[DAO:abe283d] Request for Tender for Financial Support Service

by 0x9937e3e274be96a624d7cd00f384eb71c741dd1b (Maryana)

Should funds from the DAO Treasury be allocated to finance a new community-led project addressing issues outlined herein?

Linked Pitch Proposal

Holistic Improvement of Decentraland DAO Finances

Summary

For the last year, Decentraland DAO has been discussing how to improve its financial reporting, financial sustainability and secure its long-term financial future. This is an important decision, and community members have shared a variety of perspectives on how they wish to proceed.

This tender will launch a bidding process for the creation of a Finance Support Service. This will enable Decentraland DAO to take a significant step towards addressing the ongoing challenges; providing financial transparency; helping the DAO to become a more sustainable, prosperous organization.

Problem Statement

Decentraland currently faces a number of major financial challenges, including:

  • Monthly expenses surpass income
  • Lack of diversity and strength of DAOs income streams
  • Lack of robust financial reporting, planning and long-term budgeting
  • Concerns around the efficacy of the grants program and spending
  • Sell pressure on MANA and significant DAO dependence on the token.

Technical Specification

This tender invites service providers to provide a bid to become Decentraland’s Finance Support Service provider for a 6 month period.

Contributors and service providers are encouraged to place a bid that highlights their experience, role, and the responsibilities they would undertake. Service providers can submit only one bid. Services providers cannot, either directly or indirectly, deliver work as part of more than one bid (i.e. via a subcontracting relationship).

Suitable contributors and service providers in this role should be qualified finance professionals able to demonstrate a track record of delivering financial work for web3 organisations and DAOs. Bid submissions for Finance Support Service must be made within two weeks of this tender process being successfully approved by VP holders.

This gives service providers and contributors the flexibility to design and propose a Finance Support Service which they feel best serves the needs of the DAO. In turn, the DAO will have the opportunity to review and ultimately decide which Financial Support Service bid is the most suitable for their needs.

Use Cases

Successful delivery of the Finance Support Services would unlock a number of use cases and benefits for the DAO. This might include.

  • Treasury Management will generate the single largest new revenue stream for DAO. This will fund ongoing DAO expenses in perpetuity and reduce them.
  • Financial reporting and bookkeeping will improve decision-making, and transparency and increase accountability.
  • Budget and Planning will improve resource allocation enable better financial management and increase the value of spend.
  • Market Making and Treasury Management will reduce DAO’s dependence on MANA. This will increase the stability, and resilience of the DAO in the face of market volatility.
  • Finance Support Services will increase the impact of the DAO, reduce sell pressure on MANA and support price appreciation.

Deliverables

Bidders are encouraged to identify and propose those services and deliverables they feel would be of most value to the DAO.
Bids deliverables may include but are not limited to:

  • Financial Reporting
  • Bookkeeping
  • Live Analytics Dashboards
  • Market Making
  • Budgeting and long-term financial planning
  • Finance options assessments and recommendation reports
  • Treasury Management

Target Release Quarter

2024 Q3

Vote on this proposal on the Decentraland DAO

View this proposal on Snapshot

A few thoughts on this proposal:

  • I think treasury management and financial reporting should not be mixed.
  • Given the small size and activity of the DAO I think a single person is enough for taking care of the reporting side, no need for a whole team.
  • Diversifying the treasury into yield bearing assets with no exposure to MANA is a good idea.
  • There’s no need for a complex strategy, it’s just allocating a % of the treasury into stETH (ETH exposure, 3.3% APY) and sDAI (stable, 13% APY) or similar products. This can be executed by the DAO committee.
  • ~$250k/yr which is what has been asked for this service is outrageous. I would not pay 1/10th of that for the reporting service if it came out of my pocket. Also, for the treasury part, if we were to pay for it, it should be tied to the performance, and not a fixed fee. But as I said I would not let a service provider manage the treasury. I would not treat the DAO as a hedge fund.
  • Having 20-30 ppl vote on accessing the $30M treasury is just wrong.

Just my 2 cents.

Hi all, with the shared goal and mandate of preserving the assets and assuring the best present and future to Decentraland, the DCL Foundation Finance´s team reviewed the proposal and information related to the (Holistic Improvement of Decentraland DAO Finances) and also the Request for Tender for Financial Support Service and would like to share some open questions, comments and thoughts to work as additional feedback in evaluating the current proposal alternatives.

SUMMARY
The Finance Planning and the Treasury Management roles and duties should be clearly separated, providing more transparency and assurances to the DCL DAO. One service provider for both roles is not recommended. Strong suggestion to do two separate Tenders.

The Assets involved and Risks associated with the Management of a Treasury that as of April 4th, 2024 represents approx. US$40M available, should require (i) a clear and approved investment strategy, (ii) have a super secure investment vehicle (Vault, Multisigs), (iii) a clear and pre-defined investment approval process through a DAO Finance Committee or a new DAO Investment committee filled with experts, (iv) structure the engagement with the potential providers ensuring a clear Exit or Termination processes, and (v) the current highest VP available for decisions at the DAO (12M VP) or potentially, and even better, a special matrix approval.

A- Clear separation of duties between Finance Planning and Treasury Management:

  • Does the DAO need finance & treasury management?

    • Given (i) the size of the DAO´s treasury, (ii) the operational needs (grants, Squad and Committees members payments) and (iii) the treasury investment management (sell MANA for operational needs, diversifies the treasury position buying other assets such as BTC, ETH, or fiat?), it makes all the sense that these roles and needs are better covered and provided.
    • There’s no Squad or DAO Committee member managing the treasury or with the finance knowledge to do it and neither do they have the mandate to do it
  • There are different DCL DAO needs and duties and one thing is Finance Planning & Analysis and another is Treasury Management. And they should be separated and not as a one-service provider solution.

