Avantgarde-DxDAO treasury

[elisafly]

Authors @Eek637, @Moss and @elisafly from Avantgarde. Avantgarde is ISO27001 certified and the core contributor to the Enzyme protocol. Enzyme has a 4 year track record as the first decentralised asset & treasury management protocol. We also run an on-chain asset management business which currently manages c$30m AUA.

Why Us

• Strong team with track record of execution (DeFi and TradFi)
• Purpose-built asset management tech with core values of transparency & trustlessness
• We’ll elevate your experience of treasury management via automation and tech
• We’ll align interests wherever possible (eg. DAVI, SWAPR, token swaps, etc)
• Very competitive on fees. No penalties for exit

Strategy

There is little case for paying someone to manage USDC since yields are too low in this environment. It’s simply not worth the risks. Instead, we propose managing some of the DAO’s ETH and exploring ways to enhance liquidity in DXD to a point where it is liquid enough to have a Chainlink price feed and integrate more natively into the DeFi ecosystem.

Aside from looking for yield (and DAO permitting), we would be interested in building a portfolio that also contributes to the Ethereum network’s decentralisation and security by both investing in a diversified portfolio of liquid staking derivatives and directly staking ETH with a variety of validator service providers.

Technology

We would opt to use Enzyme for this mandate. It’s purpose-built protocol for trustless asset management, reporting and risk management unlike any other alternative that exists today.

Monitoring

As part of our investment process we identify risks and indicators that could change the profile of an investment and monitor them rigorously.

Reporting (trustless)

Current DAO reporting = take screenshots of a Safe, trust someone to read & copy the contents of that screenshot into a spreadsheet and report on the value of it correctly. No analysis on P&L swings, impermanent loss. Just a basic calculation on yield vs total AUM at the end of a period (= useless).

Instead, we propose leveraging the power of the on-chain asset management ecosystem to query Enzyme’s open source subgraphs for all treasury activity. This becomes very powerful when coupled with a Chainlink price oracle. We refer to this concept as trustless reporting.

Community

We would provide the DxDAO with a dedicated URL where community can openly view performance 24/7 real time with provable human readable historic activity and performance metrics indexed.

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Meet the Team

D2D and D2C Alignment

1. Legal: Low risk to DAO members since no subset of signers is required to execute.
2. DAVI: We’d like to make the DAVI contract natively interoperable with Enzyme. We would likely make a separate grant request for this after scoping.
3. SWAPR: We’ll work towards integrating Swapr into Enzyme within 6 months. This can potentially grow TVL & daily active usage.
4. Token Swap: Option to coordinate a proposed token swap with Enzyme (MLN).

Fees

• ETH strategy: 15% performance fee (based on minimum mandate size that makes sense).
• DXD strategy: Milestone based (decide on KPI’s and incentives separately as this might be broader than a return strategy)
• Termination fees: None, DAO can opt out any time.

Note that fees can be structured differently and can be discussed according to size of mandate

Conclusion

Avantgarde is uniquely positioned to build and scale a fully on-chain investment vehicle for DxDAO which is fully trustless, transparent and non-custodial. It will do this by leveraging the power of the existing on-chain asset management economy. Aside from seeking returns, we’re excited to see how we can further align interest and tackle decentralised DAO infrastructure together.

[Powers]

Thanks for the post!

This is following on the backs of the Operations Guild’s search to fill the shoes of Dlabs and Karpatkey’s draft proposal on setting up a Treasury Guild.

Treasury Needs & Goals

My reply to Karpatkey’s post contained a number of broad thoughts on what DXdao’s treasury’s needs and how the treasury can help enable the mission of DXdao. Check it out for the full rundown, but quick highlights:

Treasury Guild/Steward/Manager needs to:

• Provide insight & analysis to DXdao on treasury allocation changes
• Execute on investment decisions made by DXdao while maintaining DAO sovereignty
• Accounting and financial projections

Strategically speaking, it is also important for DXdao’s treasury to dogfood its suite of projects and partners. This means integrating into DXdao governance (Davi, Gov 2.0 & Guilds) as well as supporting Swapr and other DXdao products even at the expense of potentially higher yield.

Questions for Avantgarde

• In terms of the services that you specialize in, is it fair to say that your primary strength is in the investment side of things and that you would need to add capacity (or increase fees) to handle accounting and other operational reporting?

• A lot of the risk management is automated, meaning transactions will go through unless there is a some red flag. Can you talk about how that red flag comes about technically and what oracle network/bot network you rely on?

• There are not a lot of specifics in this proposal right now. A lot of that depends on what the mandate would be. Can you talk about how that would work? Is there a minimum size mandate that DXdao could explore with Avantgarde and how would the size affect fees?

