DAO Treasury



What Is a DAO Treasury?

A DAO treasury is a reserve of capital that is used to implement the goals, objectives, and agreements of a DAO. The rules that govern a DAO treasury are laid down in the smart contract. It is immune to the whims and fancies of the executive management. Instead, community members manage the treasury through voting. Anyone can see, verify, and audit treasury transactions.

Summary of Important Points

• A DAO treasury holds reserves of cryptocurrencies used to fund the underlying project’s operations.

• The foundational framework of a DAO treasury is predefined by the smart contract.

• Nobody can withdraw funds from a DAO treasury without the approval of community members.

• The treasury generates funds through token sales, fees, interest, etc.

• You can join a DAO by buying its governance tokens.

How Does a DAO Treasury Work?

DAOs have grown immensely popular over the last few years. That explains the millions of dollars held by DAO treasuries across different protocols. The central concept behind DAOs is to give power back to people. Their bottom-top approach to project management extends to fund management as well. This is made possible by DAO treasuries that run on blockchain smart contracts.

The fund generated from a DAO project’s primary token sales goes to the treasury as initial capital. This will be in addition to the governance tokens held by the smart contract. Let’s say a DAO mints 100 XYZ tokens in total. Out of this, it holds 50 XYZ tokens and sells 50 XYZ tokens in exchange for 50 BTC. Now, the treasury has 50 XYZ tokens and 50 BTC.

You can invest in a DAO by purchasing governance tokens. As a token holder, you have voting rights in the DAO, proportional to the tokens in your possession. Like all laws that govern a DAO, the management of the treasury is predefined by the smart contract in a set of codes. No part of this can be altered or deleted without the approval of the community. All treasury payments must be validated through voting before the protocol can execute them.

How can I get involved in a DAO?

You can be a part of a DAO by either joining an existing DAO or launching one. While the latter requires coding, entrepreneurial, and managerial skills, joining a DAO is relatively easy. All you need to do is buy governance tokens of the DAO and exercise your voting rights. DAO tokens backed by robust projects have also proven to be a great store of value over the years.

How can DAOs diversify their treasury?

DAOs should never solely rely on a single token. It is a fatal mistake, as proven by the crash of some of the most popular DAO tokens. DAO treasuries need to be diversified to tackle the sudden drop in native token price. These crashes can bring project development to a halt. DAOs should add more tokens to the treasury, ideally in stablecoins. There are several ways to do this. For starters, they can stake crypto tokens in exchange for stablecoin rewards. Or, sell a portion of the native tokens for stablecoins via DEXs, OTC & market makers, or batch auctions. Another way to go about it is to exchange native tokens for other cryptocurrencies with partners.

Why Are DAO Treasuries Important?

Blockchain technologies feature decentralized ledgers that record and execute transactions without relying on intermediaries. However, most blockchain and crypto platforms are far from being decentralized. They can achieve this goal only through DAOs and decentralized treasuries, which introduce a bottom-up approach to project management in its true spirit.

That being said, DAO treasuries need to follow the fundamental principles of fund management to maintain sustainable growth. The most important of these are budgeting and liquidity forecasting. Monthly, quarterly and annual budgets will help forecast the liquidity needs. It is also equally important to incentivize DAO members to make the right decisions and contribute to the growth of the protocol.