Lossless Treasury Management Strategies for DAOs With UniLend
As the blockchain and cryptocurrency ecosystem continues to flourish, the evolution of Decentralized Finance (DeFi) and Decentralized Autonomous Organizations (DAOs) is eminent. As the first DeFi protocol to offer permissionless lending and borrowing of every digital asset, we at UniLend, are constantly working to add value to not just our users, but a broader community.
DAOs have proven their importance in this ecosystem by leading every aspect of the industry from being incubators for decentralized applications, to governing DeFi protocols. These new networks called DAOs are a collection of like-minded people coming together with common interests and aligned incentives, with no one leader or a single point of failure. DAOs are headless organizations that run on the basis of instructions given by smart contracts and governed through on-chain interaction.
Today DAOs are managing everything from buying NFTs (PleasrDAO) to making venture fund investments (Metacartel). In many ways, DAOs are an amalgamation of pieces of investment banks, social groups, institutions brought together with cryptographic commitments.
DAO treasuries now hold more than $9B in funds which is a ninefold growth in the last six months and are expected to grow at a high rate with the evolution of this industry.
DAOs are the companies of the future and every company requires robust treasury management. As much progress has been made in the DeFi world, treasury management has become a major issue to be addressed.
Earning Yield on Treasury
One of the roadblocks that such organizations face is earning a yield on the treasury. Having DAO treasuries in ETH, USDT, USDC gives various advantages and options for the organization to manage their treasury and earning yield on it, however that is not the case usually. The treasuries of DAOs mostly comprise of their own governance token which is used to run the operations of said DAOs.
One way to keep earning yield for one’s own governance token is adding liquidity to an AMM decentralized exchange, but that liquidity is subject to impermanent loss where DAOs can lose a significant chunk of their treasury instead of earning interest. DAOs can, however, choose not to earn any yield on their treasury but millions and billions of dollars of money being idle can rather be utilized in a better way to benefit the organization and the community.
So what can be done to resolve the issue of idle DAO treasury?
UniLend’s permissionless lending and borrowing can help DAOs address this problem and provide better treasury management services. With UniLend’s money market protocol, DAOs can choose to create lending pools for their governance token, providing one side of the liquidity, meanwhile, the liquidity for asset opposed to it can be provided by retail users or institutional investors as collateral to borrow the governance token and participate in the said DAO.
Higher is the utilization rate of the pool, the higher will be the yield generated by DAOs. This not only helps them tackle the issue of generating yield but also provides additional utility to the governance token.
Borrowing Against Treasury
Protocol treasuries need to be liquidated to acquire resources and run operations of an organization. Selling part of the treasury during a bull market extends the team’s runway. As shared above, a majority of DAO holdings comprise their own governance token. While this may be great to capture value from protocol’s growth but can also be detrimental in cases of market downturns and flash crashes. Such fluctuations are a nightmare for any management treasury.
As an instance, Uniswap treasury nearly dropped by 50% due to the price dip since ATH in a matter of months. Keeping treasury in its own token without employing any risk management strategies might leave them with insufficient runway to keep running their operations during a bear market.
DAOs doing protocol treasury management find themselves in a tight spot. Selling the treasury assets in the open market may signal a lack of confidence within the team and can cause a collapse in the asset price, especially for high volatile assets.
How can we get around this issue for better asset management?
UniLend offers permissionless lending and borrowing platform where DAOs can borrow from on-chain lenders for operational expenses without having the need to sell any native token. If the borrowed funds are deployed in the best interest of the protocol, the funds will lead to positive outcomes. The base ideology behind this method is if one believes a protocol will see an uptrend in price, it makes a lot more sense to borrow against it, justifying the repayment with the sale of a much smaller amount of tokens down the line.
In this way, treasuries can avail on-chain loans against the collateral to provide operating capital without the need to sell tokens upfront. With UniLend’s Dual Asset Pool model, treasuries can have flexible lending and borrowing options where they can even generate a positive yield while having to borrow against their collateral.
Future of DAO Treasury Management
Moving forward there will be hundreds of billions of dollars in assets looking for treasury management within the next few years. The DAO treasury system needs to employ better measures of fund management. UniLend Omnis offers the DAOs, a comprehensive solution to not just earn a positive return on their treasury, but also to protect them from a short-term sale of the governance tokens. Furthermore, many complex treasury management tools can be built using UniLend as a base layer offering a wide range of products and services making the lives of treasury managers simple.