DXdao Proposal: karpatkey DXdao Treasury Guild
Background
In June 2022, we posted a proposal for DXdao to delegate its treasury management to karpatkeyDAO in this forum, but the community expressed its preference to have a more decentralised approach, in which trusted signers from DXdao weren’t necessary.
Since we are now technically able to cater for DXDao’s needs in terms of decentralisation, transparency and security, we are posting this new proposal to allow us to assist DXdao in the development of its treasury, without the need to appoint trusted DXdao signers.
The execution would take place transparently and completely on-chain through a trust-minimised non-custodial solution combining Safe and Zodiac’s extensively battle-tested technology. These tools would allow us to only use previously authorised delegated protocols by a majority of DXdao holders via DXvote.
We also propose coordinating the constitution of a Treasury Guild, which will deliver ongoing support to operating and strategic financial needs. As Guilds are developed further, some trustless management of assets could be done directly from the Guild, with karpatkey available to provide feedback to the DXgov team with requirements.
Since last June —when we posted our proposal— we have been unanimously designated to create BalancerDAO’s Treasury Core Unit. Also, we have started working with CoW DAO to create their Core Treasury Team, and won the ENS endowment proposal Snapshot with DXdao’s support expressed through caneyfork.eth’s vote, positioning karpatkey as the DAO of choice to develop treasuries in the DeFi ecosystem.
Details
After the successful execution of the Treasury Diversification Authorization Program and the Treasury Diversification Authorization Proposal executed Jan 23, 2021, DXdao’s treasury currently has a significant level of diversification in both stablecoins as well as across LSDs.
However, the majority of its funds are liquid and therefore not obtaining any yield. This results in a considerable cost of opportunity, since adequate treasury management could achieve sustainable treasury growth that would increase DXdao’s reach and breadth, while ensuring sufficient liquid funds to face the DAO’s obligations at all times.
This proposal is aligned with the already executed Signal Proposal: Treasury Diversification Authorization Program - v2, and suggests that the management of DXdao’s treasury be delegated to karpatkey DAO.
The benefit of such delegation would allow DXdao to focus on its core business and priorities while its treasury size increases steadily, increasing the DAO’s potential and capability.
The treasury goals are to fund the development of DXdao products, new ventures and boost DXD’s value proposition. The strategy would be tailored to ensure that the following priorities (outlined in DXdao’s Priorities Board) are sufficiently funded in a timely manner:
- Governance 2.0
- New DXD Token Model implementation
- Flagship product development
- DAVI (internal and external)
- Carrot branding & go-to market strategy
- Swapr (front-end, expansion, ecorouter improvement)
- Recruiting
- Community outreach
- Financial reporting
- DXgov branding & go-to market strategy, UX and expansion
Other upcoming priorities and contingent expenses would be contemplated as well by having positions which can be disassembled on a short notice for unexpected liquidity needs.
After this proposal is approved, we will source, recruit, hire and train contributors to work in karpatkey’s team and DXdao’s Treasury Guild under our guidance.
The goals of the Treasury Guild are the following:
- Design and implement an efficient and robust treasury development system
- Identify the best economic opportunities for the treasury tokens
- Facilitate DXD liquidity in line with the new DXD token model
- Facilitate DXD redemption on the open market in line with new DXD model
- Explore solutions for DXD inverse bonds
- Grow activity on Swapr
- Collaborate in finance-related matters with other working groups such as the DXD Token Working Group
To align with DXdao’s vision and ethos, and increase transparency with DXD token holders, we propose that information about how investments are managed is made available to the DXdao community, publishing each transaction in Discord immediately after its execution and posting a Weekly Treasury Report in the DXdao forum. Treasury management would be handled in a completely transparent way, positively impacting DXdao’s reputation and trustworthiness.
Risk Management
At karpatkey DAO, every decision and action taken ponders risk exposure. We go above and beyond standard risk assessment protocols, and we have developed a multilevel approach to curate yield strategies, assess protocols, and carry out transactions safely.
