I thought it would be worthwhile to kick-off a conversation about how the DAO manages the ecosystem fund moving forward. As it stands, it’s entirely BAL: this is great in a sustained bull market, but potentially introduces challenges in other market conditions.
Does anyone have any thoughts on whether we should look at diversification (perhaps into also e.g. DAI) in order to reduce volatility? It might also be that some grants might be better suited to rewarding w/ DAI rather than BAL tokens, for example if we want to look at launching a “Balancer Strategies” (an idea I floated on Discord, to review various different approaches to Balancer pools, collect data, do controlled tests & educate the community on how to implement profitable LP strategies in different market conditions & pool types), it might be difficult to find someone with the appropriate data science/maths/stats/finance expertise to commit to working for a fixed term without compensation being at least a significant % in a stablecoin.
I’m sure there are lots of strong opinions on this topic and it’s generally quite controversial, but in the event of a significant ongoing down market, it could be a major win for Balancer to have some diversification here, as to date very few protocols have taken this step.
Thanks a lot @bakamoto20 for kicking off this discussion! I think this is a fantastic idea and certainly an important risk management tool / approach for any protocol to have, as you rightly point out that non-diversification in challenging market conditions could potentially pose risks around funding operations, as well as being able to compensate external contributors that may have the skills Balancer needs from time to time but who may not necessarily be interesting in holding BAL.
Of course as you say this can be very controversial among the community. I think in order to build trust on why to diversify the treasury, there are a number of questions that would need to be addressed:
What are the expected expenses over the next ~3-5 years that will be funded from the treasury?
What proportion of the treasury should be diversified?
Which tokens to diversify into? Some of the potential options:
Stablecoins
BTC/ETH, to capture market movement with lower volatility (relative to other altcoins)
Holding other protocol tokens, e.g. Maker, Compound, Aave, or indices (DPI, etc.)
Early stage investments / M&A / Strategic investments
What mechanism should be used to execute the diversification strategy (e.g. auctions, strategic VC purchase, etc.)?
We had a very early stage discussion a couple of weeks back with @LuukDAO, @tongnk and a few others (sorry, don’t know their Discord/Forum handle). Looking forward to further contributing to the discussion!
This is a pretty good discussion to start having. I agree with Stefano that we need to figure out what we want to actually spend it on first before figuring things out.
I would actually probably zoom way out right now since it’s pretty unclear to me what the north star metric is right now (super unclear to me right now what direction Balancer is even going at this rate). I was going to suggest a treasury DAO or some form of strategy unit/grant to propose how we spend it but without this north star metric it wouldn’t make sense
Projects that do a “treasury diversification” are looking to fund operations in some form or onboard strategic investors, at least the ones I’ve seen fall into these categories.
Given Balancer Labs just raised $24M to scale ops and grow the platform, I don’t think we need to sell more BAL to fund operations. A slew of high profile VC’s participated in the round so we’re covered there as well.
BTW, grants can be priced in USD or BAL - it’s up to the grantee. While they’ll still be paid in BAL, if they choose USD pricing the BAL amount will be adjusted as needed for each milestone payment and the grantee can simply market sell for USD. This is the plan for the new grants program anyway
Long term, best way to get a diversified treasury is through the protocol fee. I’ll be advocating for using the protocol fee to accumulate a treasury and re-invest the proceeds into balancer pools and other yield opportunities to compound our returns.
Balancer Labs is a separate entity to the DAO though. I’d say it’s important that the DAO has some stability in terms of its own ecosystem fund, so it can be more predictably deployed than a fund entirely denominated in BAL. With the grants program being professionalised by @LuukDAO, @tongnk, B labs and team, assuming its success, I think it’d be smart to look at scaling that further, both in terms of the max grant size and capital deployed.
There are lots of useful things people are asking for which it doesn’t make sense for Balancer Labs to build themselves, but that the DAO could get built with well managed + promoted grants & bounties.
Longer term than that, the idea is that Balancer Labs hands over everything to the DAO, at which point the DAO is going to need to have its own operation funds to hand. Of course the protocol fee is one way to build that, but that will need to be managed in some way too IMO. We wouldn’t want to have long term exposure to every single token traded on Balancer in the ratios they’re traded on Balancer.
