DAO Treasury

The treasury's assets are held in smart contracts on a blockchain, not by a central entity. This ensures transparency (all holdings are publicly verifiable) and security (access requires multi-signature or governance approval). Common custodial models include Gnosis Safe multi-sigs and dedicated treasury management modules.

No single party can unilaterally spend treasury funds. Expenditures are authorized through the DAO's governance process, typically involving:

• Proposal Submission: A detailed spending plan is published.
• Voting Period: Token holders vote using governance tokens.
• Execution: Upon passing, the transaction is executed automatically or by a trusted multisig.

A robust treasury manages a diversified portfolio to mitigate risk. Common asset classes include:

• Native Governance Tokens (e.g., UNI, AAVE): Used for voting and incentives.
• Stablecoins (e.g., USDC, DAI): For predictable operational expenses.
• Blue-Chip Crypto (e.g., ETH, wBTC): For treasury growth and collateral.
• LP Positions: Providing liquidity to generate yield.

Treasuries are not static vaults; they are actively managed to generate yield and preserve value. Strategies include:

• Staking: Earning rewards by securing Proof-of-Stake networks.
• Lending: Depositing assets into protocols like Aave or Compound.
• Vesting Schedules: Managing the linear release of tokens to contributors or investors.

All treasury transactions are immutable and publicly recorded on-chain. This enables:

• Real-time Analytics: Tools like Llama and DeepDAO provide dashboards for tracking balances and flows.
• Accountability: The community can audit all inflows (e.g., token sales) and outflows (e.g., grants, payments).

Treasuries are funded through various mechanisms that align incentives:

• Token Sales: Initial capital from a sale of the governance token.
• Protocol Revenue: A portion of fees generated by the DAO's core product (e.g., Uniswap's fee switch).
• Treasury Diversification: Swapping native tokens for other assets via decentralized exchanges.

A critical component for financial stability and operational runway. Stablecoins like USDC, DAI, and USDT provide a non-volatile store of value used for:

• Covering operational expenses (developer grants, audits, hosting).
• Funding grants and bounties in a predictable currency.
• Providing liquidity for token swaps and community initiatives.
• Serving as a hedge against the volatility of the DAO's native token.

Treasuries often hold positions in Automated Market Maker (AMM) pools to earn trading fees and deepen liquidity for their own token. These are typically LP tokens representing a stake in a pool (e.g., ETH/DAO_TOKEN). This generates protocol-owned liquidity (POL), reducing reliance on external incentives and creating a sustainable yield stream for the treasury.

Assets from other blockchain ecosystems, held to facilitate cross-chain operations or as strategic investments. Common examples include:

• wBTC (Wrapped Bitcoin) and wETH (Wrapped Ether) as stores of value from other chains.
• Staked ETH (stETH, rETH) representing yield-bearing Ethereum staking positions.
• Assets bridged from Layer 2s or other Layer 1s (e.g., Arbitrum, Solana).

Low-risk assets deployed to generate yield on stablecoin reserves, preserving capital while earning a return. This includes deposits in decentralized money markets like Aave and Compound (earning interest via aTokens/cTokens) or stablecoin staking protocols. The goal is capital preservation with incremental growth, funding operations without selling volatile assets.

Non-fungible and other unique digital assets held for community, cultural, or speculative value. This can include:

• Governance NFTs granting access or voting rights in other protocols.
• Digital collectibles or art for community identity.
• Domain names (e.g., .eth) for branding.
• Revenue-generating assets like virtual land or in-game items.

A sustainable, ongoing source where the treasury earns a percentage of fees generated by the underlying protocol. Common models include:

• Fee Switches: A portion of trading, lending, or transaction fees is diverted to the treasury.
• Yield: Treasury assets are deployed in yield-generating strategies (e.g., staking, lending).
• Example: Uniswap's governance can vote to turn on a protocol fee for the UNI treasury.

Funding via inflationary tokenomics, where new tokens are minted according to a pre-defined schedule and allocated directly to the treasury. This method dilutes existing token holders but provides a predictable funding stream for long-term initiatives like developer grants and ecosystem incentives.

Treasuries can be funded through the sale of non-fungible tokens (NFTs) or by holding appreciating ecosystem assets. Examples include:

• ConstitutionDAO raising funds via NFT-like contributions.
• A DAO treasury holding rare NFTs or land parcels in a metaverse project as part of its asset portfolio.

Some DAOs raise capital through traditional venture capital-style rounds, selling a stake in the treasury's future fee revenue or tokens directly to institutional investors. This provides a large, upfront capital infusion but often involves legal structuring (e.g., a SAFE or token warrant).

The core operational use case, funding the ongoing build and maintenance of the protocol. This includes:

• Developer grants and salaries for core contributors.
• Security audits and bug bounty programs.
• Infrastructure costs like RPC nodes, indexers, and hosting.
• Legal and administrative expenses for real-world operations.

Using treasury assets to bootstrap and sustain essential ecosystem liquidity. This is critical for DeFi protocols and involves:

• Liquidity mining programs that reward users who deposit assets into pools.
• Direct provision of treasury tokens into AMMs (e.g., Uniswap, Balancer).
• Incentivizing key integrations with other protocols to drive utility and adoption.

A capital allocation strategy to manage token supply and value. The treasury uses its assets (often stablecoins or revenue) to:

• Execute buybacks from the open market.
• Permanently burn the purchased tokens, reducing total supply.
• This creates deflationary pressure and can align incentives by returning value to long-term token holders.

Managing treasury asset risk by converting native tokens into a diversified portfolio. Common strategies include:

• Swapping for stablecoins (USDC, DAI) to preserve value.
• Acquiring blue-chip assets like ETH or BTC.
• Investing in yield-generating instruments (e.g., staking, DeFi vaults).
• This reduces volatility and creates a sustainable runway for the DAO.

Distributing capital to external builders and community projects to foster growth. This includes:

• Public goods funding for tools, research, and education that benefit the ecosystem.
• Partnership grants to incentivize integrations with other protocols.
• Community initiatives like hackathons, content creation, and local meetups.
• Managed through specialized sub-DAOs or grant committees like MolochDAO or Gitcoin.

Allocating treasury funds to protect the protocol and its users from financial loss. Key mechanisms include:

• Funding an insurance fund or reserve to cover smart contract exploits or slashing events.
• Purchasing coverage from decentralized insurance protocols like Nexus Mutual or Unslashed Finance.
• Setting aside a contingency fund for unexpected liabilities or black swan events.