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Onchain analytics reveal a concerning state of DAO treasuries. The collective value of DAO treasuries increased by more than $20 billion between November 2023 and March 2024. Optimism’s DAO treasury led with around $7.9 billion in assets, followed by Arbitrum DAO with $6.9 billion. This significant uptick aligns with the overall spike in the cryptocurrency market, which isn’t necessarily good news.

It’s indicative that on-chain treasuries tend to hold only cryptocurrencies. A recent report found that almost two-thirds of the 25 largest DAOs held over 90% of their treasury value in their native token. Similarly, an earlier estimate indicated that 85% of DAOs’ on-chain treasuries were stored in a single asset. If not the native token, DAOs often hold funds in Bitcoin, Ethereum, and other altcoins.

With DAO treasury management influenced by internal voting, bullish sentiment often sways decisions, favoring high APY and trending assets while ignoring large adjusted risks. This overexposure to risks during market downturns hampers DAOs’ ability to manage operational costs, typically paid in fiat currencies.

The Importance of Financial Planning

When a DAO holds the majority of its assets in crypto but incurs operational costs in fiat, it creates a dilemma in timing withdrawals. Overexposure to its native asset is risky. The volatility of the crypto market could trigger a financial collapse at any point, complicating financial planning.

There’s a need for DAOs to appoint treasury managers or CFOs who can make proactive decisions to handle unpredictability. Additionally, persistent security breaches highlight the unsustainable practice of concentrating funds in a single token. To grow a treasury sustainably, DAOs should consider risk-reducing approaches that favor longevity. CFOs with foresight, rather than short-term thinking, could provide this stability.

Fiat isn’t a permanent solution; it’s counterintuitive. However, diversification is necessary for risk management. Exploring TradFi for inspiration could help DAOs circumvent bearish trends and security threats. While decentralized ideals are essential, web3 is evolving beyond a short-term mindset.

Treasury management should balance profit maximization with risk management. Sustainability should be the priority. As the crypto ecosystem evolves, treasury managers should diversify their reserves and put assets to work.

Crypto-Uncorrelated Assets (RWAs) to the Rescue

One straightforward option for DAOs to mitigate risk while maintaining a blockchain-based treasury is diversifying with stablecoins. Stablecoins offer efficient liquidity management and simplify the process of paying operational costs.

Another emerging trend is the allocation of funds into tokenized treasuries. Prominent DAOs are investing in products like Ondo’s USDY, Blackrock’s BUIDL, Cogito’s TFUND, and OpenEden’s TBILL. This trend is driven by the maturation of institutional values in web3. Tokenized assets can free DAOs from sentiment-driven fluctuations while keeping treasury value on-chain. RWAs provide a strategic approach to treasury management.

Fixed-income assets such as T-Bills, known for their lower volatility and stable returns, offer a solution for DAOs needing to shift from high-risk attitudes. In a high interest rate environment, short-term US T-Bills provide a 5% interest rate with low risk, backed by the government. Companies like Tether have already turned to these options for more transparent collateralization.

Path to DAO Longevity

While some argue that DAO treasuries should diversify without TradFi instruments, tokenized real-world assets, including stablecoins, offer more immediate security for long-term projects. Treasury management strategies must focus on sustaining project longevity. Onchain capital must be diversified. As crypto continues to mature, treasury managers should evolve their methods accordingly.

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