Coordination Summit | Treasury Management Tools for Sustainable DAO Development - Kydo

[Applause] [Music] all right next up we have kaido talking about how do we better use tools to measure our large treasuries so without further ado let's welcome kaido hi hi karthik thank you for inviting me back again it's great to be here but it's going to be hard hey speaker let me share my screen really quick all right does this look good to you guys the thing is good all right perfect so today i'm talking about treasury and then the general system of the sustainability of dallas specifically from a treasury standpoint i know i'm talking at a hackathon so i want to in the end inspire people to build different things this is a talk i give in may before the the the crashes happen so i hope you know there's some updates here and then some lessons i've learned definitely along the way and you know some updates as in uh some projects i've mentioned in the past have uh decided to seize their business and go elsewhere so it could be some interesting things to look through their journeys and see how we can learn from there all right before i begin i want to give a quick tldr about myself why i'm interested in this uh different work and why you should listen to me so right now i work at incentive design lava and bitcoin and my work encompass you know from governance design to economics to liquidity management my goal is to in the end help dallas to achieve their vision in this you know very cyclical crypto market and at llama uh we built economic infrastructure for dallas and you know here are some projects we've worked in the past previously you know when i first started in crypto i i was with trader joe's which is a which is a dex on avalanche and i was there working on token incentive to help different projects liquidity and trader joe started uh when i was you know when i was like right here so when i first joined trader joe had around 40 50 million tbl and when i left we had about 1 billion tbl and also in my free time i started writing different design pieces on how do we think about different token incentives and how can we build sustainable uh business structures with tokens and this you know main interest of me basically sparked my tie my trader joe where i saw numerous projects blow up overnight and then slowly die out very quickly because they didn't have a robust incentive structure or even a product so i hope you know through my my time at trader joe's the learning lessons i could share with you guys through this talk and think about how do we build different uh projects that can help dow sustain further and this is a design i did with fwb to help there with their liquidity design so let's start with the goals you know for for the talk so number one is i'll give you the nuts and bolts for you know what is the protocol treasury and why you know why should i build on top of it i give the talk last may a lot of people have thought about it it was great i want more people to building on top of it think about sustainable sustainable dial development second thing is you know what are the current solutions you know before you build anything you want to look at what other people are doing and how should we innovate on top of it lastly is of course what you should what can you build and in the end i hope this is a fun and actionable talk uh in the end uh after hearing the talk i hope there's some ideas flowing around feel free to reach reach out to me on twitter i'm always happy to talk to different folks and help you on your journey so first what is protocol treasury and you know what is the problem protocol treasury by definition just assets owned by the protocol for future development the common usage of treasury assets can be split into three different categories i would this is my definition personal from personal experience number one is grant programs and the goal of grant program is to incentivize people to build on top of your own protocol because crypto by nature is open source and everyone can view it and becomes posable and build on top of each other grant program is really important to build a strong developer ecosystem where even product suite around your core protocol second is ecosystem building this is specifically talking about partnership with other protocols this can be achieved through many levels but the main one maybe we have experiment the most with is token swaps to try to align financial incentive to further or even deepen a relationship between protocols lastly is very underlooked which is budgets i think the main use of treasury nowadays is for budgeting and budgeting by by definition is to cover the cost of operation salaries marketing events and outreach for protocols to grow and you know what is the problem here so the opportunity spacing in protocol treasury is gigantic currently there's 9.5 billion dollars in protocol treasury and it has increased more than 10x in the past 10 months and very interesting enough what we saw is that even though uh my last stack was you know may which is almost four months ago and there's a lot of fluctuation in prices protocol treasury has not decreased that much it stayed around the 10 billion mark and here's a list uh about you know all the different uh protocol tokens that unisoft have and you can see right here unisof is 99 of its own native token and they don't really have much ethereum or even usd which is you know sort of less volatile than uh than unisoft's native token so you know when i first saw this i thought oh my god these you know projects have so much money and then you know they they they should be doing great and then i realize most of these protocols are native token and maybe native tokens are not the best thing because it's not liquid it's hard to sell and you know you introduce a lot of different weird incentives on you know managing your treasury so i was thinking you know is this this is is it only unit swap or is it a lot of different dials facing the same problem as it turns out it's definitely the the the the the same the same problem across many dows so uni has a larger treasury uxd which is a stable coin protocol on solana also has this problem they have 600 million dollars of uh treasury and you know 99.4 of them are in their native tokens and same even you know one of the most established dallas maker is also having the same problem where most of their treasury is make up of native tokens and lido on the other hand is probably the one that has the most ethereum or even just stable quote stable assets in strategy and we can see 10 of it seeing uh ethereum and another one point six percent using state eth and so i think the the message here is quite clear where uh we we have a big problem we have a big market in the in the protocol treasury space but we have a big problem at the same time where most of them are in native tokens and this is another graph from mango talking about uh how much you know they have which is very interesting because not a lot of people know about mango but they actually have you know 5 50 million of usds in their treasury so you know i talked about why native token is not the greatest thing i want to dive a little bit deeper into it and talk about why high concentration of native token in protocol treasury has big problems and there are two main big problems and the first one is you know crypto is a volatile market so there can be