Treasury & Risk Management
Project treasuries are critical to the working capital and operational runway of any organization. In the Web3 world, there is about $8 billion locked up in DAO treasuries — 60% of that belonging to the top 15 largest treasuries. Excluding their native tokens, DAOs of the “2022 vintage'' are increasingly diversifying their assets to reduce risks.
Treasury and risk management presents a unique set of coordination challenges. A well managed treasury should be closely monitored with an automated action plan that meets the organization’s objectives, be they protection from underlying asset volatility, or stable and predictable returns to fund future operations. But in practice, these parameters are difficult to apply in Web3 organizations and DAOs, especially given the nature of crypto assets, multisig wallets, and decentralized governance processes.
As a result of this friction, organizations try to circumvent complex and cumbersome processes by trusting individuals with huge sums of capital, concentrating their assets into one solution that feels “safe”, and skipping over many of the risk management protocols that should be in place.
There ought to be a seamlessly integrated treasury and risk management system.
DeFI ❤️ Integrated Treasury & Risk Management
The concept of integrated treasury and risk management is not new in the TradFi world. It is a process designed to allow companies to manage their cash, debt, investments, assets, and various types of risks under one roof. It addresses the close coupling between investment risks and cash returns needed to fund and grow a company.
Smart contracts, automation, and digital footprints (payroll, on-chain governance) increasingly cut across Web3 organizations and DAOs. This, in theory, should make close coupling of treasury and risk management more feasible.
While there are many services today that answer each of these requirements for integrated treasury services (see list below), these solutions exist in isolation. Treasury managers still have to hop from one application to another, which adds friction and stress as they must be aware of the idiosyncratic risks of each product.
Our vision of an integrated treasury and risk management means bundled services through an easy-to-use UI. Being able to do this alone will already be improving treasury and risk management by miles.
Many Facets of Risks to Integrate
Many people have already written about treasury diversification to manage risks. You can find these here:
We feel there are additional layers of risk considerations that deserve to be more deeply researched, monitored and managed. Below provides a high level overview on how we at Exponent segment risks:
There is no magic bullet solution for treasury and risk problems for DAO. As you see, it is complex. Our plan is to provide a platform that is fully transparent, trustless and non-custodial, wrapped around Gnosis SAFE, addressing each of these on-chain treasury risks. We do it by building:
A bespoke non-custodial vault,
A suite of risk monitoring and alerting infrastructure, and
Automated capital allocation and yield optimization strategies
The first focus on risks is around stablecoins given the amount of funds in treasuries today. If you are interested to contribute to the advancement of stablecoin yield strategies and risks reach out to us at contact@exponent.ai or @Exponent_cx