Setting Up a Treasury Management Plan for a Potential Fork

A protocol fork is a high-impact governance event that splits the blockchain's state and community. For a DAO or foundation, this creates immediate financial complexity: the treasury's native tokens and other assets exist on both the original chain and the new forked chain. Without a clear plan, this can lead to governance paralysis, security vulnerabilities, and significant value leakage. Preparation focuses on establishing clear custody, governance, and operational procedures before a fork occurs.

The core of fork preparedness is multi-chain treasury management. This involves auditing all treasury assets—including native tokens (e.g., ETH, OP, ARB), stablecoins, and LP positions—and understanding their post-fork existence. You must define a custody strategy for forked assets: will they be held by the same multi-sig, moved to a new one, or immediately liquidated? Protocols like Lido and Aave have set precedents through their handling of forks like Ethereum's Merge and subsequent testnet splits, emphasizing the need for pre-written execution scripts and clear signer mandates.

Technical implementation is key. Governance should pre-approve a set of fork contingency transactions. These are pre-signed or readily executable transactions for the new chain, such as moving assets to a secure vault or swapping a portion of the forked native token for stablecoins. Using a smart contract wallet (like Safe) with a fork-aware domain verifier or preparing EIP-1271 signed messages can help execute these actions reliably in a forked environment where standard RPC endpoints may be unreliable.

Finally, establish a transparent communication and execution timeline. The plan should define trigger events (e.g., a successful governance vote to fork), a locked snapshot block height, and a public post-fork checklist. This process mitigates chaos and speculation. The goal is not to prevent forks, which can be healthy for ecosystem innovation, but to ensure your treasury's strategy and governance remain intact and actionable through the transition.

A successful fork requires a dedicated, multi-signature treasury wallet separate from the project's operational funds. This wallet should be controlled by a decentralized autonomous organization (DAO) or a council of trusted, doxxed signers using a tool like Safe (formerly Gnosis Safe). The initial treasury must be funded with sufficient native assets (e.g., ETH, stablecoins) to cover at least 6-12 months of core expenses, including developer salaries, security audits, and infrastructure costs like RPC nodes and indexers.

Define clear, on-chain governance parameters for treasury usage from day one. This includes setting proposal thresholds, voting periods, and quorum requirements using a framework like OpenZeppelin Governor. Specify allocation categories in your governance constitution: - Ecosystem Development Grants - Security & Audits - Liquidity Provision - Operational Runway. Transparent reporting of all transactions via a public treasury dashboard, such as those built with Llama, is non-negotiable for building trust.

Assess the legal and tax implications of managing a treasury, especially for a fork that may issue a new token. Consult with legal counsel on the classification of the token and treasury assets. For DeFi protocols, a significant portion of the treasury should be allocated to initial liquidity provisioning on decentralized exchanges. Use bonding curve models or liquidity bootstrapping pools (e.g., Balancer LBP) for a fair launch, avoiding large pre-sales that can lead to immediate sell pressure.

Technical preparation involves forking the original chain's state at a specific block height. You'll need access to archive nodes or services like Alchemy or QuickNode to snapshot balances. The treasury must be seeded with the forked native token for distribution. Plan the token distribution model carefully: allocations for existing users (an "airdrop"), the core team, the treasury, and a community reserve. Use merkle trees for efficient and verifiable airdrop claims.

Finally, establish a multi-phase security protocol. Before the fork, conduct a comprehensive audit of any modified smart contracts. After launch, implement a bug bounty program on platforms like Immunefi and consider a time-locked upgrade mechanism for the core treasury management contracts. Continuous monitoring for governance attacks and setting up emergency response procedures are essential to protect the community's assets long-term.

A fork treasury is the pool of assets controlled by the governance of a newly forked blockchain or protocol. Its primary functions are to fund ongoing development, incentivize ecosystem growth, and provide a safety net for operational expenses. Unlike a mainnet treasury, a fork treasury often starts with a one-time allocation derived from the original chain's state—such as seizing unclaimed airdrops, protocol-owned liquidity, or a portion of frozen assets—as seen in forks like Ethereum Classic or Bitcoin Cash. Establishing clear, on-chain rules for this treasury before the fork event is a non-negotiable security and legitimacy measure.