• Do you have any plans to deploy to Gnosis Chain or Arbitrum? Swapr is largest by TVL on Gnosis Chain, and also deployed on Arbitrum. And what about cross-chain asset management within a single vault?

• Enzyme has been around for a few years and since then there’s been the rise (and fall?) of yield aggregators and now a standardization of vault architecture going, who does Enzyme (not Avantgarde) see as their target user? Could management be automated as well, a la Yearn?

Avantgarde Highlights and Differences with Karpatkey

• Enzyme (the application Avantgarde built and uses) has a vault architecture would allow DXdao to maintain sovereignty over the assets while enabling asset management to certain approved strategies. There is a benefit to being on the SAFE architecture (as Karpatkey/Zodiac is) because SAFE has more DeFi application integrations and is widely used, but the key for DAOs is how to own a SAFE without requiring individual signers for ownership. This feature is just being rolled out on Zodiac, whereas Enzyme’s vaults have been on-chain for almost four years.

• Enzyme has a nice dashboard for tracking the treasury and its performance. Karpatkey has detailed reports and other helpful analysis but the up-to-date dashboard is a great way for the community to see and verify treasury actions.

• Karpatkey has a larger AUM from DAOs. Karpatkey has been managing $200m AUM for almost two years now, primarily from Gnosis DAO, but also Balancer and days away from ENS. Avantgarde has three DAOs but $30m in AUM. This translates into higher revenue means Karpatkey may have more overall resources (engineering, business/governance servicing).

• Karpatkey’s strategies are much more complex than the ones that Avantgarde has deployed. This may come with higher risk if not managed, as well as operational costs, but it appears that Karpatkey’s performance for Gnosis DAO was higher than Avantgarde’s DAO management performance as Karpatkey deployed into higher yielding strategies.

• The other difference in the post above is how the fees are structured. Karpatkey had a single management fee on an overall AUM, whereas Avantgarde signaled above that it has different fees for ETH, DXD and other assets. This is more flexible and would likely lead to cost savings. I was also encouraged by the structure Avantgarde presented in its ENS proposal:

1. Earn USDC on USDC balances
2. Earn ETH on ETH balances

This is encouraging and would mean fees would not be paid for allocation decisions made by DXdao.

Will be discussing this shortly on the Governance call!

[Moss]

Hi @Powers! Many thanks for your feedback and for inviting us to speak to the community.

@Moss here, head of Biz Dev at Avantgarde, co-writing this with our Head of Asset Management Erin.

For the convenience of the both viewers and readers in the DxDAO community, please find the recording of the DXGov Weekly call and written answers below.

**

In terms of the services that you specialise in, is it fair to say that your primary strength is in the investment side of things and that you would need to add capacity (or increase fees) to handle accounting and other operational reporting?

We have been historically focused on software development and have later naturally grown an asset management arm that specialises in onchain investment and treasury management. If DxDAO was to request that service we would definitely be open to it but would rely on partnering projects and would have to increase our fees accordingly. For further and more detailed reference see an example of complementary proposal posted by Cryptio here.

**

A lot of the risk management is automated, meaning transactions will go through unless there is some red flag. Can you talk about how that red flag comes about technically and what oracle network/bot network you rely on?

We think of risk management in two ways. The first is at the infrastructure level. Integrating a protocol with Enzyme means building a custom adapter contract. The adapter is responsible for passing messages and value between an Enzyme vault and the third-party protocol. These adapters control for outputs rather than inputs. During the development process our smart contract team has considered the many potential threat vectors any given integration presents and mitigated them. Our auditors confirm our thinking, and finally the Enzyme Technical Council lends a last set of eyes before the contracts are deployed. In practice, this means that attempts to use any DeFi adapters maliciously (e.g. trading vault assets for worthless tokens or similar) will revert.

The second is at the investment management level. Our investment diligence process works to uncover the value drivers of any given token or protocol and we build monitoring and alerting infrastructure to watch those metrics and let us know when anything out of the ordinary happens.

We currently do not use automated keeper networks or other kinds of transaction-generating bots to respond to these alerts, though we wouldn’t rule out that possibility in the future.

**

There are not a lot of specifics in this proposal right now. A lot of that depends on what the mandate would be. Can you talk about how that would work? Is there a minimum size mandate that DXdao could explore with Avantgarde and how would the size affect fees?

Based on the requirements of the DAO, we would recommend a diversified portfolio of liquid staking tokens and directly-staked ETH. The exact ratios could be determined based on liquidity requirements to fund the DXD redemption process.

As a further consideration, we can work with the DxDAO to design the contract architecture required to link DXD redemptions to withdrawals from the Enzyme vault. This would almost definitely require custom contract work, but seems possible.

