Introduction

Web3, powered by blockchain technology, smart contracts, and cryptocurrencies, offers a paradigm shift in treasury management practices, challenging traditional centralized approaches. As organizations and decentralized autonomous organizations (DAOs) embrace this disruptive technology, understanding the intricacies of Web3 treasury management becomes imperative for financial success and sustainability.

The FTX incident served as a valuable lesson, as investors were attracted by the prospect of staking USDT for a 5% yield, a seemingly promising opportunity with minimal risk, considering the scarcity of such attractive on-chain yields. However, the lack of transparency, mismanagement of customer assets, and alleged fraudulent activities on the part of FTX resulted in their unfortunate bankruptcy, inflicting significant financial losses upon unsuspecting investors. This regrettable occurrence serves as a powerful reminder of the paramount importance of adopting sound treasury management practices to not only safeguard valuable assets but also proactively mitigate risks.

This article delves into web2 and web3 treasury management approaches, along with a detailed case study of MakerDAO’s exemplary practices.

Web2 treasury management

Web2 companies, like all traditional corporations, actively manage their treasuries to optimize their capital structure, liquidity, and risk. They don’t let their funds sit idly in a bank. Instead, they use various strategies to ensure their funds work for them. Here are some ways they manage their treasuries:

1. Cash Management: This includes handling the company’s daily cash inflows and outflows, ensuring that the company can meet its short-term liabilities. A portion of the company’s funds will be kept as cash or cash equivalents for this purpose.

2. Short-Term Investments: Many companies invest their excess cash in short-term, low-risk instruments like overnight repurchase agreements (repos), commercial paper, or U.S. Treasury bills. These investments provide a small return while keeping the funds relatively liquid.

3. Long-Term Investments: Depending on the company’s financial strategy, a portion of the treasury might be allocated to longer-term, higher-yield investments. This could include corporate bonds, stocks, or even alternative assets like real estate or private equity.

4. Capital Expenditures (CapEx): Treasury funds can be used for CapEx, which are investments in physical assets like property, plant, and equipment (PP&E) that are expected to generate economic benefits over a long period.

5. Mergers and Acquisitions (M&A): Companies can use their treasury funds to finance acquisitions of other businesses.

6. Share Buybacks: Companies may also use their treasury funds to buy back their shares, which can help increase the stock price by reducing the number of shares in circulation.

7. Debt Repayment: If a company has outstanding debts, it may choose to use its treasury funds to pay down these debts and reduce its interest expenses.

8. Dividends: Companies can also return money to shareholders in the form of dividends.

The exact mix of these strategies will depend on various factors, including the company’s financial situation, strategic goals, economic environment, and risk tolerance of its management and shareholders. The treasury department works closely with the company’s leadership to make these decisions and ensure that the company’s funds are being used effectively.

Web3 treasury management

Similar to Web2 companies, Web3 companies also do their own part in their treasury management. These can include stablecoin holdings (cash management), staking (investment), and risk management, among other strategies. We listed down some DAOs below and how they allocate their funds and tokens.  

BitDAO

Treasury Token Address: 0x78605Df79524164911C144801f41e9811B7DB73D

Fig 1a: BitDAO treasury breakdown (DefiLlama, 4^th July 2023)

Asset	Token Balance	USD Value	Chain
BIT	6.020B	$2.95B	Ethereum
ETH	264.95K	$517.70M	Ethereum
USDC	221M	$221.76M	Ethereum
USDT	74M	$73.92M	Ethereum

Fig 1b: BitDAO top token holdings (DeBank, 4^th July 2023)

Treasury Utilization

The majority of the assets are stored idly in their Safe Multi-Sig Wallet in the Ethereum blockchain. Additionally, a small portion of their treasury, consisting of BIT and ETH, is allocated to Uniswap’s Liquidity Pool, serving the dual purpose of providing liquidity for trading activities and maximizing the potential returns on their holdings.

Fig 1c: BitDAO staked assets in Uniswap (DeBank, 4^th July 2023)

Olympus DAO

Treasury Token Address: 0xa8687A15D4BE32CC8F0a8a7B9704a4C3993D9613

Fig 2a: Olympus DAO treasury breakdown (DefiLlama, 4^th July 2023)

Asset	Token Balance	USD Value ($)	Chain
DAI	84.18M	$84.18M	Ethereum
CRVFRAX	45.67M	$45.67M	Ethereum
wETH	12.3K	$24.01M	Ethereum
LUSD	10.63M	$10.63M	Ethereum

Fig 2b: Olympus DAO top token holdings (OlympusDAO, DeBank, 4^th July 2023)

Fig 2c: Olympus DAO staking on LIDO (DeBank, 4^th July 2023)

Treasury Utilization

– 79.31M DAI in DSR (DAI Savings Rate)

– 4.87M DAI in wallets

– Entire Curve FraxBP (CRVFRAX) is staked

– 2.80 ETH Stake on LIDO

DSR is a feature of the MakerDAO system that allows holders of the DAI stablecoin to earn interest on their holding

The DAOs listed above (BitDAO and Olympus DAO) generate yield through staking platforms such as Aave and Lido. However, there are also other ways of generating yield, particularly through real-world assets (RWAs), just like what MakerDAO is doing. Since these are RWAs, they are able to generate real-yield and are backed by tangible assets or collateral.

