Investment Policy Statement

Abstract

Introduction of an Investment Policy Statement (IPS) for Balancer DAO Treasury management.

Introduction

Officially established in November 2022, as per BIP-103, The Balancer DAO Treasury has grown to play a critical role in supporting the protocol’s operations, resilience, and long-term sustainability. As both the DeFi landscape and the DAO’s priorities evolve, it’s important to establish a shared framework for how Treasury assets are managed.

This IPS aligns with the ongoing Treasury Migration Proposal, which consolidates assets into the kpk-managed multisig to enhance execution and asset management, and reinforces our commitment as Treasury Managers.

This post introduces an Investment Policy Statement (IPS), developed by kpk in collaboration with Balancer DAO contributors. The IPS is designed to:

1. Define and assign the responsibilities of all involved parties.
2. Establish clear investment goals and objectives for Treasury assets.
3. Provide guidance and limitations to the Treasury Manager in executing strategy.
4. Ensure Treasury assets are managed according to prudent and transparent standards.

Overall, the IPS aims to strike a balance: it should provide enough structure to guide day-to-day execution, while remaining flexible enough to adapt to changing DAO needs.

Introduction

This Investment Policy Statement (“IPS”) outlines the principles and guidelines for the effective management of the Balancer DAO Treasury (the “Treasury”). It establishes a clear understanding among DAO participants regarding the purpose, constraints, and governance structure around the Treasury, with the goal of:

• Planning appropriate asset allocation and implementation of Treasury strategies.
• Supporting informed financial planning across the DAO.
• Establishing accountability and transparency for all involved parties.

This document also distinguishes between Treasury assets managed under the kpk mandate and those retained directly by the DAO.

Background

History of Balancer

Launched in 2020, Balancer DAO governs the Balancer Protocol, a decentralised automated market maker (AMM) designed to support flexible and efficient liquidity pools. Built on Ethereum and EVM compatible chains, Balancer enables users to both swap tokens and manage self-balancing pools with multiple tokens and customisable weights. Governance and protocol upgrades are managed by the Balancer DAO through community proposals and token voting. Further technical details can be found in the Balancer Documentation.

Purpose of Balancer DAO

The Balancer DAO community has progressively aligned around a shared mission: to develop and steward a decentralised protocol for programmable liquidity. The DAO aims to ensure the long-term sustainability and competitiveness of the Balancer ecosystem — driving innovation in AMM infrastructure and strengthening the protocol’s position in the ecosystem. Treasury assets, and any income generated by these assets, are used to fund protocol development, ecosystem grants, security initiatives, and incentive programmes that drive usage, growth, and resilience across supported networks.

History of kpk

Founded in 2020, kpk is a DeFi-native treasury management organisation focused on secure, transparent, and non-custodial asset management for DAOs.

kpk specialises in active deployment of DAO funds into carefully vetted DeFi strategies, combining rigorous risk management with a trust-minimised approach that preserves DAO self-custody. The team has developed proprietary monitoring tools, automated execution agents, and governance-integrated frameworks to serve some of the most prominent DAOs in the ecosystem, including Gnosis, Aave, ENS, CoW, Safe, Arbitrum, Nexus Mutual, and dYdX.

Purpose of kpk

kpk empowers organisations to confidently navigate on-chain finance by securing, managing, and growing their digital assets. kpk deploys yield-bearing strategies with both world-class risk management and operational excellence.

With non-custodial management, funds always stay under the client’s control. kpk just gets the permissions needed to act on the DAO’s behalf — no assets are transferred to kpk directly for management. Roles contracts are used to define a set of pre-approved permissions that the DAO grants kpk in order to execute on their behalf. Any and all actions that are not present in these permissions contracts will not be actionable by kpk as Treasury Manager.

Purpose of the Investment Policy Statement

The Investment Policy Statement (“IPS”) has been developed by kpk in collaboration with Balancer DAO to:

1. Clarify the roles and responsibilities of all relevant parties.
2. Provide a shared understanding of the objectives and intended outcomes for the DAO’s Treasury assets.
3. Offer direction and guardrails for the Treasury Manager in executing investment activities.
4. Set a reference point for assessing the Treasury Manager’s performance.
5. Ensure Treasury assets are managed in line with sound, responsible practices.

Governance and Oversight

Responsibilities of Balancer DAO

The responsibilities of Balancer DAO include, but are not limited to:

• Establishing Objectives: Defining the investment goals, risk tolerance, liquidity targets, and any relevant operational or strategic constraints.
• Approving the IPS: Formally approving this document and any future revisions through governance processes.
• Oversight and Review: Reviewing the Treasury’s alignment with objectives and constraints outlined in this IPS. This includes evaluating strategy fit, operational soundness, and alignment with the DAO’s evolving needs.
• Communication: Informing the Treasury Manager of any significant changes to DAO priorities, mandates, or financial conditions that could affect treasury management.
• Reviewing and Revising the IPS: Periodically reviewing the IPS and revising it as necessary in response to changes in the DAO’s circumstances or broader market context.

