RRC-22 DAO Treasury Diversification Plan - Updated

Proposals Mktg / BD / Ops Proposals
#1

Author: Autonomous

Reviewer: Addie Giese

Abstract:

This proposal outlines the updated treasury diversification plan for the DAO aimed at strengthening its financial position and fostering sustainable growth. The plan involves reallocating a portion of the treasury into stablecoins and generating yield through safe investment vehicles, facilitated by the Rari Foundation.

Rationale:

Diversifying the DAO’s treasury mitigates exposure to market volatility and enhances financial resilience. By allocating funds into stablecoins and yield-generating strategies, the DAO can optimize returns while minimizing risk, ensuring a solid foundation for future initiatives.

Motivation:

The motivation behind this proposal is to secure the DAO’s financial stability and flexibility. Through strategic diversification and prudent investment, the DAO aims to generate additional income, reduce reliance on volatile assets, and position itself for long-term sustainability by ensuring at least a 4 year cash runway target.

Steps to Implement:

  • Foundation Facilitation:
    • The Rari Foundation will execute treasury diversification on behalf of the DAO using its strategic partnerships.
  • Stablecoin Allocation:
    • Swap 25% of the DAO treasury (excluding the Legacy treasury) into stablecoins over the next 12 months, utilizing the Foundation’s OTC partners and on/off-ramp solutions. Larger deals with institutions can also be considered on a case by case basis to assist with this process.
    • The total tokens that will be swapped is RARI 1,564,216 (25% of DAO treasury). The total quantity of stablecoins to be received will vary depending on the token price, but the strategy will include a VWAP as well as a floor price over a set period.
  • Yield Generation:
    • Invest stablecoins in carefully selected, well-researched on-chain and off-chain yield-generating vehicles to maximize returns while prioritizing security, risk mitigation and transparency.
    • The majority of the stablecoins will be included in on-chain yield generating vehicles to ensure transparency, but off-chain vehicles will be used as supplemental.
    • Refer to below pros and cons to note why a mix of both on-chain and off-chain solutions are important.
      • On-chain pros: Transactions and investment holdings are transparent, immutable and secure. All transactions can be seen in an instant by all community participants.
      • On-chain cons: Transaction fees can be costly, smart contract risks and track record not as mature as for traditional investments.
      • Off-chain pros: Ensures diversification from on-chain investments and reduces smart contract risks. Longer proven track record. Reduced transaction fees.
      • Off-chain cons: Less transparency and timely process.
    • Yield generating strategies can include for example some of the below:
  • Risk Management:
    • Conduct thorough due diligence in selecting stablecoins and yield-generating options.
    • Monitor market conditions and adjust the allocation strategy as needed.
  • Transparency and Accountability:
    • Regularly communicate diversification progress and yield generated to the DAO community.
    • Establish a transparent reporting mechanism for the Foundation’s execution on behalf of the DAO.
  • Parameters
    • None of the investments to be locked for more than 12 months
    • Vehicles used will have no early liquidation fees
    • Funds can be requested from the DAO if needed
  • Examples
    • Treasury diversification is considered a prudent strategy in the ecosystem
    • Arbitrum
    • Gitcoin

Timeline:

Commence the treasury diversification process immediately, with the goal of completing the 25% stablecoin allocation within the next 12 months.

Experience on Treasury diversification plans:

Autonomous works on various Foundation’s treasury diversification strategies, as we are contracted directly with the Foundations in providing day to day administrative services, rather than through a publicly executed proposal. These strategies are discussed with the Foundation team members and approved by the Board of Directors and then executed by us to ensure the Foundations have a sustainable cash runway for future expenses.

We have been delivering these services for various Foundation companies since 2022 through our experienced team of professionals. Refer to our website for more information on our team and services: https://autonomousprojects.co/

Budget:

The budget for this proposal includes the costs associated with executing the treasury diversification plan, such as fees for OTC trades and potential investment expenses.

Conclusion:

By entrusting the Rari Foundation to execute this treasury diversification plan, the DAO aims to optimize its financial holdings, reduce risk, and ensure a solid foundation for future initiatives. This strategic approach aligns with the DAO’s commitment to responsible financial management and transparency.

5 Likes
#2

I have a question or suggestion, as you like)
Diversification is a very right step, but we must not forget that we are not in ordinary finance, but in the crypto space. It has its own summer and its own winter.
What I mean is that selling 25% of tokens is worth it at the peak of the crypto summer, and not in the abstract 12 months.
It is also worth considering the issue of buying back these tokens during the crypto winter.

3 Likes
#3

Thank you for the update @WildriRoodt

  1. Appreciate the inclusion of exact figures
  1. Both of these suggested yield sources seem to be much lower than direct onchain sources of yield offered by far more battletested contracts on AAVE or Maker. Will only these two sources be considered or will there be more?
  1. I’d also appreciate some specific transparency deliverables (such as a quarterly report) to keep the DAO updated on the state of this swaps and the generated yield, that would be awesome! :slight_smile:
2 Likes
#4

I support this proposal, and will be voting for.

Though from the intitial proposal, the initial percentage of treasury diversification allocation suggested by @insider0x was 30%. Just wondering, why the difference to 25%? (which I do find reasonable, and support, btw)

1 Like
#5

Hey @AlexQ , thank you for the comment.

Yes we agree 100%. And we have more included 12 months in the proposal to ensure there is enough time included, but in essence we will be selling more during peak volumes (crypto summer) and thus expecting that we should finalize the swapping RARI to stables in a few months if the current volume continues.

One of our main focus areas is also just to be mindful of the price impact and thus we work with our OTC partners to determine a selling strategy that does not negatively impact the price.

And good point on the buying back of tokens during crypto winter - this will be considered.

#6

Hey @lionmsee , thanks for the comment and support.

There was also a comment from a community member in the original proposal for allocation of stables between 20% and 30%, and thus we thought 25% is a reasonable middle ground as it is a significant increase from the original 10% proposed and still on the higher end of the scales with regards to the proposed percentages by insider0x.

1 Like
#7

Okay now I understand it well, thank you!

1 Like
#8

Hi @jengajojo, thank you for your comments and thoughts. Always appreciate it.

On the yield sources: We can definitely look at different yield sources as well if that is preferred, but from our experience these work really well and are currently the most popular/battle tested sources institutions and foundations go for. There are also legal considerations the Foundation will need to assess when depositing funds into smart contracts with protocols which makes this a more time consuming process.

Re: Quarterly reports: Noted and this will be worked on and provided to the community. Thanks for the point.”

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#9

Support the proposal as well. The twelve months also seem like a long period to me, but I understand answer given to @AlexQs question.

As stated peviously, I would opt for some diversification with the yield option strategys, as was as a cash position that is not invested at all (maybe 5% of so), just for liquidity reasons.

2 Likes
#10

Hey @WildriRoodt, can you provide the community with previous examples of managing a treasury diversification effort for a DAO similar to the RARI Foundation?

I’m not a frequent visitor to this forum, so I am curious about the current yearly spending of the DAO and what the current runway looks like. How would treasury diversification improve this number?

The ask here is not very clear. Is the only amount that will be directed towards this effort the 1,564,216 RARI mentioned above, or will there be additional costs that are not highlighted in this proposal?

1 Like
#11

I would suggest using Origin Dollar OUSD to generate yield.