This approach includes the management of different risk factors and their corresponding prevention and mitigation measures, which vary according to the applied strategy. Here are some examples of what we monitor:
| Protocols' category | Risks | Risk parameter | Prevention & mitigation actions |
| Lending and Collateralized Positions (CPs) | Liquidation | Collateral Ratio (CR) | Threshold settings for each strategy to take action or to trigger the emergency plan. CR tracking. Early alerts. Anti-liquidation / position-disassembler protection bots. Execution of CRs corrections with sufficient frequency (daily manual CR correction). |
| N/A | Manipulation attack | Self executed tx proposal | Alerts settings on new proposals. Forum monitoring |
| Staking, Lending & CPs, AMM, Yield Agg., liquidity bridges | Rules change | Approved proposals with new detrimental rules | Forums checking and new proposals tracking, analysis on protocols' decentralisation, and karpatkey's decision on position disassembling. |
| Staking, Lending & CPs, AMM, Yield Agg., liquidity bridges | Rules change | Emergency multisig activated | Alerts on proposals set-up and confirmations in emergency multisig contract. |
| Lending and CPs | Bad debt | Value of loans/value of collateral | Ratio tracker. Thresholds settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
| Lending and CPs | Bad debt | Collateral Ratio Distribution | Distribution tracking across protocols.
Disassemble position / Activation of disassembler bot if the threshold is met. |
| Staking, Lending & CPs, AMM, Yield Agg., liquidity bridges | Hacks, exploits | Protocols' security internal assessment | Positions' size capped depending on the assessment. |
| Poor diversification | Positions' relative size vs total portfolio | Weekly review of optimum volumes: portfolio’s diversification optimisation.
Alpha research on robust opportunities. Identification of new strategies to be deployed. |
|
| Staking, Lending & CPs, AMM, Yield Agg., liquidity bridges | Bad debt / low fees | Net Liquidity Flows | Netflows tracker. Whales activity tracker. Thresholds settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
| Lending and CPs | Unavailability of funds | Supplied asset utilisation ratio | Tracking of supplied asset utilisation ratio vs. lent amount. Alarm settings. Threshold settings. Withdraw lent assets when threshold is met.
Mitigation actions: withdraw available funds to push interest rate higher and wait for liquidations or debt repayment. |
| Lending and CPs | Bad debt | Open Liquidations | Open liquidations tracker. Thresholds settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
| Staking, Lending & CPs, AMM, Yield Agg., liquidity bridges | Stablecoin Depeg risk | Price deviation vs. target | Main pools' composition balance tracker. Thresholds settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
| Liquidity Bridges | Depeg risk | 1) Bridges' pool's composition and 2) amount of tokens locked in the bridge vs. token derivatives available in all bridges' pools | Risk parameters tracker. Thresholds settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
| AMM, Liquidity Bridges | Unpaired token, high price impact if keeping initial composition, low yield | Liquidity balance. Slippage. | Pool's balance tracker. Swap/AMMs slippage tracker. Thresholds settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
| ETH Liquid Staking Derivative | Low liquidity at the time of exiting the position | Liquidity balance | Pool's balance tracker. Swap/AMMs slippage tracker. Thresholds settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
| ETH Liquid Staking, Lending & CPs, AMM, Yield Agg. | Price deviation | Derivative's exit price | Price tracker. Thresholds settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
| AMM, Yield Agg. | Loss of funds | Impermanent loss at the time of exiting the position | Identification of profitable and low IL pools (assessment of assets’ prices correlation evolution). Accurate IL tracking. Threshold settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
| Staking, Lending & CPs, AMM, Yield Agg. | Bad debt / higher exit fees or low fees received | Funds concentration | Funds distribution tracker. Thresholds settings. Alarms settings. Disassemble position / Activation of disassembler bot if the threshold is met. |
Reporting
The Treasury Guild will post a weekly treasury development report on the DXdao forum and assist in identifying data elements upon request from the DXdao community. Also, the Treasury Guild would review data reported and assist in performing analytics and quality reviews to confirm the accuracy of the information.
The following metrics would be included:
- Portfolio Summary: shows 1) the current holdings in stablecoin and ETH equivalent, considering both the allocation by blockchain and the allocation of the most relevant assets, 2) the share of funds allocated to each strategy/goal that are of interest to DXdao (i.e. farming, staking, available funds for x purpose, etc), and 3) purpose and brief summary of the last strategy deployed for the corresponding period.
- Revenues: shows the performance of the portfolio strategy, displaying the current APR, annual revenues, capital utilisation, and past performance.
- Positions: shows the strategy implemented for the considered time period, explaining the type of investments, protocols, underlying assets, expected APR, and expected revenues.
- Loans Management: shows the loan strategy to quickly assess the health status of the active loans, considering the borrowed assets and funds, the lent assets and funds, the collateral ratio, and the minimum (liquidation) collateral ratio.
- Portfolio Details: shows the composition of the portfolio by type of asset.
- Improvement Proposals: shows the list of executed proposals and a summary of their corresponding weight.
