, and will make decision-making processes a lot leaner and smoother overall!

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@Jeshli, I loved the questions, and I think they bring good points on what we are optimising it for.

imo the treasury main priority of the treasury is to secure funds to not only be a self-sustaining protocol but also think about scaling and expanding the product range.

I believe that token incentives should be seen as a customer acquisition cost. With that in mind, the TreasuryDAO must make smart decisions on how that product on how much value the product is generating and what’s the ROI there.

This brings me to another question that is who owns this? I believe in the past majority of these proposals were done by the core contributors but now we have very interesting and smart people becoming a singer for the TreasuryDAO. I really don’t believe in “it’s everyone’s responsibility” because in the end is no one’s responsibility. (@mZeroNine :wink:)

It could be an interesting topic for the next governance call.

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Very helpful link. Especially since the Funding subDAO and the Asset Management subDAO are being merged into the Treasury DAO. Most of my questions were essentially about how we should manage assets because I was interested in ideas where can be overlap in incentivizing users and growing the treasury (e.g. farm CVX => vote mUSD => increase save yield). However, the funding aspect is becoming much more interesting to me because we need to manage all the existing and projected costs for maintaining and growing the product. Understanding the financial requirements of the Treasury greatly influences the investment horizon and thus the types of investments possible and the amounts that can be allocated to them.

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That’s fair and makes a lot of sense. Let’s connect via DM to see on avenues we can take to formalize these steps and then get back to the community with a more concrete rollout of this.

I’ll also try to get some core team members into a chat so we can align from both sides and find a proposal that will suit and make sense for the entire ecosystem.

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Count on me to join this convo :slight_smile:

CT has been applauding the work and approach of the MakerDAO Risk Teams. Some of the types of risk have overlap with the way Vaults will need to be reviewed.

  1. Smart contract risk
  2. Oracle risk
  3. Price risk
    • Low Market Cap and Trade Volume Risk
    • Token supply risk (Vesting Supply, Unlimited Mint)
    • Multisig Risk (AUM, Unlimited Mint)

I would want @trustindistrust for 1, 2, and Multisig risk assessment. If we can assign risks to some primatives it can both aid the Treasury DAO in decision making and simplify the risk assessment of Metavaults which use these pre-evaluated strategies as legos.

Price manipulation (of low market cap and trade volume tokens) has been used in several exploits and is a vulnerability that can be researched without deep knowledge of smart contracts. For a long time, everyone knew that LUNA daily trade volume was no where near large enough to withstand 16 billion UST worth of LUNA being minted and sold. A post mortem can be conducted on UST as a demo case and Frax is a simple next step where 10% of redeemed Frax is converted into FXS. The question is then whether there exists enough FXS liquidity/trade-volume to absorb the hit of burning all the Frax. This would impact the Treasury’s desire to hold FXS and given that it is a dynamic system, the Treasury could divest or continue to accumulate according to the current state.

There is also already most of the information needed for FXS and Terra analyses available. What would be desirable is to have a process which produces many commonly used metrics for any token. This would begin the automation process and could be leveraged by the vault strategy risk evaluators. Automating the production of as much information about risk as possible for a given vault strategy would increase a builders or evaluators desire to use mStable vaults over another.

Here is a proposal for a Frax Dashboard that is likely to get rejected. Snapshot I plan to review this dashboard proposal and the metrics it suggests are insightful and create a python script which will enable us to generate similar DUNE queries for any token.

I propose the Treasury seek to secure 10x current expenditures in Stable Coins. If we were to assume a 10% return on investment, that would enable perpetual funding (assuming nominal costs remained the same).

Similarly, it would be appropriate for the Treasury DAO to be able reject Protocol DAO requested funds if the costs were not sufficiently details nor sustainable. If the Treasury DAO is tasked with providing perpetual funding, it needs to be able to influence expenditures.

This raises some really important questions that should be discussed and clarified.

The goal stated here seems to take the view that the project is primarily running as an investment fund with an objective of sustaining itself through investment returns.

I take a very different view that the primary purpose of the project is to build a valuable product, which eventually generates enough revenue to cover costs and create a profit. In this case, the primary role of the TreasuryDAO is simply to custody funds and ensure liquidity for project spending. Of course any returns on idle capital are a useful revenue source too, but the basic assumption must be that the most profitable way to invest capital long-term is to invest in product development and growth (otherwise we should stop building and simply run an investment fund).