**

Do you have any plans to deploy to Gnosis Chain or Arbitrum? Swapr is largest by TVL on Gnosis Chain, and also deployed on Arbitrum. And what about cross-chain asset management within a single vault?

As discussed in the call, we do not have concrete plans to deploy outside of Ethereum and Polygon at the moment. That said, we have been actively brainstorming a strategy to do so.

Generally, we are considering two paths, one where a mainnet deployment of Enzyme controls child-deployment vaults on non-mainnet chains via cross-chain messaging bridges, and another where we roll out discrete deployments of Enzyme on many individual chains. The approaches vary in their complexity but both will increase the maintenance burden of Enzyme’s infrastructure fairly dramatically so we want to make sure we ultimately choose the best path forward.

**

Enzyme has been around for a few years and since then there’s been the rise (and fall?) of yield aggregators and now a standardisation of vault architecture going, who does Enzyme (not Avantgarde) see as their target user? Could management be automated as well, a la Yearn?

Vault management can indeed be automated. Currently there’s a low-level TypeScript library that can be used to call vault contracts based on any arbitrary logic a strategy builder desires. This library powers the existing Enzyme web app. The Avantgarde app team is also working on a proof of concept for a customer that would enable automatic rebalancing based on a pre-set strategy every time a vault accepts a new deposit. This framework could be extended to take any signal (in this case the deposit, but you could imagine it being a market-specific metric like USD lending rates or similar) and generate a desired response (the rebalance here, but potentially shifting deposits from Aave to Compound as rates change).

Additionally, we have a more robust API rolling out over the next several months, as well as a higher-level SDK on the horizon.

**

Thanks again for having us, we’re glad to be part of this conversation and excited to work with you guys as we feel we share and live by the same fundamental principles of your community!

[Moss]

Hey all, it’s @elisafly, eek637 and @moss from Avantgarde.

We’d like to formalize some key aspects of our proposal and attach pricing to them so that the DAO has something to vote on.

It’s important to note that DxDAO will remain in custody of its assets at all times with our proposed approaches.

Please find below a summary of the estimated costs, based on various assumptions that are detailed in the following paragraphs.

1) ETH Vault on Enzyme
Aside from building a portfolio that earns yield on ETH, we would be interested in building a portfolio that contributes to the Ethereum network’s decentralization and security by both investing in a diversified portfolio of liquid staking derivatives and directly staking ETH with a variety of validator service providers. Note that if the DxDAO runway can sustain it we currently do recommend converting some more stablecoins into ETH.

Fees: Depending on AUM: 20% performance fee (and 25bps protocol fee) subject to $5m AUM minimum. Happy to reduce performance fee to 15% north of $7.5m AUM. Estimated total cost year 1 = $62,500 assuming $5m AUM.

2) DXD Enzyme Vault - Burn & Mint Mechanism
The DXD Monetary Policy Framework listed four tools required to manage DXD’s tokenomics. We believe all four could be administered via an Enzyme vault.

In particular, the DXD Floor Price Guarantee and DXD Minting mechanisms could be integrated in a wrapper contract around Enzyme vault share tokens, where deposits of DXD trigger redemptions of ETH from the protocol’s vault at the floor price, and where contributions of ETH trigger distributions of DXD.

While this would require some careful additional research, smart contract engineering, and coordination between teams, Avantgarde has assisted and completed work on similar wrapper contracts for other projects including Nexus Mutual, Unslashed Finance and CelsiusX.

Cost: $50,000 in one-off development costs.

3) Native integration Davi <> Enzyme
This would help create custom DAVI vaults that lead to an on-chain execution of the following actions:

• Accept transfer of vault ownership (i.e. created by us and then transferred to DxDAO)
• Deposit into vault
• Withdraw from vault
• Assign manager for vault (initially pre-assigned to Avantgarde before transferring the ownership. This would be needed for a potential new assignment in the future)
• Remove manager from vault

We’d also make these actions available via a simple interface.

Cost: $50,000 in one-off development costs.

4) Accounting, DAO Reporting and Biz Dev
We are interested in automating the accounting & reporting process as much as possible utilizing web3 technologies. We have experience doing this for Enzyme which is very relevant. We would need input from DxDAO members to shape this product and would charge $175,000 USDC per year. The idea would be to get DxDAO to a stage where they can handle accounting & DAO reporting without any dependency on us in 1-2 years.

Fees: 175,000 USDC or acceptable equivalent per year with view towards automation of accounting and therefore drastically reducing costs thereafter.

Extra Note: these last two parts of the proposal are dependent on using Enzyme for Treasury Management and are optional.

We’re happy to consider your feedback and answer your questions.