Why Protocol Treasuries Must Evolve Beyond Simple Grant Distributions

Capital is sprayed at teams based on proposals, not performance, leading to zero accountability for delivered value. This creates a grant-to-nowhere cycle where funds are spent, but protocol growth stagnates.

• ~90% of grant-funded projects fail to achieve meaningful adoption.
• Capital is treated as an expense, not an investment with expected ROI.

Replace upfront grants with milestone-based vesting tied to on-chain KPIs. Funds are escrowed and released upon verifiable delivery, aligning incentives with protocol success.

• Escrow contracts like Sablier or Superfluid enable streamed payments.
• KPIs can include TVL growth, fee generation, or user acquisition.

Idle treasury assets, often in native tokens, are subject to volatility and generate zero yield. This represents a massive opportunity cost and weakens the protocol's long-term financial position.

• $10B+ in protocol treasuries sits largely unproductive.
• Native token concentration creates reflexive sell pressure.

Deploy treasury capital into productive DeFi strategies (e.g., lending, LPing, staking) via DAO-controlled vaults. Diversify holdings into stablecoins and blue-chip assets to mitigate risk.

• Use Aave, Compound, or Morpho for yield.
• Gnosis Safe with Zodiac modules for execution.

Grant distribution is gated by insider committees or whale-dominated governance, leading to capital misallocation and community disillusionment. The process lacks transparency and is vulnerable to sybil attacks.

• <1% of token holders typically control grant decisions.
• Proposals favor established teams over novel builders.

Shift to retroactive public goods funding models (like Optimism's RPGF) and on-chain grant factories. Let builders ship first, get paid for proven value. Use clr.fund or Gitcoin Grants for quadratic funding.

• Proof-of-usage replaces promise-based proposals.
• Democratizes capital allocation.

One-off grants burn runway without creating sustainable value, leading to treasury decay and misaligned incentives for builders.

• ~70% of grants fail to deliver meaningful protocol utility.
• Creates mercenary developer culture, not long-term ecosystem alignment.
• Opportunity cost of idle capital not earning yield.

Replace lump-sum payments with tranched releases tied to verifiable, on-chain milestones using platforms like Sablier or Superfluid.

• Aligns incentives over a 12-24 month horizon.
• Enables continuous capital efficiency; unvested funds remain in yield strategies.
• Provides clear KPIs for treasury governance (e.g., TVL growth, transaction volume).

Holding native tokens or stablecoins on a cold wallet guarantees negative real yield due to inflation and opportunity cost.

• $10B+ in protocol treasuries sits non-productive.
• Leaves protocols vulnerable to bear market drawdowns.
• Fails to leverage treasury as a strategic balance sheet asset.

Deploy treasury assets into structured, risk-managed yield strategies across Aave, Compound, and Morpho Blue.

• Generate 3-8% APY on stablecoin reserves to fund operations.
• Use Euler or Gauntlet for risk modeling of native token collateral.
• Creates a perpetual funding engine, reducing reliance on token emissions.

Multi-sig wallets and slow governance votes create bureaucratic bottlenecks, preventing agile responses to market opportunities.

• Weeks-long delays for strategic capital allocation.
• Lack of transparency leads to community distrust and governance attacks.
• Inability to execute complex strategies like liquidity provisioning or hedging.

Implement on-chain treasury policies via Safe{Wallet} modules and DAO frameworks like Aragon. Delegate execution to specialized sub-DAOs or agent-based systems (e.g., Chaos Labs).

• Enables automated, rule-based execution (e.g., DCA into ETH, rebalance yields).
• Transparent, real-time audit trails for all expenditures.
• Sub-DAOs can act with agility within pre-approved risk parameters.