[DAO:5281642] Diversify 5-10% of the DCLDAO Treasury for permanent on-chain income

Governance
1

by 0x8b257b97c0e07e527b073b6513ba8ea659279b61 (Morph)

Asset diversification is a well founded strategy to not only build, but protect wealth long term.

As a DAO that is entirely MANA driven, we are in a unique position that we should always bet on ourselves and assume MANA is our safest and most valuable asset.

However, there is no yield associated, we rely entirely on the dependence of selling MANA, causing downward pressure in our economy. This is proving to not be enough, and as vesting runs out, we may find ourselves quickly depleting while also hurting the economy we’ve built.

The DAO would benefit greatly from yield that is:

1.) An integral part of our platform ecosystem (I.e. Eth/Matic).

2.) Provides some kind of other net benefit to DCL ecosystem

This proposal intends to mark out 5-10% of the DAO’s current funds, and place them into sensible, proven, on-chain, decentralized yield - no trading, it is a one time investment not intended to ever be sold. If successful, this can be scaled, and with overall growth of the industry, significantly reduce or even cover our monthly costs in $USD without selling MANA.

Suggested Yield

1.) Ethereum Validator Nodes - Portfolio Majority (50-75%)

Currently, Ethereum offers us a yield of ~3.5-6%, but more importantly, it offers that yield in Eth which is inherently deflationary alongside network usage. On top of this, the Matic/DCL ecosystem is built as a layer 2 system on top of Ethereum, one of the oldest and longest running smart contract chains that has successfully upgraded many times.

Recommended decentralized staking options:
RocketPool (rETH)
Lido (stEth)

Eth Yield
Eth Yield648×954 57 KB

2.) Mana/Matic & Mana/Eth LPs

Mana based LPs have an inherently good functionality that benefits the ecosystem by adding liquidity depth (as opposed to just selling MANA on the open market). They also earn a yield in both assets, giving us a way to earn back MANA and another native asset we can sell for income without affecting our economy negatively.

All of these assets are relatively correlated to the general market, while we may experience ups and downs in our USD price, the overall correlation to MANA should be relatively stable, preventing impermanent loss. This gives us stable, secure, on-chain yield that does not need to be touched, and the profits can be redistributed back into the DAOs treasury when needed.

Open to any other suggestion! I believe 1.) & 2.) are the most optimal in terms of R:R and should be the majority (due to their liquidity deepness & proven on chain yield), however, there is room for a micro-allocation (5-10%) towards other yield strategies that may be less proven but yield higher in terms of market exuberance.

This brings the next complication, how/when to diversify:
Selling MANA on the open market should not be done lightly, especially when it’s a larger portion of the portfolio.

For this reason, it is suggested we use an algorithmic decision to methodically diversify, removing user decision from the process. Here is the suggested conditions.

We will separate the investment (5-10%) into 1% ‘chunks’ (i.e. 5-10 total chunks), these bullets will be fired at the discretion of the multisig signers, across liquid DEX’s, when the following conditions are met:

  • RSI above 70 on daily timeframe
  • Above 200MA on daily timeframe

This combination is a great measurement of ‘market exuberance’, it is NOT a guarantee to sell at the highest point, but is a guarantee that we sell into times of unusual buy pressure. This ensures we do not Rug/dump our own token price or sell during a time of market despair, and also makes it likely we are selling into larger whale buyers and speculators, not retail buyers / DCL citizens.

For an example, within the last year this would have presented three ‘diversification events’ that would not only have yielded us income, but assisted with stability in recent turbulence.

ExampleBuyin
ExampleBuyin891×726 82.4 KB

I hope this draft proposal stirs some conversation around the unbalanced monthly income/expenses, and how we can reduce the constant sell pressure of MANA long term. If this strategy is proven to be successful, it is my hope that our treasury could not only grow but be as much as 50% diversified with proven, on chain yield that supports our ecosystem.

If one day, the DAO treasury runs dry, this may very well be the final bastion that keeps the lights on for the open source community. We must outlast beyond the vesting contract.

  • Invest 5% of current treasury
  • Invest 10% of current treasury
  • Do not diversify treasury
  • Invalid question/options

Vote on this proposal on the Decentraland DAO

View this proposal on Snapshot

2

I agree with the diversification as I previously commented. This will give us extra cushion for extreme market conditions.
I agree with the first suggestion about yield on validator nodes but disagree on the second choice LPs.

I mean the second suggestion about LP looks great especially with ETH’s deflationary nature and MANA’s metaverse first-mover advantage. But the risk here is the LP - slippage, sandwich, SC vulnerability. We may lose DAO allocated assets such as ETH, MATIC and MANA once handled incorrectly.

My point is we mitigate the risk with Validator nodes at 80% while LPs at 20% (80/20).

There is a slashing risk for staking but still minimal unless our validators got hacked and do things it shouldn’t do.

I also want to add about regulatory impact about handling our Treasury for investment purposes.
This will result to Decentraland DAO being an Investment DAO.
There is no clear regulation yet but expect the SEC to delve deeper to Decentraland DAO.

Overall, I agree with the 10% diversification, with strategic selling of MANA token using overbought at this pre-halving period (sell on strength). This will give extra revenue for the DAO regardless of regulatory triggers we can make.

Cheers!

akasya.eth

Shout out to Delphi and Messari!

3

Why now? would it be better to do this when bull market come? If we now swap MANA to ETH, does it means we seel at the bottom? Or you think this is a long term maybe monthly action?