IPS review is expected to occur on an annual basis, or sooner if material changes arise. The Balancer DAO community is responsible for initiating and approving changes through its governance process (e.g., Snapshot proposals and forum discussions).

Responsibilities of the Treasury Manager

kpk acts as Balancer DAO’s Treasury Manager, as designated by [BIP-103]. Within this role, kpk is responsible for:

• Strategy Implementation: Executing treasury strategies in accordance with this IPS and DAO-approved permissions.
• Deployment: Actively managing capital in risk-adjusted, yield-generating DeFi strategies.
• Reporting: Providing regular updates, including monthly financial reports and presentations, and supporting documentation for governance discussions.
• Risk Management: Continuously monitoring exposure across market, counterparty, smart contract, liquidity, and governance risks. Ensuring response mechanisms are in place to reduce risk.
• Communication: Maintaining an open line of communication with the DAO and proactively disclosing material changes or considerations that may impact the treasury.
• Support: Assisting in ad hoc financial projects, partnership evaluations, or strategy reviews relevant to treasury health and ecosystem alignment.

All actions are executed within the scope of pre-approved roles and permissions assigned by the DAO. kpk cannot take any action not explicitly allowed by the DAO’s permissions system.

Treasury Objectives

The primary objective of Balancer DAO’s Treasury is to ensure the long-term financial sustainability of the DAO, while maintaining operational flexibility and capital preservation. The Treasury aims to support the DAO’s current and future needs without the need to liquidate core DAO-native assets. As the Treasury grows over time, it is expected that investment returns will contribute to funding operational expenses, either partially or in full.

Investment Objectives

This objective is pursued through a conservative investment approach, with a focus on:

• Capital Preservation: The Treasury should prioritize safeguarding principal value. Deployment should avoid unnecessary risk and be focused on stable, proven DeFi strategies. Avoiding capital loss is a core principle of the Treasury mandate.
• Risk-Adjusted Yield Generation: Where appropriate, Treasury assets may be deployed to generate yield, provided the strategy meets conservative risk parameters and maintains liquidity standards. The purpose of yield is not to speculate, but to extend the life of the Treasury and reduce the need for DAO-native asset liquidations.
• Growth of Capital: As the Treasury grows in size, yield generation may play an increasing role in covering DAO expenses. The long-term objective is for the Treasury to be able to partially or fully fund Balancer DAO’s operational needs through on-chain returns.

The Treasury is not expected to meet specific performance benchmarks or return targets at this time. Instead, strategic success is evaluated based on the alignment with DAO objectives, such as capital preservation, diversification, and liquidity readiness.

Risk Objectives

Risk, in the context of this Investment Policy Statement, refers to the probability of the Treasury failing to meet its obligations, including operational funding needs, capital preservation, and strategic flexibility. The DAO maintains a conservative risk tolerance, placing high priority on capital preservation and steady operational continuity. ostracized strategies should avoid excessive volatility, capital loss, or dependence on speculative activity.

The following definitions and principles guide the risk management process:

• Risk Tolerance: Balancer DAO has a conservative risk appetite. Risk-taking is acceptable only when aligned with the DAO’s core principles of sustainability, transparency, and control.
• Disallowed Activities: Speculative trading or any activity with unacceptable downside risks is explicitly prohibited. Deployment is limited to strategies and venues deemed low-risk and pre-approved by governance.
• Risk Monitoring Categories:
  • Market Risk: Price volatility or macroeconomic trends affecting value.
  • Smart Contract Risk: Vulnerabilities in protocol code.
  • Liquidity Risk: Inability to convert assets quickly enough to meet operational needs.
  • Governance Risk: Threats emerging from the governance processes of third-party protocols.
  • Operational Risk: Execution errors, delays, or misalignments with DAO mandates.
  • Regulatory Risk: Impact from evolving legal or compliance frameworks.

The Treasury Manager is expected to continuously monitor these risk vectors and maintain adequate tooling, alerting, and mitigation processes.

Investment Guidelines

The following investment guidelines are designed to ensure responsible treasury deployment, liquidity management, and operational flexibility. They reflect the DAO’s conservative risk profile and strategic intent to preserve capital while enabling stable, long-term financial sustainability.

