The overwhelming majority of DAOs hold over 90% of their treasury in the native tokens.
While this demonstrates conviction in the future of the token, it also poses serious risks to the DAO, hampering its ability to make reliable budget projections and to fund innovation and ongoing operations.
There are many ways a DAO can get access to stablecoins. These include selling native tokens in the open market for stablecoins, exchanging native tokens for stablecoins with strategic partners, and borrowing stablecoins against treasury collateral, among others.
This post outlines a template for treasury diversifications via strategic partnerships. It also covers why DAOs need stablecoins in the first place and what community-run strategic partnerships look like.
Having >90% of the treasury in native tokens is both dangerous and inefficient from an operations perspective. Instead, DAOs should have 1-2 years' worth of operating expenses in stablecoins.
Diversifying a portion of the treasury into stables allows the DAO to:
If the diversification is done thoughtfully, the DAO can find a win-win: gaining stables to pay contributors while also distributing their token to those who will help further the DAO's mission.
Here, we propose an approach to DAO strategic partnerships that places the community at the heart of the process.
DAOs are a remarkable sociological and financial innovation. They bring together contributors from all corners of the world to work on interesting problems. By placing a high emphasis on trust, fairness, and transparency, DAOs are community-first by default.
A strategic partnership should also be community-first. Like any other DAO action, community involvement and feedback should be a part of any treasury diversification. Done correctly, the process can be as efficient and agile as behind-doors processes.
A DAO's strategic partnership should also be done in a DAO-native manner with the DAO's mission in mind:
Starting from these first principles, we developed an actionable framework for running such a process:
This framework is designed with the objective of being open, transparent, and community-led.
Of course, many of the details within these steps depend on the community and its governance structure. For larger DAOs, the community may require Snapshot votes at each step of the process. For smaller and more agile DAOs, consensus may be reached simply through conversations on Discord and governance forums.
Gitcoin is building and funding the open web. By providing infrastructure and tools that help coordinate developer funding, crypto education, and project development, Gitcoin is one of web3's most recognized and integral platforms.
Over 90% of Gitcoin's treasury today is held in $GTC tokens, despite the fact that they have $3-4 million in operating costs each quarter. Using the framework for community-first treasury diversifications above, Llama proposed that Gitcoin diversify $15 million of $GTC into stablecoins (24% of the vested treasury and 2% of the total treasury at the time of the proposal).
After approaching the community and asking candidates to apply for the working group, GitcoinDAO formed a 6-member group composed of key Gitcoin community members.
These community members have worked together to come up with criteria for strategic partners that match Gitcoin's values. The ideal strategic partners:
The working group's goal is to assemble a contingent of partners that bring a diverse range of experiences, backgrounds, and skill sets to Gitcoin. The group should include a mix of visionaries, operations experts, technical analysis pros, and financial gurus who all understand and deeply believe in Gitcoin's mission.
Like DAOs, community-centric strategic partnerships are here to stay.
By involving the community in key processes such as treasury diversifications, DAOs can ensure that they build long-term sustainability in an inclusive and open way. The best organizations succeeded because they were able to bring people with them - DAOs should be no different.