Yep agree but I think the key point probably is that Balancer Labs is going to be the main contributor for a while until we figure out what the best route to decentralise is. And even then depending on what the team plans on doing with respect to decentralisation, there’s going to be a lot of stables there.
I’m not against treasury diversification, but it’s more we don’t know what to deploy them into right now
As we stand today Balancer’s warchest has been mentioned several times to be not a real issue going forward.
However, we are also seeing an increased focus on grants, contributor’s payouts and so on. UMA’s innovative Range Token could be an excellent solution to manage those operations that today are simply paid in BAL. I would be very much in favour of a pilot project introducing this product. Going forward, this could be the standard to finance DAO operations/contributions.
Another aspect I have thought about, lightly mentioned and which would fall into the idea of setting up a diversified treasury is how to make the weekly rewards of LM programs more efficient for us and how Balancer can benefit from them:
At the moment the LM committee decides in a totally arbitrary way (especially T3) which tokens/pools can have LM incentives. This is more evident on the Polygon front: we strike a deal with, let’s say QiDAO, they get great PR and community recognition for being listed on Balancer, the user gets double, sometimes triple rewards, but absurdly, Balancer takes the most risk with very little upside opportunity, if not downside (see ADDY).
I wonder if it is possible to set up a partnership program with nascent projects interested in our LM programs that are interested in “paying” Balancer with their native token, in exchange for a listing and associated medium/long-term LM program (I’m specifically thinking about Mimo and their PAR token and similar projects). This would increase treasury diversification, mitigate risk while creating long-lasting relationships with other communities, participate in their governance etc.
I really wanted to throw this out here and is more of a brainstorming exercise in the hope of having your feedback on its viability.
I definitely think the UMA options could be interesting, although to serve their purpose you’d probably want longer dated expiries than they’ve used for their own trial in my view.
To address the LM related comments:
I wouldn’t call it arbitrary, a lot of thought & work does go into it. The QI pool was designed the way it was so that people could easily re-deposit all of the tokens they received in rewards back into the pool & compound. Initially the QI contributed was a more significant % of the total rewards, but it has reduced because the price of their token has dropped significantly. It’s part of why we’re shifting it to T4 this week. The multi-asset pool was primarily a stop-gap before we had the stablepool ready to generate some early excitement on Polygon.
I don’t agree that the benefit was super one-sided for the QI partnership. Their community brought a huge amount of early activity to us, and many new users to our discord. While they benefit from being on Balancer, we also benefit from being seen as a “bluechip” willing to support a Polygon native project, among the Polygon community. The ADDY pool was never a partnership, but an index pool constructed.
I’m not sure why a protocol would pay us to be listed & receive BAL rewards. A project could just create a balancer pool and issue their own token as the reward, achieving the same? (This is what mimo are doing currently incidentally, we’re not providing them with any BAL, but they’re incentivising Balancer pools with their own token).
Hello. I represent the IndexCoop DAO and would be great to understand the latest thinking on this topic. Like discussed in this thread earlier, we at Index Coop believe its important for Treasuries do diversify and have an asset allocation strategy & Index has products that can help. Would be great to discuss and share ideas. Thanks
Hey @JC212, thanks for chiming in here. I’m a big fan of IndexCoop and think the asset management space in DeFi is going to blow us away with its size in a few years. We believe Balancer can be an alternative infrastructure layer for your indices alongside Set Protocol. I have chatted with Simon a couple times so it would be great to know if you are synced with him, and then we can continue our convo on cool stuff we could build together. I’m sure there is a ton to be done. Cheers!
I totally agree with this and have made a similar point in the past. As “older” tradfi members of the society start to dabble in defi they are going to most likely going to want something with a look and feel that they are used to, “where can I find a S&P500 like index replication”, “what are the bluechip tokens”. It is only a matter of time before financial planners of institutional wealth start whispering sweet nothings about returns possible in the defi space. Granted they are going to want to be as riskless as possible which is currently a little difficult to come by in this space, but these products are coming. A nice sleek and EASY index based platform is something this segment will be looking for.
Thanks @Fernando. I will touch base with Simon on the alternate infrastructure question. Although I suspect this will take some time as the Index Coop grows, matures and becomes more autonomous.
Thanks @zekraken. That is exactly what we are aspiring for at Index - to build the future blackrock of decentralized finance. Would be great to partner with Balancer and solve problems together. We have been working with several DAO’s who are on a similar path working with us towards treasury diversification.