4

Hi there,

Yes, Eth nodes would be the majority as it is the safest option - we would run them via a decentralized on chain protocol so that we do not carry validator/centralized maintainer risk.

@MetaDogeisme we cover this in the second half, where we would sell based on RSI/200MA, since we are converting to Eth, it being a bear/bull market is less relevant then for say, USD.

5

Should the DAO Treasury diversify / look into ETH nodes? Absolutely yes.

Now? No.

I say this because clearly, our DAO doesn’t have its current operations/framework properly documented, and sometimes I feel like all the squads/committees are on its own island. If an outsider came in asking for how the DAO is set-up and who manages it, there would be no clear documentation to point to (Sure, we can say “check out GSS’s Notion page, or the Transperency Dashboard”), but no process flow chart exists, or an organization chart of how all the committees communicate with one another.

Imaging giving responsibility to an existing squad (or new squad/ Investment committee) to diversify the Treasury, without no clear analysis of the current state of the DAO, or how the DAO is organized. Prior to diversifying the DAO, we needs to formally identify & document the DAOs goals, document how the current governing bodies rely & interact with one other, & establish financial controls when it comes to DAO smart contract executions, grant expeditures review, etc. While I know these are done individually by the DAO committee & GSS, and facilitation squad, there is no clear document/repository on how they all transact with each other, and I see this as a huge management control deficency., and the reason why our DAO funds are not properly accounted for.

Once this is all organized, a further financial analysis is then needed after assessing the volume of contract executions, reviewing the patterns and expected grant expenditures for an amount to be hedged against MANA. Maybe neither 5 or 10% is the right %.

We need to figure out who will handle this, who would execute the transactions, and how clearly they will communicate with the current DAO teams.

Until then, diversifying the DAO should not be in the 3-6 month short term goal list.

1 Like
6

I am not the author here but I have some comments on your concerns.

This is a pre-poll stage so there will be adjustments along the way.
I agree with your concerns regarding the mess facing this DAO.

Based on my experience, the execution may not happen within 3-6 months as overbought level against ETH may not happen soon, unless the alt season (TOTAL3) comes back, or when Bitcoin dominance hits its resistance around 57%.

The proposed strategy is a tranche method so that market participants will not feel the volatility or the selling pressure. It may take up to 10 tranches so it could be beyond 1-year from now.

As for rewards, of course, it’s very minimal with 4%~5% annual return, which can be reinvested continuously once the proposed 2,048 maximum ETH stake limit (instead of 32 ETH) will be implemented.

  • The DAO structure is very messy right now but I believe this DAO can fix its mess within 3-6months timeframe.
  • This poll has its risks and rewards so the DAO must decide whether to pursue the proposal, maintain as it is, or abstain for now until further clarity on DAO structure and regulations.

I believe that the greatest concern here is the regulatory impact especially when we expect income on investment rather than diversification, such as holding Ethereum or Bitcoin as Treasury Reserves. Those are not the same on regulatory perspective @Morph.

Cheers.

akasya.eth

7

Good callout on the legal aspect, since rEth/stEth accrues native value, it would only be a ‘profit’/‘income’ event at the point of sale, however I do not believe we have tax obligations under the assumption this profit would be distributed to the community via grants.

@maryana you raise good points around why this is not the right time, and how more oversight is necessary, but we also do not want to bloat the amount of multisig signers with access to the treasury, our current signers should be comfortable with this as a part of their duties, as long as it has been legally reviewed and poses no personal liability to them.

It is crucial that we form a plan, to be executed when the time is right. As we can see from the chart, the RSI/MA method would have provided us multiple times even in a downtrend where we would benefit greatly vs our native eth price, without relying on any speculation. If this proposal would be implemented today I don’t think we’d actually be buying any ETH for some time, and if we did, it would only be a portion of the funds to be allocated as described where we can scale up from 1% → 5-10% over the course of a year or two.

In spirit, I agree with you in totality, in functionality however, I believe we have done a good job to consider these already, and planned accordingly.

8

actually I am not talking about taxes hahaha
It’'s about Howey Test that may result MANA token to be delisted in the US Market…
No clear regulation yet but those financial institutions may steer away from MANA token.

Maybe around 60~80% drop from here :smiley:

we love speculations so short opportunity in case

1 Like
9

I’m voting yes to get this to the next stage in the process… even if it is not enacted, I think there’s value in keeping this conversation going now during the bear market.

All of this is absolutely NOT my wheelhouse, so I am going to take input from people like Maryana & Akasya, who understand the logistics of the financial world much better than I. I also know from experience that Morph is a powerhouse when it comes to this, so I will kindly listen, learn, and trust everyone’s experience.

10

Diversify 5-10% of the DCLDAO Treasury for permanent on-chain income

This proposal is now in status: REJECTED.

Voting Results:

  • Invest 5% of current treasury 1% 429 VP (12 votes)
  • Invest 10% of current treasury 31% 1,171,102 VP (49 votes)
  • Do not diversify treasury 0% 0 VP (0 votes)
  • Invalid question/options 68% 2,533,887 VP (19 votes)
11

Hi all! Thank you for the thoughts - while this proposal was rejected I think there was still some good discussion had, we’ll continue this conversation in the #financial-planning DAO channel moving forward.

What that entails, I’m not sure yet, but I think this was a progressive conversation and we have highlighted the issues of our expenditures vs our income once vesting runs out. Perhaps DG can provide some better information on whether there is a legal concern here given a large amount of their treasury is staked eth/matic nodes.