Authors: @Xeonus @0xDanko @karpatkey
Introduction
The second quarter of 2024 was marked by increasingly competitive market conditions, leading to less upward momentum compared to the first quarter. Despite the challenging environment, Balancer maintained its resilience by leveraging its dominance in the LRT and LST spaces. The primary focus has been on finalizing the design of Balancer v3, guided by an exciting vision post from Fernando. This post outlines Balancer’s strategic direction for the upcoming quarters, aiming to become the leading liquidity hub for fungible assets, stablecoins, and yield-bearing liquidity. Additionally, new products like Hooks and LVR reduction, along with an improved developer experience, are part of this vision. These goals align well with our business development strategies, including targeted chain expansions to Mode and Fraxtal, and a strategic partnership with CoW DAO to launch CoWAMM later in Q3.
Financially, Balancer v2 continued to perform well due to its core pool flywheel mechanism. However, operating expenses remain high as we focus on delivering new products in Q3, which are expected to generate more organic income for the DAO. Currently, operating expenses exceed income streams. The karpatkey-managed treasury, which holds about 31% of the DAO’s net worth, has generated sufficient interest through DeFi results to approach a break-even point. This suggests that deploying idle assets into yield-generating positions could help achieve financial sustainability while ensuring sufficient liquidity.
The DAO’s financial performance will be detailed in this post, which is a collaborative effort between karpatkey and DAO contributors, highlighting our decentralized approach.
Results
DAO Income Performance
Since Q1, Balancer DAO has had several sources of income at its disposal. Income is a result of:
- Strategic partnerships like Fjord.
- Swap and yield-fees, mainly from core pools.
- DeFi results on treasury managed assets by karpatkey.
Income from Fjord Foundry
Based on the BIP-98, Balancer DAO was entitled for another $15k in USDC and 57.68 in WETH as part of the fee sharing agreement. This resulted in $275k in net inflow to the treasury.
Note that this agreement has now come to a close with the TGE of Fjord. Balancer DAO received 1.5mm FJO tokens (1,5% of total supply), currently worth approx. $850k. These tokens will linearly vest over 18 months, and a staking mechanism for revenue sharing is expected to go live in Q3’24 (source).
Income totals: $275,829
Income from Protocol Fees
The momentum that was generated in Q1 from the LRT and LST market demand overall decreased across the space and therefore we saw TVL outflows from prominent pools like the LRT-Tri-Pool. Nevertheless, Balancer could retain most of its dominance in this sector.
Overall, the DAO processed $3.64mln in protocol fees of which $1.64mln were distributed via voting incentives and $1.07mln were distributed to veBAL holders
The net income from swap and yield-fees across our deployments to the DAO netted $575,652 USDC in Q2.
The Optimism deployment of Balancer netted an additional $13,487 USDC in income to the DAO based on the fee share agreement.
Given the presented stats, we can infer the following annualized returns and compare them to Q1:
| Total | DAO | veBAL Fee Share | veBAL Voting Incentives | vlAURA Voting Incentives | |
| Annualized (Q1) | $13,690,320 |
$2,312,800 |
$4,512,360 |
$3,104,320 |
$3,760,840 |
| Annualized (Q2) | $13,149,040 |
$2,302,560 |
$4,280,000 |
$2,326,480 |
$4,240,000 |
Overall revenue remained steady and comparable to Q1 with approx. $2.3mln annualized inflows from protocol fees to the DAO (excluding Beethoven-X rev share).
**Income totals: $575,652 **(excluding $13.5k from Beethoven-X rev share).
Income from Treasury Management
The Treasury’s assets under management (AUM) grew by $715,906 in Q2, rising from $7.53 million to $8.24 million.
With over 98% of the funds allocated to different DeFi positions at all times, the Treasury generated $111,648 in DeFi results, yielding a** 5.4% APY** for the DAO’s Treasury.
With a diversified portfolio consisting of 38.8% ETH neutral strategies, 39.2% stablecoins, 20.7% stAAVE, and less than 2% in WBTC, the mark-to-market (M2M) profit and loss (P&L) for Q2 showed a positive $604,258.
The M2M and DeFi returns combined contributed to the total AUM increase during this period.