Past Performance
karpatkey is a DeFi-native DAO specialising in professional treasury development through industry-leading research and best-in-class tooling. We continuously evolve to maximise efficiency, manage risk, and increase security.
We have had a remarkable performance with Zodiac, Gnosis Ltd., and Gnosis DAO’s treasury portfolios, sustainably increasing their size, profitability, and diversification since our inception in September 2020. We have executed over 3,500 transactions related to DAO treasuries, and have evolved to cater for the specific needs of DAOs. Our organisational structure can be found in this proposal’s Annex.
The appointment of karpatkey DAO as Gnosis’ treasury development consultant has resulted in a consistent revenue stream for Gnosis, increasing its treasury size by circa $1.5M a week while reducing risk through diversification (YTD tracked since May 2021, current ncAUM as of 24-Jan-2023 is ~$275M). At the top of the bull market, our NAUM raised to circa $1B. Sample reports have been included in the Annex. We share them on Twitter every week.
The chart below shows our past performance managing the treasury of our primary user, GnosisDAO, when the main goal was to obtain a sustainable growth of funds before we shifted the focus to maximising the development of the Gnosis Chain.
Gnosisdao’s yield assets are valued at more than half of all other DAO yield assets put together. Source: Autonolas independent research (link to original report here).
Specification
Upon the approval of this proposal, karpatkeyDAO would create 2 Safe multisignature wallets:
- The Avatar Safe, owned by DXdao
- The Manager Safe, owned by karpatkey, with a 2 out of 5 setup.
karpatkey will deploy Zodiac’s Role Modifier module for the Avatar safe, apply the Manager Role preset outlined by the allocation strategy, and assign the Manager Role to the Manager Safe. DXdao would then transfer to the Avatar safe the funds detailed in the Handled Balance column below:
| Asset | Network | Price | Total Balance | Total Value | Handled Balance | Handled Value |
| DXD | Mainnet |
$648.53 |
102,295.00 |
$66,341,376 |
40,918.00 |
$26,536,551 |
| ETH | Mainnet |
$1,628.63 |
5,023.00 |
$8,180,608 |
5,023.00 |
$8,180,608 |
| DAI | Mainnet |
$1.00 |
2,577,810.00 |
$2,577,810 |
2,577,810.00 |
$2,577,810 |
| USDC | Mainnet |
$1.00 |
1,570,165.00 |
$1,570,165 |
1,570,165.00 |
$1,570,165 |
| LUSD | Mainnet |
$1.01 |
1,176,748.18 |
$1,188,516 |
1,176,748.18 |
$1,188,516 |
| ENS | Mainnet |
$14.87 |
46,296.30 |
$688,426 |
46,296.30 |
$688,426 |
| WETH | Mainnet |
$1,625.22 |
0.99 |
$1,615 |
0.99 |
$1,615 |
| DXD | GC |
$648.53 |
1,175.13 |
$762,108 |
1,175.13 |
$762,108 |
| XDAI | GC |
$1.00 |
75,191.90 |
$75,192 |
75,191.90 |
$75,192 |
| WETH | GC |
$1,625.22 |
34.0631 |
$55,360 |
34.06 |
$55,360 |
| GNO | GC |
$102.40 |
255.4784 |
$26,161 |
255.48 |
$26,161 |
| SWPR | GC |
$0.03 |
140,400 |
$4,212 |
140,400.00 |
$4,212 |
| WXDAI | GC |
$1.00 |
2,654.06 |
$2,654 |
2,654.06 |
$2,654 |
| Total |
$81,474,203 |
$41,669,378 |
After the fund transfer is concluded, karpatkey DAO’s Operation Team would be able to start executing the strategy approved by DXdao. It would be technically impossible for karpatkey to execute any transactions which were not previously approved by DXdao.
Technology
The core of karpatkey’s non-custodial solution relies on the most battle-tested tooling to manage DAO treasuries: a proxy Management Safe and the Zodiac Roles Modifier.
Safe is the most trusted platform to manage digital assets on Ethereum, currently holding circa $100B in funds. Zodiac is a collection of tools built according to an open standard outlining a composable design philosophy for DAO tooling, developed by Gnosis Guild. Zodiac’s tools can be easily deployed and managed through the Zodiac Safe App. The Roles Modifier is a tool that enforces granular, role-based permissions for attached modules.