    • From the finance, transparency and accounting side, there’s a role that is independent of the treasury management and more accounting and planning related (FP&A, financial planning and analysis is what the market and companies called it).

      1. This role is mostly in accordance with the size of the organization Operations, and in the DCL DAO case, it is limited the number of transactions and hence the planning activity. So either a well experienced individual or a service from an organization could do the work and present a lot of value added but it is not complex
      2. This role should gather all the DAO information from Squads, grants and from MANA VC and other income and once all gathering and understanding is done present an annual budget and how it evolved during the year with its deviations or savings. As well as presenting targets for Grants to be allocated and in what areas.(financial reporting, planning and long-term budgeting)
      3. This specific FP&A job should represent a fix cost and, at market rates, it should be around USD 3,500 to 5,000 a month
      • (The description presented in the proposal is for a MUCH bigger organization. DCL DAO organization is small and simple)
    • The Treasury Management is separated from the finance planning role and has to do with (i) investments, (ii)asset management and allocation, (iii)structure to manage it (Vault, Multisig, etc), (iv) clear pre-defined goals by the DAO or an approved Treasury Committee that approves and reviews the investment strategy.

      1. Given the DCL DAO needs, funding sources and goal of assuring DCL project long term funding, there is no necessity of a complex treasury management strategy but some basic diversification with stable coins and some other strong assets as BTC and ETH. As a community member mentioned, stETH that is ETH yields 3.3% and sDAI that is DAI yields 13%. There are also some other stable coin options yielding more than 6% (all in year returns)
      2. This can be done among other options by (i) the DCL DAO defining and approving a high level treasury management strategy (of the available funds, maintain x% in MANA, x% in stable, x% in BTC and x% in ETH for example) and operationalize through current vault or multisig provider solution, (ii) do a tender for this specific treasury service, (iii) create a Treasury Committee or Squad (3 Members?) that reviews and assures that the strategy is executed.
      3. Finally for a potential 3rd party treasury management provider, the DAO should offer and pay a minimum fixed fee (close to zero) and mostly or all subject to performance, positive results or as a success fee. (The proposal sent if a pure fix fee regardless of the results and treasury gains. So what is the incentive?)
  • Finance Planning and Analysis (FP&A) and Treasury Management are different roles and should not be mixed or evaluated together and mostly in an organization like the DCL DAO. For example the FP&A should assess independently the results of the treasury management. The separation of roles and duties will provide more transparency and assurances to the DCL DAO.

  • Current proposals and Tender are (i) mixing the two roles or asking for a one combo solution, (ii) suggesting even a much broader scope than needed (new DAO revenue streams, definition of grants program)
    *** A strong suggestion is to do a tender for the FP&A service (r3gen being clearly an option) and a separate decision and tender if decided for the treasury management**

B- Treasury Management- Assets involved and Risks associated

  • As everyone knows the DAO treasury is currently a result of: (a) the 10 year MANA VC as main funding source plus (b) an approx USD 12.2M equivalent accumulated in DAO revenues since 2020 received, ( c) less all the grants approved and paid, including Squads, and DAO Committee members payout
  • This is the DAO treasury position as of April 4th, 2024 representing approx. $40M available

  • The treasury management proposal to be approved has to have (i) a clear and approved investment strategy, (ii) have a super secure investment vehicle (Vault, Multisigs) that allow future simple replacement of Managers, (iii) a clear and pre-defined investment approval process through a DAO Finance Committee or a new DAO Investment committee which both have to be approved and filled by finance and investment experienced people from community or DCL related
  • Potential failures or mistakes to the above may put DCL DAO treasury and self sustaining at risk, i.e. Decentraland project
  • As an option, Is it possible to diversify the risk by assigning management to more than one asset manager so that they can be compared and benchmarked? Or either to test different treasury structure solutions?

C- How to structure the engagement with the potential providers and assure a clear Exit or Termination processes

  • This has to be clearly discussed and have it defined beforehand
  • Is there going to be an engagement agreement?
  • What would be the terms for the agreements? 6 months, 12 months?
  • Renewal and termination cases and process. How the hand over would be?
  • Who or which group, Squad or Committee from DAO can execute this?

D- Decision making process related to DAO’s treasury management

  • Is it correct that a simple 6M voting power approval decides on the total DAO treasury Management? Currently we need 12M VP to approve a $240K- 6 months grant but only 6M VP to potentially manage the whole DAO treasury. Shouldn’t that decision be approved by a higher VP?
    • Do we need a special approval matrix for treasury management decisions?
    • Even if there were no effective payments made, the proposal is to delegate the treasury management of more than USD40M, can that be decided by 6M VP or few people of the community (currently less than 30)?
  • Going to Bidding and Tendering Process , which should always be the case for these services, has a limitation or risk that the supplier will be chosen by a simple majority of votes (according to the Binding and tendering flow approved by the DAO), right?
    • The tender for treasury management can be created and approved by 4M VP!
      Would that be enough support to manage such a big and critical treasury?
    • Who will evaluate that tender/bidding process besides the voting?
    • What is the criteria for selection? lowest cost, strongest background? Or just simple voting power. Could that be biased?
    • Will a DAO Finance/Treasury committee or group make a prior evaluation or selection?
      *** We are dealing with the MAIN and MAJOR DCL DAO and DCL project assets, its treasury!**