Hi all, here’s a response from representatives of Avantgarde Finance, who have been collaborating to spur the discussion around this tender and has shared ideas and answered numerous questions during multiple townhall calls in the past. We provide non-custodial treasury management services on $100M+ assets from DAOs like Nexus, Unslashed Finance, Human DAO, Ambire and others using the infrastructure of Ezyme, a DeFi asset management protocol that has been on mainnet since 2019 (formerly Melonport), is audited by Chain Security and has had a generous bug bounty on Immunefi since 2021.
We are grateful that the foundation acknowledges the need for finance & treasury management and the value of diversifying the treasury. We are happy that the constructive interactions with the DAO community and the Pitch proposal have brought engagement to this important topic and has helped the DAO take a positive step on its journey towards improved sustainability.
A1) Separation of duties - Whilst we recognise that FP&A and treasury management are distinct functions, we would highlight that there are many synergies between them which enable an integrated process to be of greater benefit to the DAO than the sum of their individual parts.
- Financial Reporting - knowing where you are.
- Planning - deciding where you want to go.
- Treasury Managing - implementing a strategy to maximise the probability of getting there.
Best practice, in our view, would be for the DAO’s financial objectives & plans to inform the treasury management strategy, and the realised cash flows feed back into the FP&A process to adjust planning through time based on market conditions. In simple terms: Before deciding how to get somewhere, you should decide where you want to go. And before deciding where to go, it makes sense to first know where you currently are. For the improvement of longer term sustainability, this should be an iterative process through time.
There are undoubtedly trade-offs to integrating both functions and we acknowledge the point regarding transparency and accountability, however these can be addressed in the way the solution is structured, with pre-agreed KPIs and deliverables for each function. Addressing how these trade-offs are managed, including transparency and accountability, are important discussions that should most certainly be addressed and we agree that the responsibility falls on each bidding party to provide the DAO community with the details as part of the process at the Bid stage.
A2) Treasury Management - points 1. & 2 (Decision Making & Strategy Specifics). From our perspective, we would welcome the creation of a formal committee to oversee the treasury management function as this is a common set up to facilitate decision making related to DAO treasuries. Though the specific elements around the approval process for a Treasury Committee may be beyond the scope of the tender at this specific stage, in our view bids could include suggestions on how service providers would interact with the relevant decision makers at the DAO, including a future DAO Treasury Committee or a relevant placeholder.
Regarding specifics around treasury management strategy, we feel it is important to highlight some key issues around points made in the foundation’s comments. Trivialising the process into a speculative exercise in choosing the asset(s) with the highest current yield, without any consideration for the financial positions and objectives of the DAO, is something we would caution against. We agree with previous comments that the DAO treasury should not be treated as a hedge fund (crowd sourced or otherwise). Without a robust strategy and decision making process which is (ideally) integrated with the DAO’s FP&A, the choice of “x% in MANA, x% in stable… etc.”, that pays no attention to risk or price impact on MANA, amounts to just speculation - in our view, the WHY and HOW are more important to long term sustainability than the WHAT in any given moment. We agree and would encourage that the efficacy of the treasury management strategy detailed by submitted bids should be what the DAO community should focus on, as opposed to specific allocations at a static point in time that take no consideration of the DAO’s specific needs and objectives. As highlighted above, the power of integrating treasury management with FP&A cannot be overstated.
A3) Treasury Management - point 3. (Performance Fees & 3rd Party Providers): While rewarding performance may have intuitive benefits in aligning incentives, it’s important to maintain a balanced approach that aligns incentives with the long-term sustainability and objectives of the DAO. Relying solely on performance fees incentivizes excessive risk-taking and is often the fee structure of choice for hedge funds, which is precisely the speculative risk profile the DAO treasury should avoid. Depending on the returns distribution of the portfolio, it can also often be the case that a performance fee results in a higher cost than other structures such as a fixed fee - for example, in the case of the liquid staking token stETH as mentioned above, the underlying 10% fees on staking rewards embedded in the Lido protocol would have amounted to ~$190k in costs on a $40m allocation based on longer term historical rewards. We acknowledge the impact of costs but there is no one-size-fits-all approach, and we encourage that submitted bids should include appropriate analysis on incentive structures where relevant.
A4) Balancing Free Advisory and Mutual Commitment: Related to incentives, we don’t believe that from a service provider perspective it is practical to request a full engagement before securing any financial commitment from the DAO. While it’s valuable to have an open conversation on all aspects of this mandate, it’s essential to strike a balance between providing guidance and ensuring commitment from all stakeholders, otherwise it would discourage bids from service providers. This approach fosters a more collaborative and efficient decision-making environment.
B) On Risk & Emphasising Security and Delegation: Having a secure and non-custodial setup with the option to revoke delegation is a given pre-requisite in this whole conversation. This foundational aspect ensures the integrity and safety of the financial operations within the DAO. It’s crucial for all participants and commenters to recognise that a trusted, centralised and custodial setup is NOT on the table from our perspective - and as further clarification to other forum comments, we agree that bids should directly address how their proposed infrastructure minimises security risks and includes checks & balances and further consensus/approval steps down the line to prevent the scenario where “a few individuals can allocate DAO funds at their will”.
C) On Engagement Structure & Termination: We acknowledge that bids should include details on the engagement terms and suggested termination process, including suggestions on interactions with DAO personnel where relevant.
D) Ensuring Fairness in Voting Thresholds: The suggestion for an ad hoc increase in VP thresholds is a broader discussion beyond the scope of this tender but raises questions of fairness. If these amounts comply with existing DAO rules and regulations, it seems unjust to impose additional restrictions. The DAO needs to uphold fairness and transparency in its governance processes to maintain trust and participation within the community and with respect to external service providers.
Closing Remarks: We are deeply encouraged by the engagement on this tender proposal and the acknowledgement of the need for holistic improvement of the DAO’s finances. We hope this can address any concerns and facilitate progression towards longer term sustainability for the DAO, to the benefit of the Decentraland community. We look forward to continued engagement and collaboration in this shared goal.
