[DAO:d997320] Decentraland DAO Treasury Diversification ( Phase A )

[dao]

by 0xd6c957f9a6411f35d01baae2658758f277408878 (Rizk)

Linked Pre-Proposal

Decentraland DAO Treasury Diversification

Summary

Proposing strategic diversification by Investing 50% of quarterly unused Grant Program funds into Ethereum, enhancing resilience, liquidity, and long-term stability, Aligning with DAO’s goal of stability in the decentralized virtual world.

Abstract

Comparing our Decentraland DAO to other entities, organisations, or treasure boxes, we can observe that most of them always have a diversification of assets and investments to enhance their stability, reduce risks, and increase the overall value of their investments in the long run. In contrast, our DAO’s value is closely tied to the assets we currently hold, which is primarily MANA.

After analysing and understanding the importance of these assets to Decentraland and the DAO, as discussed in my article Metaverse Triangle:DAO & Decentraland & MANA , where I explained the value of MANA in our treasury and its impact on the DAO’s overall value. The article highlights how a robust MANA treasury can positively influence the DAO’s value, and vice versa. But a crucial piece should come into play: Ethereum. Which is worth considering the role of Ethereum in our strategy.

Motivation

Decentraland runs on Ethereum, serving as the infrastructure for our virtual world. It ensures secure ownership, smooth transactions, and the intelligence behind smart contracts. Given our close connection to Ethereum and its impact on our assets and infrastructure—such as land transactions, MANA, and most of our contracts that is built on Ethereum—I believe that expanding our ETH holdings in the coming years will not only diversify our assets in the DAO but also provide long-term support to the chain we are built upon.

This strategic move can offer several benefits. It can enhance the DAO’s resilience, and present opportunities to establish a liquidity pool in the future. Accumulating a substantial amount of ETH over time can make MANA more liquid and stable. Additionally, considering the increasing strength and deflationary nature of Ethereum, will contribute to long-term stability, and offers opportunities for liquidity pool establishment and staking income when we have enough eth at some point.

Specification

To strategically boost our Ethereum holdings, I propose using 50% of the unused funds from the Grant Program’s quarterly structure . The program operates across four quarters with the formula,

5,500,000 * 0.7 = 3,850,000 mana/Q

And after I observed the unused amount of fund for the 2023 I found that we had the following approx unused fund for each quarter of 2023.

    *  Q1: Grant program paused.
    *  Q2: $880,000
    *  Q3: Nearly zero (over budget)
    *  Q4: $400,000

Based on these fluctuations and the previous community poll results, I suggest using 50% of each quarter’s unused budget to gradually invest in ETH. DAO Committee members should monitor quarterly unused budgets and incrementally invest steady, and strategically ETH investments in each quarter, following this approach:

    *   In Q2: Use 50% of Q1's unused fund 
    *   In Q3: Use 50% of Q2's unused fund 
    *   In Q4: Use 50% of Q3's unused fund 
    *   In Q1 (for the following year): Use 50% of Q4's unused fund

For those quarters that the Grant program get paused: 30% of the total quarter budget (3,850,000 * 0.3 = 1,155,000 mana) will be allocated to buy ETH.

For revoked Grant funds: Any funds revoked from grants will be added entirely to the 50% of the unused budget in the quarter of revocation, regardless of the original quarter of creation and vesting of that grant.

For example, if the total unused fund for Q3 was $500,000, So $250,000 will be used to buy ETH within that quarter, at that point, if a grant that got vested on Q1 and got revoked on Q3 with an amount of $50,000. Then, The total amount allocated for buying ETH in that quarter (Q3) will be $250,000 + $50,000 = $300,000.

Conclusion

In conclusion, this analysis highlights the need for diversification in Decentraland DAO’s asset portfolio, especially considering the close tie to MANA. The proposed strategy emphasises the importance of Ethereum in enhancing the DAO’s resilience and long-term stability. The specified approach of utilising 50% of unused funds for ETH investments, alongside careful monitoring, and quarterly scaling, aims to ensure a steady and strategic growth. This well-considered plan.

This initiative marks our first step towards diversifying the DAO, opening doors for further expansion and adaptability. It’s crucial to note that these Ethereum investments are intended for long-term growth and not for short-term trading or profit-taking. This commitment aligns with our overarching goal of fostering stability and adaptability in the ever-evolving landscape of decentralised virtual worlds, reinforcing the DAO’s position for sustained success.

Vote on this proposal on the Decentraland DAO

View this proposal on Snapshot

[HPrivakos]

That will be such a mess to calculate

[rizk]

Yes, as a DAO committee, we should be well-organized for this specific proposal, and up-to-date to follow up with all above mentioned events. This will require us dedicating more work for that, but good to mention, that GSS has an open-source file for all revoked grants that can assist us, and the Governance Squad is doing a great job highlighting the quarterly budget, that I would definitely need them to enhance it to better serve our purposes.

