Written by: Daniel Schlabach (@dmschlabach) and 0xJosh (@0xJosh_).

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.

The Need for Stables: Why DAOs Need to Diversify Their Treasury

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:

• Lower risk and volatility in the treasury - many governance tokens are highly volatile and unpredictable, causing treasury value to fluctuate on the order of millions of dollars.
• Operate from a position of strength in a market downturn - ensuring the DAO can continue to grow and take advantage of opportunities, even in bear markets.
• Have a stable, predictable source for funding innovation and operations - it's hard to budget when your treasury swings 20% (or more) overnight.
• Lower operational costs - swapping native tokens for stables each quarter is inefficient and costly.
• Put tokens in the hands of long-term, like-minded partners - rather than paying contributor salaries in tokens or selling on the open market, DAOs can ensure their tokens end up in the hands of aligned partners. This also removes a source of selling pressure from the market.

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.

Community-Centric, DAO-Native Strategic Partnerships

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:

• Be lean, efficient, and agile - DAOs shouldn't have to compromise on efficiency. Empower a few representatives from the community to run the process.
• Regularly collect feedback from the community - Involve the community without turning every decision into a proxy fight by soliciting community feedback at key, predefined parts of the process.
• Incorporate the DAO's mission, culture, and values - Each DAO has a different mission, culture, and values. There is no "one-size-fits-all" list of values that DAOs should use when conducting community-led strategic partnerships. Instead, the community should help decide what values to prioritize when looking for strategic partners. For instance, some communities may look for VC partners that can help with immediate scaling and provide hiring advice, while others may look to DAOs for partnerships and growth strategies.
• Use the diversification to forge important partnerships - The diversification should be viewed as a way to engage with like-minded partners. As much as possible, DAOs should include other DAOs, individual contributors, and DAO-friendly VCs in the diversification. Those participating should be partners in the truest sense of the word.

Steps for Running a Community-Centric Strategic Partnership Process

Starting from these first principles, we developed an actionable framework for running such a process:

1. Form a 5-6 person treasury diversification working group from the community to run the process.
2. Draft a comprehensive governance forum post, detailing the logistics of the diversification and the types of strategic partners desired.
3. Vet strategic partners based on select criteria established by the DAO and working group, and ask these partners to speak to the community (on a platform such as Discord or Twitter Spaces). Potential partners should elaborate on their interest, their value-add, and vision.
4. Have the working group deliberate and form a shortlist of potential strategic partners. Share this shortlist (with rationale for each partner) with the community and allow for public debate on governance forums and/or community town halls.
5. Draw up the final details of the diversification following community feedback and conduct an on-chain governance vote for the proposed new strategic partners.

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's Treasury Diversification

Llama recently proposed a $15 million treasury diversification with Gitcoin using this template.

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:

• Deeply understand Gitcoin and its mission (and is DAO-native/DAO-friendly)
• Are thoughtful and open-minded
• Are long-term thinkers that view the relationship with Gitcoin as a partnership
• Act with the highest integrity
• Have a clear value-add to Gitcoin and can help drive Gitcoin's mission forward

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.

Conclusion

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.