sharp decreases in crypto treasury value for example these treasury values can decrease 50 or even 95 over you know three month period very very fast this is a graph of unit swap and we can see decrease around 60 in the last six months and second is why high concentration of native token is not great is because for any protocol to achieve its vision it needs to continue to grow and this growth mostly comes from cash but not native token you know in a simplified example below let's say uh we can see you know protocol treasury rewards people who drive the growth of the protocol right so treasury rewards people and people drive squirrels because they build on top of it where they do different outreach but the people in the end have to you know pay for their utilities pay for their rents pay for their food so they have to trade with the market to get usdc or eve which is more liquid assets for them to off-board and you know a caveat on top of it which you can think of as a third small point which is uh okay yeah this is a this is an example this is an example where if you want to sell one percent of unisoft's treasury you would cause the union swap price to decrease 40 just to tell you how liquid the market is for these native tokens native assets and you know it's very very hard to to convert them into cash and pay contributors lastly it's probably uh you know a small caveat building on top the second point which is the huddle versus sustainability dilemma because imagine you are your protocol you're telling your friends and your family to to join the community to become become a part of the dow and at the same time you know let's huddle to the to the moon uh a moosh opportunity but at the same time you're like oh but we have to sell our treasury tokens for usdc otherwise we can um we can't function so essentially you're using your your token holders as sort of a semi form of exit equity which has by by design very hard marketing and community management aspect to it so you know one question naturally arise you know we have this huge amount of money inside different protocol treasury is there any way we can generate cash from it right whether it's uco can be selling tokens very directly or is there any other way we can generate cash so i would love to first you know give the current potential solutions for protocol treasury and the way i put potential because some projects may not be live or even though they have not gained significant tractions and i divided these you know solutions into three categories based on their based on sort of difficulty of understanding this categorization is not meant to be you know which layer is better than the others because many times a simpler solution just wins however i do believe that we're still in the searching phase in which you know we're trying to find more optimized solutions to handle protocol treasuries and on the bottom uh are the low hanging fruits you can see that these solutions uh are already established and have been utilized by protocols quite extensively in the middle are traditional finance solutions these solutions follow existing ideas from corporate finance and implement them into uh different ideas on chain and lastly on top of it are some sort of like crypto native solutions or innovative solutions where these solutions are you know less utilized in the traditional world but would bring promising ideas to the crypto world and you know there's a lot of different names here there's a lot of different projects i can see some some projects being blurred out in black and white the only black and white logo i found for protocol they're still live they're still doing well but for proto porter finance and fake protocol unfortunately since the last time i made this slide they have you know seized their operation they have not you know move forward as a dow decided to stop working on their uh respective products however i think there's a lot of interesting ideas in this slide so i'm gonna do a quick rapid fire of different ideas people have been thinking about how do we you know diversify our treasury the way i want to describe different designs is through you know what is the past how people are doing this problem in the past what is the problem here and how is this specific project going to help or trying to change on top of it so uma success token is a way to uh to deal with the otc that you know otc deals that are buying and buying cheaper prices so normally when protocols sell this treasury one way they do it is through a accredited investor or fund sometimes where people the fund where the person buy a treasury token at a lower valuation but at a higher lockup the problem with this design is that it's really hard to generate community buy-in because people always feel like quote-unquote they're going to be on beer they're going to be done they're going to be dumped on so uma is a way to align those incentives where instead of buying at a lower price you get more upside so as the price increases you get sort of this like linear bonus of more tokens where you can claim after a specific strike price and i think this is a very interesting idea and we might you know require some data oracles but it normally is not going to be a huge problem for the dials to handle i think it's going to be a very interesting way to see their their design to get more implemented in the dial space to for protocol treasury diversification second is a lock streaming auction so in the past token sales are always with a fixed price so for example uh lido's the lido uh dow treasury diversification is a great example where this they sold a lump sum of lido for a fixed amount of cash the problem is it's generally very hard to agree on a token sale price for a community and we can see it as a from the second proposal from dragonfly where there's a lot of discussions about like what is the correct terms and how should we think about different things so lock is a way to essentially do continuous streaming auction where people can commit capital and withdrew unlocked capitals at any time the way is to find a market clearing price for a set of tokens during each epoch and to sort of uh achieve it in a way where people where this mechanism can absorb different price volatility and form a long-term uh price table stability for treasury diversification next one is phase turbo unfortunately fey has decided to stop building on top of the products but the the code base is still there i think people can definitely still innovate on top of it and find different ways to uh work on this problem so in the past protocols can you know you can't really collateral collateralize your native token so what i mean by collateralizing it is deposit your token into ave or any of other money markets and borrow usd or usdc on top of it and the reason why you can't do that is that most protocols do not meet the risk parameters because you know for for any assets to be considered collateral it has to be uh vetted extensively by the ave community to make sure you know you don't you don't introduce that debt into the system and what fey achieves to do is to collateral against your own token and you can earn interest on top of it through turbo so instead of you know borrowing usdc and use ucc whatever you way you can you can only us use usdc in different uh eo bearing asset standards so you know for example if your token value decrease too fast and