Setting up the plan involves several technical and governance steps. First, the fork's smart contracts or core protocol must define the treasury address and the minting/bridge mechanics for any new native tokens. This is often done via a custom Treasury.sol contract or a module within a governance framework like OpenZeppelin Governor. The contract should enforce multi-signature controls or a timelock, preventing unilateral access. Second, the community must ratify a transparent allocation proposal detailing percentages for grants (e.g., 40%), developer fund (30%), liquidity provisioning (20%), and reserves (10%). This proposal should be hashed and recorded on-chain prior to the fork.

For a real-world example, consider a hypothetical fork of a Uniswap V3-style DEX. The treasury plan could specify that 2% of all forked UNI tokens and 15% of protocol fee accruals from the first year are automatically routed to a Gnosis Safe governed by a 5-of-9 multisig of elected community members. The smart contract code would enforce these flows, making diversion impossible without a governance vote. Tools like Safe{Wallet}, Tally, and Snapshot are essential for managing these decentralized treasury operations post-fork.

Long-term sustainability requires a gradual vesting schedule for allocated funds and a proposal framework for disbursements. Instead of releasing the entire developer fund at once, a vesting contract can drip funds monthly over 2-3 years, aligning long-term incentives. A transparent process using platforms like Commonwealth or Discourse for discussion, followed by on-chain voting via Compound's Governor Bravo model, ensures community oversight. This prevents treasury depletion and maintains developer commitment to the forked project's roadmap.

Key risks to mitigate include governance capture, where a small group controls the treasury, and liquidity blackholes, where funds are stuck in non-productive assets. Regular, verifiable financial reporting of treasury assets and liabilities should be published on IPFS or Arweave. Furthermore, consider diversifying holdings beyond the native token into stablecoins or blue-chip assets via decentralized asset management protocols like Balancer or Enzyme Finance to preserve purchasing power. A well-managed treasury is the bedrock of a fork's enduring success.

A multi-signature (multi-sig) wallet is a non-custodial smart contract that requires multiple private keys to authorize a transaction. For a treasury, this means no single individual can unilaterally control the funds, enforcing a trust-minimized and collaborative governance model from day one. Popular options include Safe (formerly Gnosis Safe) on EVM chains, which has become the industry standard, or Squads on Solana. These platforms provide battle-tested, audited contracts with user-friendly interfaces for managing signers and proposals.

The configuration of your multi-sig is paramount. You must carefully select the signer set and threshold. A common starting configuration for a bootstrap treasury is a 3-of-5 or 4-of-7 setup. The signers should be trusted, technically competent founding members or community leaders, ideally with diverse geographic and technical backgrounds. The threshold should be high enough to prevent rogue actions but low enough to ensure operational efficiency; a simple majority (e.g., 3-of-5) is often a practical starting point. Document this configuration publicly to establish transparency.

Once deployed, the multi-sig contract address becomes your official Treasury Address. All initial bootstrap capital—whether from a pre-fork allocation, community donations, or a grants program—should be sent here. It's crucial to verify the contract deployment on a block explorer like Etherscan and to use the official interfaces for all interactions. This address will be the source of funds for all subsequent bootstrap activities: paying for infrastructure, funding development bounties, and providing initial protocol liquidity, making its security non-negotiable.

The primary goal of a forked treasury is to fund the new protocol's development, security audits, marketing, and community initiatives. This requires a clear, multi-signature (multisig) governance structure from day one. A common approach is to form a Treasury Council comprising 5-9 trusted, doxxed community members who collectively control the treasury wallet. This council is responsible for executing the grant program, paying for infrastructure, and managing operational expenses, with all transactions requiring a predefined threshold of signatures (e.g., 4-of-7). Tools like Safe (formerly Gnosis Safe) are the industry standard for implementing this secure, transparent custody model.

Asset allocation is the next critical step. The treasury will typically consist of the forked native token (e.g., NEW-TOKEN) and potentially other assets like ETH or stablecoins from an initial community fundraise. A prudent strategy involves a phased vesting schedule for the treasury's own token holdings to prevent market flooding. For example, you might lock 70% of the treasury's NEW-TOKEN in a smart contract like VestingVault that releases funds linearly over 3-4 years, ensuring a predictable, long-term runway. The remaining liquid assets are used for immediate grants and operational costs.

Transparency and reporting are non-negotiable for community trust. The Treasury Council should publish regular (e.g., monthly or quarterly) reports on a dedicated forum or transparency portal. These reports must detail: incoming funds (airdrops, donations), outgoing expenditures (grant disbursements, contractor payments), current wallet balances, and transaction hashes for verification. Using a blockchain explorer for the treasury's Safe wallet allows anyone to audit flows in real-time. This level of openness is essential for maintaining legitimacy and encouraging further community contribution and investment.