I assume that when you say “ProtocolDAO requested funds” that you mean “subDAO requested funds”? The ProtocolDAO expenditure will basically be limited to signer payments and protocol gas fees. All other expenses would be funded through a subDAO.

A couple of points here:

  • Firstly, I don’t think that the TreasuryDAO (as in the signer group) should really play a role in influencing expenditure; it is the role of Meta governors to approve subDAO funding requests. The role of the TreasuryDAO here should be to execute on the will of Governors and to monitor performance of subDAOs to ensure that funds are spent in line with requests and that deliverables are being met.

  • Secondly, taking your two statements together, this would seem to advocate cutting current project funding by over 80% to bring it below 10% of treasury assets.

To me, the most important considerations for Meta Governors around treasury management are:

  • How aggressively should the project invest in growth? Is the expenditure proposed by subDAOs reasonable in relation to the overall treasury size? Put another way: what runway length should be maintained to have the best chance of reaching profitability?

  • What target weights of various assets should be targeted to best support this strategy? Eg. ratios of MTA, liquid stablecoin deposits, and longer term/strategic investments

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A super interesting discussion here. Just quickly wanted to chime in and say that most likely we will continue these discussion here until after the signers have been swapped, and all assets been moved into the TreasuryDAO.

I also say it’d be imperative that all new TreasuryDAO signers join in on this conversation, as it should be part of the charter to steer the treasury in the right direction with this move.

Since it’s a deep topic that will most likely go down a deep rabbit hole, we could agree to have a regular meeting with all signers and other interested ecosystem participants, until we find a good soft consensus on the direction the mStableDAO Treasury should be taking for the next months and years to come.

Super excited to see this process unfolding, and how we can make the magic happen so to say :sunglasses:

Yes when I said the ProtocolDAO, I meant the protocol development funding and not the protocolDAO.

A key element in the sustainability of expenditures that I forgot to include is protocol revenues allocated to the treasury in the calculations of sustainability. So sustainable expenditures = Treasury DAO returns + protocol revenue allocated to Treasury.

The statement “seek to secure 10x expenditures” (now with the caveat of less revenues allocated to treasury), does not necessitate immediately cutting expenditures. However, if eating in the Treasury faster than it grows is required indefinitely then the product is unsustainable and everyone involved in decision making would be doing a disservice not to state that a haircut to expenditures is required. If we wait until TreasuryDAO cannot make it’s required payments to the protocol developers, the TreasuryDAO has failed at its most basic of requirement. My experience at the GrantsDAO taught me that this is the exact type of fundamental topic that must be clarified immediately because it can produce insolvency.

Although you state the focus of the Treasury DAO is asset management, expenditure requirements are upstream in the decision making process. Every dollar that the Treasury DAO allocates to governance tokens is Funding Runway which is put at risk. One of the key elements of risk is not just the chance of governance tokens going to zero but the risk of having to withdraw governance tokens at an inopportune moment which can be at a great loss.

After reviewing the Treasury balance the $3.1m in stables is only earning 2.3% in yield because it is either not allocated anywhere or is not allocated efficiently. In terms of Treasury management, this is the lowest hanging fruit where consensus would be easiest.

For effective Asset Management:

  • The TreasuryDAO must estimate protocol revenue
  • The TreasuryDAO must estimate investment returns
  • The TreasuryDAO must estimate expected expenditures
  • The TreasuryDAO must ensure funding runway for a yet to be agreed upon time frame

Once protocol revenue exceeds expected expenditures then asset management would simply be maximizing returns and investing in protocols which share mStable’s values. That sounds much more fun. I will plot v1 revenues ASAP and will similarly design v2 revenue data capture the moment that it is possible.

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I agree with both @Jeshli & @soulsby.

This makes total sense. The protocol should be investing back into itself first and foremost.

However, there is indeed idle capital that could be put to work. I fear that creating another SubDAO with a smaller multisig to handle investments further fragments DAO responsibilities and creates one extra step of bureaucracy.

In my opinion, if governance wills it, then the Treasury DAO multisig is large enough (and presumably all signers now active enough) that idle capital investment decisions can be quickly executed.

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Thanks @Jeshli , I agree with all of your post above.

Agree that it’s critical that the DAO accurately models and tracks these metrics. This is an area where things can be improved to allow better decision-making and transparency.

The last item on the list is a key area for discussion as there are more subjective considerations around the best strategy.

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