you need to be collateral you need to be liquidated you can do it in a much more efficient way where you know quote-unquote you don't really get liquidated because you know the protocol controls your collateralized assets at the same time next is ribbons treasury so in the past you know most professors do not have a diversification plan right what time shall we sell our tokens how much we sell uh that's gonna be a very difficult discussion to have once you're in the bull market but right now we're we're in a bear market so it's much easier for us to agree on how should we diversify and reuben's asset is just a cover call vault which essentially employment plane men's term is that we decide on when we're going to sell stuff let's say uh right now uh let's say we're in the unit swap found we're in the unit swap dial and we think okay we should sell unit swap when units up 2x and let's sell you know one million of unit swap and that's essentially you can you can code that up in a ribbon vault and then you know sell this option to different people and people can buy it as an option uh as an option to get exposure to the upside you know other than the 2x now you know this is a very very fast rapid fire i hope you you guys are still with me uh there's the the whole point of the rapid fire is to give you some ideas people are building and also show you how innovative people are thinking about how can we build different structures for a financial aspect of things on the dial treasury although some projects are not specifically dial focused but a lot of it going to be used by has been used very extensively for dials for example ribbon where i mentioned at the last a lot of their customers actually are dials who are trying to generate yield on a passive manner so now comes the question you know what can you build right there's a lot of ideas flowing around i talked a lot about a lot of ideas what can you build so this is a graph you know i showed before you know uh on when i was mentioning these you know solutions i mentioned you know their only potential a lot of these tools are extremely extremely hard for developers who understand who does not you know especially the auditors who does not have a strong finance background and guess what most dow developers are are like that because you know not everyone comes from a finance background so the trade-off between you know there's a lot a lot of protocols have a lot of uh parameters you can tune and there but it's very hard to visualize how those parameters can have impact on different things and the second is you know the adoption of this system your protocol treasury is still very very low and that could be a very key point where just very hard to talk to developers or even general community members on what does these things do and then uh how can we visualize the effects of different parameters on the end result so what can you build i think the number first the first thing is that it's important to decrease the trust assumptions for different interactions we have i think when thinking about treasury diversification and what i mean by this is you know you can codify different agreements on chain sorry so there are two very straightforward ideas that i have not seen a great implementation that has you know a lot of tractions so there are two kinds of contract i think would be you know very suitable for this kind of uh this kind of idea to decrease trust assumption so number one is token swap contract so token swap essentially is a way for protocol to exchange their token treasuries uh with different protocols to build partnership for example unisop can exchange it with ave so they have a sort of alliance because they hold each other's token the second one is uh p-i-p-e that's a fancy way of saying a public a private entity wants to invite invest in a public entity sort of like a little situation where a lot of different funds wants to buy a large chunk of lighter tokens through the open market and you can do it you know you know one time thing or you can do it in a streaming kind of way where you know these different funds can put money in and now and they'll be very interesting you know dynamic on top of it and i think a lot of these are not you know meant to be uh uh a product per se in the end for the end user because many times the people who interact with these kind of contracts or products are going to be developers or very experienced investors who understand you know these different contracts so you know for number one i would say you know a private a reap a public repo would be the ideal solution for this the second is to decrease of coordination friction so basically what i mean by what i mean is basically two kids to manage these you know different contrasts or different strategies and this is what i what i meant when when i was talking about you know these solutions are really innovative but really hard for people to understand so how can you decrease the coordination friction between the people who are building the products and the people who are who will be using these innovative products in the future two very simple ways are number one is simulators for payouts as in how what if things change this much what is our payment what is our gain what is you know what we're missing out can we justify we're missing out on that and second is probably a lot you know very underrated uh thing which is front ends a lot of people interact with the blockchain through front ends so it's really important for us to build easy to understand front ends to not only educate developers and also even maybe users on how do we understand these different tools and lastly lastly um i think it's to bring existing concepts into the crypto world i think we're still very very early in the in the in the stage of crypto uh uh speed running through history so i think we're still trying to onboard different ideas we have tried in the in the in the world that has worked where has not worked maybe you know some didn't work in the real world it's gonna thrive in the in the in the crypto world i think amm is a great example of that so it's really important to for for all hackathon participants to think about different ideas that you've seen in your existing industry you know that have worked or didn't work and want to experiment on top of the crypto world me personally i think crypto is a great space to experiment with real financial value because the code is very public there's trustless execution based on the ethereum blockchain so bring those concepts onto the crypto world and see what we can build and that is the end of my talk uh thank you guys so much for you know hanging around you can follow me as your ex kaido on twitter my dm is always always open for if anyone only any of you wants to chat about different ideas but thank you so much amazing thank you so much kyle this was actually very informative even for me because i learned a bunch of new things um one question and we we do have to move on to our next speaker uh because of a time constraint but uh could you send us two slides we'll make them uh public to the attendees and uh also publish them so um if you can get a copy of them that would be that'd be amazing yeah i definitely will definitely well awesome well thank you so much and i hope to get you involved more in the future awesome thank you guys hope to be back soon have a good one me too take care you