MakerDAO

Treasury Token Address: 0xBE8E3e3618f7474F8cB1d074A26afFef007E98FB

Fig 3a: MakerDAO treasury breakdown (DefiLlama, 4^th July 2023)

Asset	Token Balance	USD Value ($)	Chain
DAI	70.97M	$70.97M	Ethereum
MKR	64.76K	$64.07M	Ethereum
ENS	46.36K	$437.20K	Ethereum
COMP	643.73	$44.50K	Ethereum

Fig 3b: MakerDAO top token holdings (DeBank, Arkham Intelligence, 4^th July 2023)

Treasury Utilization

– 70.97M DAI in DSR (DAI Savings Rate)

– 1,589.12 AAVE staked in AAVE V2

Fig 3c: MakerDAO staking on Aave V2 (DeBank, 4^th July 2023)

MakerDAO acts as bridge by bringing real-world value to DeFi. MakerDAO has been known to hold RWAs such as debt from the Maker Improvement Proposal 65 (MIP65), HVBank, 6S Capital and others. MIPs play a crucial role in governing the conduct of the Maker Governance and the Maker Protocol, serving as standardized documents that undergo democratic voting by the Maker Community. These MIPs can be added, amended, replaced, and removed as necessary to ensure effective governance. MIP65 is an executive proposal also known as Monetalis Clydesdale. Through MIP65, an RWA vault (Monetalis Clydesdale vault) is onboarded and activated to acquire USDC via Maker’s Peg-Stability Module (PSM). This PSM enables DAI-USDC swaps at a 1:1 fixed ratio and backs minted DAI with deposited USDC. The USDC acquired will then be used to invest in high-quality liquid bond strategies held by a trust arranged and maintained by DeFi asset advisor, Monetalis Group.

With this proposal, 80% of Monetalis’ allocation of $500 million will go to US Treasury Bonds while 20% will be used for corporate bonds as voted by the MakerDAO community. This $500 million will be divided equally between investment management firms, Sygnum Bank and Baillie Gifford via Monetalis, taking place in two phases. In the first phase, asset management firm Sygnum will serve as a crypto-to-fiat gateway and help convert 250 million of MakerDAO’s stablecoin into U.S. dollars, which will then be diversified into traditional assets. $160 million will then be allocated to the 0-1y US Treasury iShares ETF, and $240 million invested into the 1-3 year U.S. Treasury iShares exchange-traded fund (ETF) from BlackRock. The remaining $100 million will be allocated to investment-grade corporate bonds provided by investment management firm Baillie Gifford. These investments in RWAs helped boosted MakerDAO’s revenues and it was voted by the MakerDAO community to increase the DAI Savings Rate from 1% to 3.49% to distribute part of its revenue to its users.

It also bought another $700 million U.S. Treasuries, taking the total in its DAI stablecoin reserve to $1.2 billion on 21 June 2023. This was purchased through the Monetalis Clydesdale vault on behalf of MakerDAO.

Apart from investing in RWAs, MakerDAO also staked 1,467 AAVE tokens into Aave2 V2 which currently yields 121 AAVE.

Fig 3d: MakerDAO RWA allocation (Dune, 4^th July 2023)

The captivating aspect of MakerDAO lies in its incorporation of RWAs, which, as of the time of composing this article in July 2023, remains a rarity within the realm of DAOs. Notably, ever since adopting RWAs, MakerDAO has doubled its revenues. Moreover, this adoption allows MakerDAO to diversify its portfolio, as it ventures beyond digital assets, such as cryptocurrencies and other digital projects, to invest in traditional financial instruments.  Stay tuned for our upcoming article, as we delve deeper into the realms of how MakerDAO adopts RWAs.

Conclusion

We can draw many similarities between how Web2 and Web3 firms conduct their treasury management despite their distinct characteristics and approaches. Even how Web3 firms manage their treasuries are different where some only hold their own native token while others include staking as well as investing into RWAs. What is important to note is the power of decentralization which allows token holders the right to vote on proposals such as the MIP65. As the Web3 ecosystem continues to evolve, understanding the nuances of Web3 treasury management becomes crucial for organizations and DAOs seeking financial success and sustainability. Embracing the decentralized and innovative aspects of Web3 can open up new opportunities for efficient fund management, community governance, and value creation in the evolving landscape of decentralized finance.

About DigiFT  

DigiFT aims to provide regulated decentralized finance solutions on the Ethereum public blockchain. We are operating the first regulation-abiding decentralized digital asset exchange where asset owners can issue blockchain-based security tokens efficiently and cost-effectively. Investors can trade with continuous liquidity via an AMM mechanism and retain control over digital asset tokens in their own wallets. We are a global outfit backed by well-established venture partners. The founding team originates from international financial institutions and has deep blockchain technology knowledge.

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