GM29.1 : Stablecoin / ETH DAO Treasury ratio - nonbinding recommendation

Author:

Ignoramus

Proposal date:

August 21st 2022

Summary:

The DAO input should provide a guideline as to what risk levels are acceptable when managing our treasury. This is a contentious issue, thus it is key to source input from the whole DAO.

What we’re voting on ?:

We are voting on how the DAO Treasury should be split between ETH and stablecoins. The vote is nonbinding for the DAO Treasurer (De-Fi Beats), however will provide key input for the decision what will be the ETH / stablecoin ratio.

Along with the growth of our Treasury the topic of risk management has gained more importance. Our revenues come from new drops and commissions from gm.DAO drop and gm.DAO token transactions - all denominated in ETH. Our expenses are either denominated in US dollars, or in ETH but with a clear dollar background dollar. This creates an imbalance which needs to be addressed.

Due to ETH price volatility it makes sense for the Treasury to carry both stablecoins and ETH. This way we secure possible ETH appreciation upside but also reduce the downside and ensure survival in more bearish scenarios. What needs to be determined, are the exact proportions between ETH and stablecoins.

This vote is done in a non-binding manner, because our current governance process only allows for a basic voting system (For/Against/Abstain). However with the ETH merge coming up we felt it is important to get the wider DAO opinion on the topic as soon as possible.

What this vote does not pertain to is the exact type of stablecoin the DAO should hold. This is a topic which should be discussed separately later once we have a policy what stablecoin % should we hold. Same holds for possible yield generation strategies.

Data as of August 21st, 2022: DAO Treasury value: $550k Monthly recurrent DAO expenses, which are denominated in dollars: $23.7k Monthly recurrent DAO expenses, which are denominated in ETH: ca 6.5 ETH Stablecoin % in DAO Treasury: 31.7% Historical stablecoin % in DAO Treasury: from 0% to 31.7%

Voting choices :

1. 30% stablecoins / 70% ETH
2. 40% stablecoins / 60% ETH
3. 50% stablecoins / 50% ETH
4. 60% stablecoins / 40% ETH
5. 70% stablecoins / 30% ETH

Execution:

The stablecoin / ETH ratio would be achieved by periodically rebalancing the treasury. Generally it would mean converting part of the ETH balance to stablecoins. The rebalancing would occur:

1. Periodically - at least once a month, after monthly contributors payouts
2. In between, If any single payout impacts the treasury enough to induce a >10% ratio change.

People involved:

@De-Fi Beats managing / executing rebalancing, DAO multisig participants signing transactions

Constraints:

To ensure a minimum level of financial stability any stablecoin / ETH ratio will be implemented under the condition the DAO has at least an eight-month runway. This means at any point in time the DAO recurrent expenses for at least the next eight months should be covered. Any already agreed expenses with a longer horizon should also be covered. E.g. with our current expense levels it means we now have to hold at least $231.6k in stablecoins and 52 ETH. This means currently we need to maintain at least a 42.2% stablecoin ratio regardless of the outcome of this vote. Treasury rebalancing speed is constrained by the efficiency of our multisig.

Benefits / Risks:

The more ETH we hold in the treasury, the more we profit when the ETH price rises. The more stablecoins we hold, the less value we lose when the ETH price drops. ETH has risks connected with the upcoming merge, its execution and the PoS / PoW discussion. Stablecoins have their own risks:

• USDC regulatory risk
• USDT transparency risk
• depegging risk for most others

Type of vote :

Ranked choice voting: please rank your preferred stablecoin / ETH ratios in order of precedence, from the most preferred to the least preferred.

Some options will show up as if they had not received any votes because they were eliminated in the ranked-choice voting process. Learn more at https://docs.snapshot.org/proposals/voting-types .

Sponsors :

De-Fi Beats, Ze_Boubs, Ignoramus