Community Treasury

A community treasury's assets are held in smart contracts on a blockchain, not by a central entity. This ensures transparency (all holdings and transactions are public) and security (funds are protected by the network's consensus rules). Common storage includes multi-signature wallets or dedicated treasury modules like Gnosis Safe or OpenZeppelin Governor contracts.

Spending from the treasury is authorized through a formal governance process. Token holders typically:

• Submit proposals (e.g., grants, budgets, investments).
• Vote using their governance tokens.
• Execute approved transactions after a timelock delay for review. This process decentralizes financial decision-making, aligning expenditures with community consensus.

Treasuries are funded through mechanisms baked into the protocol's economic design. Primary sources include:

• Protocol Revenue: Fees from transactions, swaps, or services (e.g., Uniswap's fee switch).
• Token Inflation: New token issuance directed to the treasury.
• Initial Funding: A portion of a token sale or genesis allocation.
• External Investments: Yield generated from deploying treasury assets (e.g., staking, lending).

Full financial activity is auditable on-chain. Tools like Dune Analytics, Nansen, and DeepDAO aggregate this data to provide dashboards showing:

• Total Value Locked (TVL) and asset composition.
• Inflows and outflows over time.
• Voting history and proposal success rates. This transparency is fundamental for holder accountability and informed governance.

Beyond simple custody, advanced treasuries actively manage assets to preserve and grow capital. Strategies include:

• Diversification: Converting native tokens to stablecoins or other assets.
• Yield Farming: Earning interest via DeFi protocols.
• Liquidity Provision: Supplying assets to DEX pools to earn fees and support the ecosystem's liquidity. This turns the treasury into an active financial arm.

A primary expenditure is funding ecosystem growth through grant programs. These are structured processes to allocate capital to:

• Developers building core infrastructure or new applications.
• Researchers working on protocol improvements.
• Community initiatives like education and content. Examples include Uniswap Grants, Compound Grants, and Aave Grants DAO.

The treasury acts as a decentralized autonomous organization (DAO) treasury, where token holders vote to allocate funds for game development, marketing, and infrastructure. This creates a sustainable, community-driven funding model distinct from traditional venture capital.

• Proposal & Voting: Developers or community members submit funding proposals, which are voted on by governance token holders.
• Transparent Allocation: All transactions are recorded on-chain, ensuring accountability.
• Example: Games like Illuvium use their treasury to fund major development milestones through community votes.

Treasuries fund play-to-earn (P2E) rewards, tournaments, and loyalty programs to bootstrap and retain an active player base. This directly ties a game's financial success to player engagement.

• Yield Source: A portion of in-game transaction fees (e.g., NFT sales, marketplace taxes) is often funneled into the treasury to fund these rewards.
• Seasonal Rewards: Treasury funds can be distributed as tokens or NFTs for achieving in-game milestones or participating in events.
• Example: Axie Infinity's Community Treasury historically funded its Seasonal Rewards and tournament prize pools.

Treasuries provide liquidity for the game's core tokens and NFTs on decentralized exchanges (DEXs) and marketplaces. This ensures smooth trading, reduces price volatility, and generates yield for the treasury itself.

• Automated Market Makers (AMMs): Treasury assets are deposited into liquidity pools (e.g., on Uniswap, Sushiswap) to facilitate trading.
• Stability Mechanisms: Funds can be used for strategic buybacks or to maintain peg stability for in-game stablecoins.
• Revenue Stream: The treasury earns trading fees from its liquidity provision activities.

Treasuries allocate grants to third-party developers, content creators, and guilds to build complementary tools, content, and services, fostering a robust ecosystem.

• Developer Grants: Funding for community-created mods, analytics dashboards, or companion apps.
• Content & Esports: Sponsorships for streamers, tournament organizers, and esports leagues.
• Guild Partnerships: Strategic investments or subsidies for scholarship programs run by gaming guilds to onboard new players.

The assets within a community treasury are actively managed to preserve capital and generate yield, often through DeFi strategies. This turns the treasury into a productive asset for the protocol.

• Asset Diversification: Holdings may include stablecoins, blue-chip cryptocurrencies, and the project's own governance tokens.
• Yield Farming: Treasury funds are deployed in lending protocols (Aave, Compound) or staking mechanisms to earn interest.
• Risk Management: Strategies are typically governed by the DAO, with parameters set to balance risk and return.

Control over the treasury is the ultimate expression of decentralized governance. Token holders vote not just on spending, but on key game parameters, economic policy, and the treasury's own management rules.

• Proposal Types: Votes can cover budget approvals, tokenomics changes, smart contract upgrades, and grant allocations.
• Vote-escrowed Models: Some projects use veTokenomics (e.g., veCRV model) where locking tokens longer grants more voting power over the treasury.
• Transparency: All governance actions and treasury flows are immutable and publicly auditable on the blockchain.

The core mechanism for treasury allocation is on-chain governance. Token holders submit and vote on Treasury Proposals (TIPs, FIPs, etc.) to fund initiatives. Key steps include:

• Proposal Submission: A detailed plan is posted, often requiring a deposit.
• Discussion & Snapshot: Informal voting may occur on platforms like Snapshot.
• On-Chain Vote: A formal, binding vote is executed via the governance token.
• Multisig Execution: Approved funds are released by a multisig wallet or directly via smart contract.

A primary use case is sustaining the protocol's core development and ecosystem public goods. This includes:

• Core Developer Grants: Salaries for protocol engineers and researchers.
• Ecosystem Grants: Funding for dApps, tools, and infrastructure built on the network.
• Bug Bounties & Audits: Incentives for security researchers.
• Documentation & Education: Funding for tutorials, translations, and community education programs.