Income totals: $111,648
YTD Analysis
Since the start of 2024 Balancer’s protocol activity is reflecting a net negative operating P&L of -$375,588.17. This quarter, operating income was driven by the Fjord agreement. which has now been discontinued.
| Fjord LBPs | +$1,439,361.75 |
| Protocol fees | +$1,188,377.64 |
| Beets fee split | +$35,255.74 |
| Total Operating Income | +$2,662,995.13 |
However, expenses have grown significantly, with major contributors including new Service Providers (SP) like B.D. Unit, Wonderland, and increased spendings due to v3 development. Additionally, the Fjord income stream, the main source of revenue this year, has been stopped and will not continue.
| Maxis | -$926,980.60 * |
| Beethoven | -$531,009.95 |
| OpCo (Admin & Ops) | -$362,921.57 ** |
| DNS hack reimbursements | -$253,016.41 *** |
| Wonderland | -$276,845.12 * |
| B.D. Unit | -$147,237.61 * |
| Foundation | -$143,678.66 ** |
| Opco Product | -$117,309.25 ** |
| Grants | -$104,450.18 * |
| Karpatkey fees | -$61,160.10 * |
| HyperNative | -$59,996.50 |
| ONsite | -$53,977.35 |
| Total Operating Expense | −$3,038,583.3 |
‘*’ Includes USDC and BAL transfers from DAO Treasury, pricing tokens on daily av. on the day of the transaction. Further includes ETH for operations purposes as outlined in [BIP-514], [BIP-556], also see gas station statistics for a detailed breakdown.
‘**’ Figures taken from The Balancer OpCo bookkeeping (off-chain).
‘***’ Includes USDC and BAL transfers from DAO Treasury, pricing tokens on daily av. on the day of the transaction. Source: [BIP-535], [BIP-544].
Below is a table showing the YTD Total activity and balances (in USD), highlighting the importance of DeFi & M2M results to the DAO:
| Initial Balance | Results | M2M | Final Balance | |
| DAO Multisig (cross-chain) | $25,224,616 | +$248,321 | -$873,876 | $24,599,061 |
| Foundation/OpCo | $2,205,982 | -$623,909 | -$70,488 | $1,511,585 |
| Karpatkey Owned Treasury | $6,761,335 | +$230,137 | +$1,250,451 | $8,241,923 |
| Total | $34,191,933 | -$145,451 | $306,087 | $34,352,569 |
Outlook
Estimating Annual Spendings across SPs
In the most recent funding round, nearly all SPs signaled to reduce overall costs. To better estimate the annual cost basis, we took amounts from the last epoch and extrapolated to a full year, both in USDC and BAL.
| Service Provider | Annualized Cost (USDC) | Annualized Cost (BAL) |
| Maxis | $798,000 | 57,852 |
| Karpatkey | $106,482 | |
| BD Unit | $144,000 | 17,544 |
| Hypernative | $60,000 | |
| Grants | $60,000 | 134,108 |
| Beethoven-X Mkt | $360,000 | |
| Beethoven-X Tech | $348,000 | |
| Wonderland | $360,000 | 68,750 |
| OpCo (Admin & Ops) | $522,168 | 12,000 |
| OpCo Product | $746,580 | 23,553 |
| Balancer Foundation | $272,733 | 4,800 |
| IRL events (yearly) | $170,000 | |
| TOTAL | $3,947,963 | 318,607 |
In total, we anticipate a burn rate of roughly **$3.95mln USDC **annualized across SPs, which, compared to Q1 is an increase of approx. $390k given the onboarding of new SPs like Wonderland and the allocation on OpCo for business costs and critical protocol infrastructure (noting last twelve month epoch was funded by general savings and termination of Orb Collective).
318k BAL tokens are estimated to be used over the next year, which is 186k more than the amount estimated in Q1. This is mainly due to grants and Wonderland’s vesting schedule.
Runway Estimations (stablecoins)
As of the writing of this report, the DAO currently holds following stablecoin reserves:
| Stables DAO | $1,364,202 |
| Stables Karpatkey | $3,235,669 |
| Stables OpCo [1] | $1,244,381 |
| Total | $5,844,252 |
Given our burn rate of $3,95mln with the current SP configuration, and an expected income of $1.4mln, from swap, yield fees, DeFi results on the Treasury and a $20k/mo stream from the DucaLabs initiative, the DAO would be able to fund operations for another 2 - 2.4 years.
[1] these figures comprehend the stablecoins in the Foundation/OpCo multisig plus business accounts (payment solutions, exchanges, etc) as of June 30th.
Closing Remarks
The DAO is currently undergoing a major transition as it is preparing for exciting product launches like CoWAMM and Balancer v3. By reducing costs in Q2, the DAO was able to keep expenses in check although overall headcount increased. Strategic partnerships are essential, as the case study of Fjord has shown, which aided significantly in securing more runway for 2024.
Additionally, the partnership with Karpatkey will ensure that the DAO will optimize its DAO Treasury and runway allocation thereafter. Both parties will work closely together to formulate a SP compensation guideline to further streamline the DAOs treasury management capabilities.
References
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Foundation/Opco bookkeeping