Introduction of an Investment Policy Statement (IPS) for Balancer DAO Treasury management.
Introduction
Officially established in November 2022, as per BIP-103, The Balancer DAO Treasury has grown to play a critical role in supporting the protocol’s operations, resilience, and long-term sustainability. As both the DeFi landscape and the DAO’s priorities evolve, it’s important to establish a shared framework for how Treasury assets are managed.
This IPS aligns with the ongoing Treasury Migration Proposal, which consolidates assets into the kpk-managed multisig to enhance execution and asset management, and reinforces our commitment as Treasury Managers.
This post introduces an Investment Policy Statement (IPS), developed by kpk in collaboration with Balancer DAO contributors. The IPS is designed to:
Define and assign the responsibilities of all involved parties.
Establish clear investment goals and objectives for Treasury assets.
Provide guidance and limitations to the Treasury Manager in executing strategy.
Ensure Treasury assets are managed according to prudent and transparent standards.
Overall, the IPS aims to strike a balance: it should provide enough structure to guide day-to-day execution, while remaining flexible enough to adapt to changing DAO needs.
You can read the full proposed Investment Policy Statement here.
Thank you for the thorough proposal, and happy to have KPK in our corner.
I think 30% cap is a sound threshold. Today, the DAO holds more value in AAVE and GNO tokens than BAL itself, and whereas these been remarkable assets to hold, it’s probably time for us to think about diversification to more ETH exposure and increasing our strategic reserves. We would then trust your expertise on how to diversity accordingly and navigate the political landscape.
Two things I’d like to see in this proposal are: (a) how to address and disclose possible conflicts of interest between different DAO’s managed Treasuries, and how to process opportunities (i.e. can a DAO front run the other?); and (b) would be to have the content of this IPS being approved by governance onchain via Snapshot, and not on a hosted PDF file that can me edited unilaterally or lost for some random security issue.
we talked a bit about this already, but for the deployment limits you write:
To minimize protocol- or issuer-specific risk, each strategy or asset
category (e.g., stablecoin deployments, ETH staking, or partner token
allocations) should not allocate more than 30% of that category to a
single protocol, platform, or asset.
what are the exact “strategy or asset categories” that you refer to here? i feel that leaving this undefined opens the door to simply creating a new strategy or asset category whenever the 30% limit is met.
Thanks for the thoughtful questions, @0xDanko@gosuto — really helpful to surface and clarify key areas. Here are some responses to address your points:
On partner token exposure:
We’re preparing an analysis that explores options to off-board or re-allocate certain assets, as well as use others as collateral to access strategies like covered calls, OTC or private credit deals, and other yield opportunities in stablecoins or ETH. The aim is to support a balanced approach that promotes diversification while staying aligned with ecosystem priorities.
On conflicts of interest:
We agree that it may be helpful to specify an approach to handling conflicts of interest in the IPS. A typical process might involve obligations to search for, identify and share any apparent conflicts relating to the management of the treasury, followed by a process of notifying all affected parties and seeking approval for any proposed outcome. Where all parties are aware of a potential conflict but agree with moving ahead, this safeguards against any future backlash. Otherwise, conflicts often result in a pause on activity where agreement isn’t forthcoming. Having this clearly agreed upfront would be a helpful addition.
On Snapshot:
Yes, a Snapshot vote will be created referencing the latest version of the IPS, similar to what was done for ENS. For hosting, ENS chose to keep a markdown version of the file in their governance documentation. We’re happy to align on the most suitable place to host and update the latest version of the document for Balancer DAO.
On strategy or asset category limits:
The reference is to hard limits like avoiding more than 30% exposure to a single vault, pool, market, or contract. It’s a risk mitigation rule to prevent overexposure to any single point of failure, whether technical or economical. As for the risks of leaving things undefined, our view is that—though work can and will be done to gradually define categories—it’s not viable to preemptively identify every possible category, or the correct category of every possible position, in advance. The way we think about concentration is always evolving. For example, the V3 rollout has necessitated a change in the way we think about Aave exposure elsewhere to counterweight the migration to V3. As the technology continues to change, we need to be responsive rather than prescriptive in assessing concentration. Ultimately, the purpose of the IPS is to agree in principle what we think is concentrated. The precise implementation of that broad principle should only follow once the principle has been enshrined by the DAO.
Happy to elaborate further on any of these points. We will incorporate all of these into the IPS and publish the updated version on the agreed hosting platform.