Examples: The Uniswap Grants Program and Compound Grants are funded by their respective DAO treasuries.

Treasuries are strategically deployed to bootstrap and sustain critical network liquidity. This involves:

• Liquidity Mining Programs: Direct token emissions to liquidity providers (LPs) on DEXs.
• Treasury-Controlled Liquidity: Using treasury assets to seed bonding curves or provide protocol-owned liquidity, reducing reliance on mercenary capital.
• Partnership Incentives: Funding joint liquidity pools or integration bounties with other protocols.

This creates a flywheel effect, where a deep liquidity pool attracts more users, generating fees that refill the treasury.

An advanced strategy where the treasury itself acts as a permanent market maker. Instead of paying incentives to third-party LPs, the protocol uses its assets to provide liquidity, capturing the associated fees. Key models include:

• OlympusDAO's (OHM) Bonding: Users bond assets (e.g., DAI, LP tokens) in exchange for discounted OHM, which the treasury then uses to build its POL.
• Liquidity Pools Owned by the DAO: The treasury holds the LP tokens, making the protocol a direct beneficiary of trading fees and reducing sell pressure on the native token.

Managing a treasury's asset portfolio is critical for long-term sustainability. Common strategies include:

• Asset Diversification: Converting a portion of native tokens into stablecoins (e.g., DAI, USDC) or blue-chip assets (e.g., ETH, BTC) to mitigate volatility risk.
• Yield Strategies: Deploying stablecoin holdings into DeFi yield protocols (e.g., Aave, Compound) to generate a low-risk return for the treasury.
• Vesting Schedules: Implementing cliff and vesting periods for large grants to ensure aligned, long-term contributions.
• Insurance: Allocating funds to cover smart contract risk via protocols like Nexus Mutual.

Real-world DAOs demonstrate diverse treasury management approaches:

• Uniswap DAO: Holds billions in UNI and stablecoins, funding grants, advocacy, and development through a transparent proposal process.
• Compound Treasury: Uses a Governor Bravo smart contract system; funds are held in a Comptroller and disbursed via successful proposals.
• Aave DAO: Manages a large diversified treasury, with a portion allocated to Aave Grants DAO and risk-off assets in the Aave Arc market.
• Optimism Collective: Pioneered Retroactive Public Goods Funding (RPGF), allocating treasury funds to projects based on their proven past impact on the ecosystem.

The primary security layer for a treasury is its custody mechanism. Most treasuries use multi-signature wallets (e.g., Gnosis Safe) requiring multiple trusted signers to authorize transactions. Timelocks add a mandatory delay between a governance proposal's approval and its execution, providing a final review period to veto malicious proposals. For example, Uniswap's treasury is controlled by a 6-of-9 multi-sig with a 7-day timelock.

Governance models dictate how treasury spending is approved. On-chain governance uses token-weighted voting directly on the blockchain (e.g., Compound, MakerDAO), where proposals execute automatically if passed. Off-chain governance (e.g., snapshot votes, forum discussions) is used for signaling and temperature checks, with execution often still requiring a multi-sig. The choice impacts security, voter participation, and resistance to governance attacks.

A treasury's asset composition is a key security consideration. Many protocols hold a large portion of their treasury in their own native token, creating reflexive risk. Diversification strategies involve converting assets into stablecoins, ETH, or other blue-chip assets via treasury management DAOs (e.g., Llama, Karpatkey) or on-chain swaps. This reduces volatility risk and ensures the treasury can fund operations regardless of the native token's price.

Treasuries are prime targets for governance attacks. Common vectors include:

• Vote buying/renting: Accumulating voting power temporarily to pass self-serving proposals.
• Token whale dominance: A single entity controlling enough tokens to dictate outcomes.
• Proposal spam: Flooding the governance system to hide a malicious proposal. Mitigations include quorum requirements, vote delegation, conviction voting, and holographic consensus to increase attack cost and complexity.

For a treasury to be trusted, its operations must be fully transparent. This is achieved through on-chain analytics dashboards (e.g., DeepDAO, Tally) that track balances, transactions, and voting history. Budget frameworks and grant milestone reporting ensure funded teams are accountable. Transparent record-keeping is essential for retroactive funding models and maintaining legitimacy with the community.

Treasury management intersects with legal frameworks. Key considerations include:

• Asset classification: Determining if the treasury's native token is a security in certain jurisdictions.
• Grant taxation: Understanding tax implications for grant recipients and the DAO itself.
• Entity formation: Many DAOs form legal wrappers (e.g., Swiss associations, Cayman Islands foundations) to hold assets, sign contracts, and limit liability for contributors, creating a bridge between on-chain governance and off-chain legal reality.

Structured initiatives funded by the treasury to incentivize ecosystem growth. They are a primary expenditure category.

• Retroactive Funding: Rewards for work that has already proven valuable (e.g., Optimism's RetroPGF).
• Project Grants: Upfront funding for proposed development, marketing, or research work.
• Bounties: Specific, scoped tasks with predefined rewards for completion.

Liquidity pool assets (e.g., LP tokens) owned and controlled by the treasury itself, rather than by third-party liquidity providers.

• Purpose: Reduces reliance on mercenary capital, generates fee revenue, and stabilizes the protocol's native token.
• Mechanism: Often accumulated through bonding mechanisms (as seen in Olympus DAO) or direct purchases from treasury funds.

The inflows that replenish a community treasury. A sustainable treasury requires multiple, reliable sources.

• Protocol Fees: A percentage of transaction fees, swap fees, or other protocol revenue.
• Token Inflation: New token issuance directed to the treasury.
• Initial Treasury Allocation: A portion of the token supply reserved at genesis.
• Investment Income: Yield generated from staking or lending treasury assets.