Constraints

The Balancer DAO Treasury adheres to the following operational and risk-related constraints:

• Liquidity Target: The Treasury aims to maintain a three-year stablecoin runway, structured across two liquidity tiers:
  • 0–12 months: Stablecoins in highly liquid, instantly accessible venues.
  • 12–36 months: Stablecoins deployed in longer-maturity strategies with conservative risk profiles.
• Deployment Limits: To minimize protocol- or issuer-specific risk, each strategy or asset category (e.g., stablecoin deployments, ETH staking, or partner token allocations) should not allocate more than 30% of that category to a single protocol, platform, or asset.
• Strategy Restrictions: Only low-risk, DAO-approved strategies may be used. Speculative trading or use of unvetted or high-risk protocols is prohibited. Strategies utilizing BAL or Balancer products require separate governance approval.
• Governance Permissions: All actions must fall within the permissions framework pre-approved by the DAO via Roles Modifier contracts. Actions outside this allowlist are operationally blocked and cannot be executed by the Treasury Manager.

Asset Allocation

The Treasury may be allocated across a variety of assets and networks, with the following guiding rules:

• Approved Blockchains:

  • Ethereum Mainnet
  • Gnosis Chain
  • Arbitrum
  • Base

  Deployment to other chains requires DAO governance approval and creation of a new treasury address.

• Approved Strategy Types:

  • Lending and borrowing via DeFi money markets
  • Liquidity provisioning
  • Staking (direct or via liquid staking tokens)
  • Cash-and-carry or basis trades without directional exposure
  • Other strategies explicitly approved by the DAO via governance

Portfolio Rebalancing

• Rebalancing Frequency: The Treasury will be rebalanced on a monthly basis by kpk to maintain liquidity targets and distribution alignment.
• Rebalancing Method: Rebalancing transactions will be executed incrementally and in accordance with the DAO’s operational and risk constraints. Tranches, thresholds, or rotation schedules may be used based on market conditions.
• Initial Rebalancing: Following IPS approval, the Treasury Manager may initiate a realignment of the portfolio to bring allocations closer to the defined liquidity targets and risk constraints, carried out with full transparency and subject to DAO oversight.

Treasury Expansion

Over time, Balancer DAO may consider expanding its Treasury through new revenue sources, token conversions, or internal reallocation processes. While this IPS does not establish a fixed mechanism for treasury expansion, the following principles may guide future developments:

• Fee Integration: The DAO may explore a model in which protocol revenues, including fees or emissions, are periodically transferred into the Treasury. This model could take inspiration from structures implemented by other DAOs, such as dYdX or ENS.
• Governance Approval Required: Any expansion mechanism — whether recurring or one-time — must be proposed and approved through the DAO’s standard governance process. This includes setting thresholds, transfer schedules, and allocation destinations.
• Strategic Alignment: Any treasury expansion should reinforce the DAO’s long-term sustainability, operational resilience, and financial autonomy. This includes strengthening the Treasury’s ability to fund DAO operations, support critical ecosystem functions, and increase capital flexibility.
• Implementation Scope: Expansion activities may require technical and operational coordination between the Treasury Manager, DAO contributors, and core protocol entities (e.g., Balancer OpCo, Maxis). These interactions should be structured with transparency and accountability in mind.

Reporting and Performance Review

To ensure transparency and alignment with Balancer DAO’s objectives, the Treasury Manager will provide structured updates and facilitate community engagement through the following reporting mechanisms:

1. Monthly Treasury Reporting: A monthly update will be published summarizing treasury composition, key activities, liquidity status, and any relevant strategic context. These reports may include charts, dashboards, and links to on-chain activity for verification.
2. Monthly Financial Reports: kpk will deliver Financial Reports (formally known as “State of the DAO” presentations) that synthesize treasury insights with DAO-wide financial context, including budgeting, service provider tracking, and overall treasury health.
3. Quarterly Reviews: Each quarter, a more in-depth assessment of treasury trends, strategic decisions, and market context will be shared. These reviews aim to support the DAO’s ability to steer financial planning and operational strategy.
4. Annual Reports: Once per year, a comprehensive overview of the Treasury will be provided, covering liquidity runway, strategy effectiveness, risk exposures, and treasury structure. This will serve as a basis for governance reflection and potential IPS revisions.
5. Ad Hoc Updates and Permissions Changes: Whenever a new strategy is proposed via a Permissions Update Request (PUR), an ad hoc update will be provided to the DAO. This includes strategy rationale, operational readiness, and risk considerations.
6. Evaluation Criteria: Treasury performance will be assessed primarily against alignment with DAO objectives, including:
   • Capital preservation
   • Stable and diversified liquidity structure
   • Operational readiness and risk mitigation
   • Transparency in reporting and execution

The DAO reserves the right to reassess the Treasury Manager’s mandate at any time through its governance process, based on evolving priorities, ecosystem conditions, or organizational structure.