Through a rigid and fail-safe allowlisting enforced on the Management Safe by the Roles Modifier, we would be allowed to execute only a constrained set of pre-approved transactions on behalf of DXdao’s Safe flexibly and efficiently, guaranteeing the funds will always remain under DXdao’s custody. Namely, the process of funds allocation starts with karpatkey DAO proposing a delegation on DXvote, which most token holders must approve. Once this happens, the target addresses, function signatures, and calldata for the transactions composing the strategy are allowlisted transparently. The Management Safe is then allowed to execute only this set of approved transactions on behalf of DXdao’s safe. E.g., The Management Safe signers can only carry out the strategy if it abides by the allowlisting that the Zodiac Roles Modifier enforces.
If the Management Safe attempted to execute any other transaction, it would be reverted by the Roles Modifier. No transactions that could compromise DXdao’s custody of the funds will ever be allowlisted, ensuring that DXdao has absolute power to withdraw or transfer funds without our intervention.
Strategy
-
Swapr: karpatkey commits to making Swapr a core part of its treasury development strategy for DXdao across Gnosis Chain and Ethereum Mainnet. karpatkey will help manage, among others, the following assets (DAI, USDT, USDC, ETH and DXD) and deploy them to the following protocols, among others:
- Swapr
- Curve
- Aave
- Balancer
- Uniswap v3
Fees
karpatkey DAO will charge the following fees, adjusted to make this proposal self-financing and sustainable in the long term, without hindering DXdao’s growth:
Management fee
A yearly management fee of 0.5% of the NAUM would be charged to finance fixed costs like hiring full-time contributors to DXdao and it would be collected in DAI in monthly instalments.
Management fee = Weekly portfolio balance * 0.5% / 52, converted to DAI
Performance fee
A monthly performance fee of 15% of the yield obtained during the last month would be 100% collected in ETH, and every payment would have a vesting period of 1 year.
The price increase of ETH or any other base tokens would not be considered for the performance fee as it is calculated in traditional finance Hedge funds or Endowments.
Performance fee = (Weekly liquidity mining rewards - trades slippage - deposit/withdrawal fees) * 15%, converted to ETH
Termination
DXdao may terminate karpatkey DAO’s engagement under this agreement for any reason by way of Governance Mechanism. karpatkey DAO may terminate this agreement upon four week’s’ notice posted and approved in DXVote. In case the termination is requested by DXdao without at least a 4-week notice, karpatkey DAO will be granted an exit fee equal to the fees collected during the last 2 months, which will be paid in USDC. Regular fees will be collected until the day of termination.
Custody of Funds
karpatkey DAO is not a custodian of funds. karpatkey DAO will only have the capacity to allocate the funds in a manner such that the DXdao authorised signers will have at all times absolute control over them.
karpatkey DAO is not responsible for the loss of funds caused by the existence, identification, and/or exploitation of vulnerabilities through hacks, consensus failures, sophisticated cyber-attacks, denials of service or other security breaches, attacks, or deficiencies with smart contracts or protocols which are not owned by DXdao or karpatkey DAO.
The plans outlined in this proposal are subject to discussion by DXdao and may need to be (re)structured to account for legal, regulatory, or technical developments as well as governance considerations. This document should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in any transactions.
Future Vision
Implementing the solution outlined on this proposal would allow DXdao to allocate its funds with greater efficiency, requiring just one DXVote to approve a broad list of protocol options without granular specification of parameters nor the exact moment when they’d be executed (although the level of detail could be increased according to DXdao’s preference). We would then operate within those boundaries without going through a DAO-wide vote on every trade. This solution would maintain DAO sovereignty over the treasury, and would be an improvement over the set of relayers that DXdao already uses for Swapr liquidity provisioning. With these relayers, treasury movements occur slowly through on-chain proposals and the normal governance process, which makes it difficult to keep up with the pace of the DeFi markets and get the most out of them.
Annex
Sample Reports
23-Jan-23
16-Jan-23
09-Jan-23
02-Jan-23
26-Dec-22
19-Dec-22
12-Dec-22
Past Performance
The following chart displays karpatkey’s 2022 YTD performance, illustrating the accumulated yield and APR:
Organisational Structure
karpatkey DAO is organised in different functional teams, as shown in the following chart. The diagram includes the Treasury Guild members, once fully staffed.
), the treasury as a whole would increase 66% as it is ⅔ ETH. Since DXD is tied to the value of the treasury, its price would also increase 66%. This price movement alone would translate into a more than 55% increase in KK’s management fee to $326k, but this growth in assets under management would be from capital appreciation thanks to previous allocation decisions from DXD & REP holders, not Karpatkey-led yield generation. This would mean a