The road will be bumpy to reach that diversity, and cause its not easy, we have experienced almost zero diversity since the DAO implementation began almost 2.5 years ago. Given that your input is highly valued, since we will be implementing that together, I will ensure that the last governance proposal, if this pass, will be reviewed by you for any notes or changes.

[maryana]

Voting Yes to push this along, but I do not think it should be a static 50% and will require further analysis of unused funds and the percentage per quarter, and some financial analysis of a target amount of ETH to obtain by the end of the year.

I’d support the idea of using 50% of Q4 2023 unused funds for now to get the diversification started.

[rizk]

It will need re-analysis and observation in a year or two to see how much we accumulate and reconsider the percentage based on that, if needed. So far, I have conducted my research in 2023, and that’s where I came up with this vision. But always consider more Eth means more Mana stability and liquidity by establishing LP.

Additionally, the percentage will be static because of how the DAO mechanism works. Otherwise, it would be a challenging process to estimate quarterly and create a governance proposal every two months, it would be an hard mission and a definite failure. So, we can’t select one quarter and stop after.

@dao

It’s crucial to note that these Ethereum investments are intended for long-term growth and not for short-term trading or profit-taking.

This proposal will be (Phase A) of diversification, to be followed by subsequent phases. It is designed to be a long-term vision for the DAO, not aiming for immediate effects but rather for sustained impact.

[LandlordDao]

I highly appreciate this proposal, and I’ve been contemplating this matter for a while myself, including the timing for selling MANA.（ Advance Proposal: Establishment of DAO Reserve or Hedge Fund ） After all, MANA’s significant fluctuations directly impact the overall development of the entire DCL ecosystem. I also agree with @HPrivakos 's point that the calculations are overly complex. It’s surprising that you’ve already calculated 1,155,000 MANA. In that case, we can easily calculate the percentage based on this number. For example, if 1,155,000 MANA represents 3% of the current DAO funds, then we can use 3% of MANA each year to exchange for ETH, divided into four quarterly purchases. If necessary, we can propose adjustments to the percentage later on. I support this to expedite the project’s progress. I hope you can incorporate my suggestion into the final proposal, as it simplifies the calculation. Team Work makes Dream Work! Thank you

[PunkPink]

I vote No at this time.

First of all, as @HPrivakos says, it can be a disaster to calculate and lead to misunderstandings and errors.

On the other hand, making a change from MANA to ETH with part of the funds now that it is possible that a bull market is approaching could result in a lower revaluation of ETH compared to MANA, since as the precedents show (within the short period of existence cyrpto) riskier assets have greater revaluation potential, as is the case of MANA.

In that case I would support this without hesitation if we were at historical highs, in this case I would support distributing the MANA funds into a basket of safer assets.

[rizk]

Hi @LandlordDao, for the current DAO fund as you suggested , I already have (Phase B), which will come after this Proposal. Phase B will target accumulating USD during the bull market, not ETH (for now). I will suggest using approximately 5% of the DAO fund, with an 18-month plan to avoid any pressure on MANA value. I even have (Phase C) to accumulating small portions of Matic since we have many contracts in Decentaland built on Polygon and I want to expand and support that Chain.

In terms of complexity, yes, it will require a few hours each week to keep everything organized. Good to mention that, over the past few months, I’ve been testing this approach by monitoring and documenting all DAO transactions to check the feasibility of this proposal. But, If needed later , we can always ask the support of an accountant. Additionally, I’ll coordinate with the Governance Squad @ginoct to explore ways to streamline and facilitate this proposal, making it more manageable for us each quarter. in addition to @HPrivakos to get his notes on all points.

[rizk]

Hello @PunkPink,
While waiting for a favorable exchange rate between Mana and Eth, which could take years to diversify our treasury. The Mana/Eth rate won’t drive our decision to convert Mana to Eth since we’re focused on long-term accumulation, not trading, because your method work well buying low selling high. while, Even in a strong bull market, as DAO Fund, we will avoid selling big portions, considering our DAO Fund as a significant player (whale) in the market and selling large portions could impact small investors negatively.

DAO fund should work on increasing Liquidity Pools to inhance the Exchange Rate plus that could generate an income for the dao fund in the future when we have enough ETH, DAI, USDT…ext, and it will open many other doors for us.

[LandlordDao]

5% is good to go , in my poll which is 20%, i am believed that maybe to much too . Just wondering why the MANA column #REF. dont’ understand the mana sold on minic and mana swap 112000/400,000.

[PunkPink]

Thanks @rizk for your clarification.