Reserve = Capital that we plan not to use during the next three months.
Probably anyone who has been in crypto currencies for a long time will agree with me that volatility can be a stressful affair. It doesn’t matter if the market goes up or down sharply, both are very stressful and will consume a lot of human time that could be used productively.
I see no reason to take unnecessary risks and speculate on the growth of ETH, BTC or whatever. Each individual shareholder is free to carry out these speculations himself, regardless of the DxDAO.
The best defense against volatility is diversification. Unfortunately, we do not yet have direct access to global financial markets, so we cannot use traditional methods based on stocks and bonds.
So far, we only have access to stablecoins, tokens, tokenized gold, tokenized BTC, options, perpetual contracts and synthetic assets.
To make it easier, I am currently a fan of reserves in ETH only, stablecoins and possibly gold.
50% stablecoins - a mix of centralized / decentralized
1/3 stablecoins - mix of centralized / decentralized
I don’t know where dxdao will move in the coming months and years, but I know for sure that diversification is always the right direction.
Portfolio management is critical. Asset allocation needs to match the ratio of expected outflows. Most proposals are in Dai or Eth. I’d suggest the ratio should meet the historical ratio of dai/eth outflow ratios to minimize currency risks - unless we project a shift towards Dai and away from ether.
There tokens which hold baskets of coins, this can allow for automatic allocation. Setprotocol for example, not sure of their smartcontract integrity.
Selling eth when it dips a certain percentage to dai, is one of their capabilities. Set might be a risky option. Bancor might have some options too.
A small portion of the assets could also be used for lending services to earn interest and provide capital to markets and/or projects. Providing capital for lending also, in my opinion, stands with the viewpoint of decentralized organisations providing support to the ecosystem through funding and development.
I agree that gold is an option but I’m unfamiliar with any reputable decentralized options for obtaining and storing it.
I would propose something similar to this
10% Lending in ETH and the same stablecoins held
This would then be subjected to periodic rebalancing to avoid overexposure to any asset. A proposal could be made at any time to change the interval and the strategy behind the assets under reserve.
These are just some basic thoughts to get a discussion going !
Idea: using the treasury to put in a liquidity order on Mesa and letting it sit there as a form of an interest-bearing account as we monitor the yield.
I also think that we should be somewhat more active in trying to accrue interest on the treasury.
We could provide liquidity on a number of platforms, they don’t even have to be associated with the DAO for the time being, as long as it helps bring in revenue. One example is providing liquidity on low-volatility pairs on Uniswap V1, a low-risk example being WETH|ETH. We could also invest in various interest bearing DeFi platforms. This way we could bring in additional revenue. Having the funds go unused while they remain in the treasury is sub-optimal, one would think.
Yes that’s what I was getting at, however the funds should have minimal risk exposure.
Thinking about this more deeply, there’s a need for financial statements and projections to be able to create any data backed asset management plan. I’d be willing to take this on if others would like me to. Im not the best at it but have some experience and formal education in financial statements.
Mr proposal exists as this:
20% Bitcoin (Inherent crypto stabilization).
45% Ethereum (Encouraging ecosystem and used for gas deployment and general employment).
35% Stable coins - (These coins have to be inherently decentralized so the DXDAO can hold them without any centralized party. This will also hedge inherent voltality via a decentralized peg and systematic failure). This completely depends on the realiance of the decentralized and fundamental architecture.
I second @ingalandia idea of utilizing Mesa as much as possible. Am also curious about what types of formal financial statements @ethereal you refer to?
It’s standard to have 3 different financial statements, released quarterly (or if automated monthly) to capture the full financial situation of an organization.
- Balance Sheet
- Assets, Liability, and Equity.
- Helpful for understanding how many assets the organization has and how they are allocated.
- Would allow for more sophisticated asset management by allowing the organization to manage short term credit and debt (earning interest on Dai/Eth)
- Income Statement
- Income and expenses.
- Allows the organization to track where revenue is coming from and where its going.
- Would allow calculating ROI on projects and improving resource allocation.
- Cash Flow Statement
- Movement of cash used for payments.
- Allows the organization to calculate runway, anticipate problems, and increase expenditures.
- Would empower DXDao to know how much it can afford in the short term to invest in new ventures.
@ethereal Yep this is standard and what we should be held accountable to, and should always match whats going on in the blockchain (contract address etc…)
I think we could also make a landing page for each statement that could even be automated and updated “live” since everything is based on transactions that we can check in real time.
Then have a quarterly write-up with a summary of reasonings and proposals that led to the financial decisions made.
Good write up !