Finally, establish clear policies for treasury usage. Create a public document, such as a Treasury Management Framework, that defines: approved expenditure categories (development, audits, bug bounties, events), proposal and approval processes for large spends, and ethical guidelines (e.g., no market manipulation). This framework acts as the operational constitution for the Treasury Council, ensuring funds are used strategically and in alignment with the community's voted-upon goals, rather than at the discretion of a few individuals.

A formal Treasury Management Plan (TMP) is the cornerstone of responsible fund governance. This document should be ratified by the project's governing body (e.g., a DAO, foundation, or core team) and made publicly available to ensure transparency. The TMP defines the treasury's multi-signature wallet structure, specifying the number of signers required for transactions of different sizes (e.g., 3-of-5 for operational expenses, 5-of-7 for major capital allocations). It should also designate the legal entity or trust responsible for holding the assets, which is often a Swiss Foundation, Cayman Islands Foundation, or Delaware LLC chosen for its regulatory clarity.

The plan must establish clear spending policies and budget controls. This involves categorizing expenses (e.g., development, marketing, legal, grants) and setting approval workflows for each. For example, recurring developer salaries may be automated via Sablier or Superfluid streams, while a large grant to an external protocol would require a full DAO proposal. Implementing quarterly budgeting cycles and requiring detailed financial reporting helps prevent runaway spending. Tools like Llama, Parcel, or Multis can be integrated to manage these processes on-chain.

A critical section addresses asset diversification and risk management. Holding 100% of the treasury in the project's native token exposes it to extreme volatility. The TMP should outline a strategy for converting a portion of assets into stablecoins (like USDC, DAI) or other blue-chip assets (like wBTC, wETH) to ensure runway stability. This process, often managed through a Gnosis Safe with a timelock, must be pre-defined to avoid being perceived as insider selling. The plan should also set liquidity provisions for CEX listings and DEX pools.

Finally, the TMP needs robust compliance and reporting mechanisms. This includes procedures for Know Your Transaction (KYT) screening using providers like Chainalysis or TRM Labs to avoid interacting with sanctioned addresses or illicit funds. Regular, verifiable financial statements should be published. For projects with a legal entity, this aligns with statutory requirements; for DAOs, it builds essential trust with the community. The plan is a living document and should include a process for its own amendment, typically requiring a high-quorum vote from the governing body.

Your immediate next step is to audit and document your current on-chain asset holdings. Use a block explorer like Etherscan or a portfolio tracker to create a comprehensive list of all tokens, NFTs, and DeFi positions across every supported chain and protocol. This inventory is your single source of truth. For each asset, note the contract address, quantity, and the specific smart contract interactions (e.g., staking in Aave, providing liquidity in a Uniswap V3 pool). This data is critical for executing the fork-day strategy.

With your asset inventory complete, finalize your governance and execution plan. This involves:

• Defining clear multi-signature wallet thresholds for pre-fork and post-fork actions.
• Drafting and ratifying a Snapshot proposal or similar governance mechanism that authorizes the treasury committee to execute the forked asset claim process.
• Setting up monitoring alerts for key network indicators, such as social consensus signals or node client updates, to know when to trigger your plan. Document this process so any authorized signer can execute it under predefined conditions.

Finally, conduct a dry run or simulation of your claim process in a testnet environment. Many forked assets, like testnet versions of major tokens, exist on chains like Sepolia or Goerli. Practice the sequence of:

1. Verifying the forked chain's stability and block finality.
2. Interacting with the forked version of a DeFi protocol (e.g., a forked Uniswap contract) to claim liquidity pool tokens.
3. Executing a safe withdrawal of simulated assets to your multisig on the new chain. This rehearsal identifies technical hurdles—like RPC endpoint issues or unexpected contract logic—before real funds are at stake.

Staying informed is an ongoing requirement. Follow the core development teams and community channels for the blockchain in question. Key resources include the official GitHub repository, Discord/Social forums for developer discussions, and blockchain explorers for the new network. Proactive monitoring allows you to adjust your plan if the fork's technical implementation details, such as snapshot block height or token mapping rules, change during the lead-up to the event.

Remember, the goal of this plan is capital preservation and optionality. A successful fork treasury strategy does not necessarily mean immediately liquidating all forked assets. It means securing them under your controlled multisig, assessing the new chain's long-term viability and community health, and then making deliberate governance decisions about holding, using in the new ecosystem, or diversifying the treasury based on renewed risk assessments.