Shrewd treasury management is the secret to survival in crypto.
The most enduring companies — those that have weathered multiple market cycles — all share this single characteristic: they manage their treasuries with prudence, closing funding rounds and selling assets in the euphoria of a bull market, before squirreling away fiat ahead of the winter.
Yet now, a different breed of crypto organization is coming to the fore. Decentralized autonomous organizations (DAOs) are controlling more digital assets than ever, and they too must learn to ride out crypto seasonality by protecting the value of their treasuries.
The difficulty is that DAOs aren't about to park their funds with a bank or prime broker for traditional treasury management services. What they need instead, are crypto-native tools for managing day-to-day DAO operations and allocating assets effectively.
Over the last few years, the biggest decentralized autonomous organizations have come to control enormous amounts of value: a total of more than $9 billion sits in DeFi DAO treasuries, and the average DeFi DAO managed more than ~$100 million in mid-2022.
But despite being well-capitalized, DAO treasuries are not necessarily well-managed.
Whereas traditional centralized crypto companies can often be found holding significant cash reserves, only 23% of DAOs held stablecoins as of June 2022, and 85% of DAOs store their treasuries in a single asset.
In fact, many DAOS have treasuries consisting solely of their native tokens.
Yep, those same tokens that can suffer 80 to 90% drawdowns when the bear market bites, destroying efforts to ensure that critical expenses can continue to be funded.
Despite this, selling treasury tokens for stablecoins is often seen as an act of heresy. It can leave the token-holding community up in arms, and can have a big price impact on price.
As such, DAO treasurers are left between a rock and a hard place.
To find their way out of this conundrum, DAOs need the right toolset.
The right DAO treasury management solution will protect the shared assets against internal and external threats, and enable all treasury functions — including diversification — to be fulfilled effectively and securely.
Accessing financial services
The critical job of the treasury manager is to allocate assets effectively to minimize risk and maximize longevity. For many DAOs, this will simply mean being able to diversify into stablecoins with minimal market impact. But it could also mean growing the treasury through investment, accessing credit to fund development and operations, farming tokens to earn yield, or using sophisticated financial instruments to hedge against market volatility.
Through the integrations of Qredo Web3 Wallets, DAO treasury managers can access the DeFi tools needed to manage funds effectively, without compromising on the collective governance defining the organization.
Protecting funds with security and governance policies
Following the $60 million hack of the first ever DAO in 2016, we have seen a string of other exploits stretching to this day. In the last few months alone, BadgerDAO was hacked for $120 million, and Audius Treasury was hacked for $6 million.
In addition, DAOs remain vulnerable to internal threats from the corruption and collusion of members assigned asset access to manage day-to-day activities — such as allocating budgets, rewarding contributors, and funding proposals.
Traditional multisig is one solution, but it is severely limited: all of the key holders have the same ability to sign transactions, meaning it is only possible to implement simple governance threshold schemes. Plus when a signer leaves or a new one joins, you typically have to move all the funds to a completely new wallet.
Qredo decentralized multi-party computation reduces the possibility of theft to impossible odds, and allows you to delegate specific permissions to different members according to their role in the DAO. This way, each time that a transaction is sent, it must follow a workflow determined by predefined governance policies.
Recordkeeping and report exporting
To meet the demands of investors, DAOs are producing increasingly extensive reports— such as this example from Yearn — which disclose details such as income statements, balance sheets, key revenue drivers, operating expenses and salaries.
Qredo facilitates this by recording all transactions — including changes to policies, transactions, etc — on a Layer 2 blockchain, providing an immutable record of activity.
As decentralized governance models mature and grow in complexity, we are likely to see more sophisticated DAO treasury management — with more use of credit and other financial instruments to support day-to-day operations and deals such as decentralized mergers and acquisitions.
Through Qredo's WalletConnect integration, crypto organizations including DAOs can get the critical infrastructure needed for sophisticated treasury management — without compromising on security and governance.