Karpatkey 2023 Review of the Balancer Treasury

Under BIP-103, karpatkey has been appointed as the Balancer DAO’s treasury management partner, tasked with executing yield-generating strategies, managing risks, and providing comprehensive reports.

However, karpatkey’s role has expanded beyond mere treasury management, significantly benefiting the Balancer ecosystem in various capacities. Since 2020, karpatkey has been a major liquidity provider in Balancer pools, playing an instrumental role in launching Balancer on the Gnosis Chain. We were also pivotal in managing the initial liquidity of these pools, along with other important contributions.

What follows is an in-depth review of our collaborative efforts with the Balancer DAO throughout the year 2023, highlighting the key initiatives and impacts of our partnership.

Treasury Management

Financial outcomes

The results since karpatkey took over the management of the Balancer treasury were:

  • Accumulated net revenue of $127k USD
  • An average Annual Percentage Yield (APY) of 2.28%

These results are net of fees, indicating the actual gain for Balancer DAO once all treasury management fees have been deducted.

According to the latest monthly report, which assesses the treasury’s performance in December 2023, the following key metrics were observed:

  • $7.13M of ncAUM (non-custodial assets under management)
  • 99.9% of capital utilisation
  • Projected net annual revenue of $247k
  • Projected APY of 3.52%

These figures will be updated with the forthcoming release of the January 2024 report.

Furthermore, as per the December report, the distribution of funds by investment categories can be seen in the following graph:

Also, according to the most recent report, the fund allocation across various investment positions was as follows:

Upcoming Initiatives

  • Continue to expand available strategies to enhance the performance of the treasury, increasing diversification and flexibility to adapt to a dynamic market.
  • Consider submitting a proposal to extend management to include positions involving BAL for yield generation, runway management, and quicker response to market events.
  • With the anticipated launch of Stakewise v3 on Gnosis Chain in Q2 2024, propose to BalancerDAO to transfer existing GNO holdings to the Safe managed by karpatkey for staking and yield accrual. This plan was detailed in a March 2023 forum post.
  • Develop an Accounting & Operations framework and tools to improve transparency in the financial state of the DAO and assist in managing daily operations.

Strategy & Execution

  • Utilised the Zodiac Module, specifically the Roles Modifier, for trust-minimised, non-custodial management of the treasury. This included launching a new Safe (Avatar) with a preset of permissions granted to another new Safe (Manager) owned by karpatkey, as per the initial investment plan.
  • Conducted comprehensive testing of the preset and provided detailed documentation to the Balancer DAO, outlining the specific permissions granted to karpatkey.
  • After an audit, transferred ownership of the Safe (Avatar) to the Balancer DAO by adding the same eleven owners from the BalancerDAO multisig and removing karpatkey’s ownership.
  • Following the approval of BIP-162, received funds and deployed the initial strategy. This involved diligent monitoring of positions, claiming rewards, and reinvesting for compounding benefits.
  • Introduced BIP-273 to make minor adjustments to the existing permissions, aiming to enhance their effectiveness.
  • Proposed BIP-442 and its revised version, BIP-473, to increase treasury flexibility and diversification capabilities, essential for adapting to a dynamic market.
  • Implemented Self Audits and a payload decoder for report generation to improve the community’s understanding of Manager Role preset updates and to streamline the auditing process. This effort was aimed at providing more transparent and comprehensible information, along with the necessary tools for effective implementation.

Future Roadmap

  • Enhance the preset update auditing process. Our objective is to provide a more intuitive visualisation of potential Zodiac preset changes before the execution of a proposed payload. We also aim to continuously improve the audit methodology and tools.
  • Roll out Zodiac Roles Mod v2. This update will enable more sophisticated filtering of encoded calldata, allowing for the scoping of contract functions with complex parameters and enhanced logic for more flexible permissions.
  • Closely monitor market developments and continuously explore opportunities for the Balancer treasury. Our focus is to ensure actions are in line with risk objectives and the long-term vision of the treasury, capitalising on new opportunities while adhering to strategic goals.

Risk Management

  • Developed a comprehensive risk assessment framework tailored specifically for the Balancer DAO treasury. This involved identifying key risk factors and outlining both preventive and mitigative strategies to safeguard the treasury’s assets.
  • In collaboration with specialist providers, we established an extensive monitoring system. This system is vigilantly focused on our investment portfolio and broader market trends, equipped to identify anomalies or significant events that might trigger emergency protocols.
  • Conducted strategic war-room sessions to proactively assess potential risks and formulate effective responses to unexpected market events. These sessions addressed various scenarios, including the USDC depeg event and the Curve exploit related to the Vyper compiler issue.

Upcoming Risk Management Initiatives

  • Strengthen the robustness of our risk management framework by:
    • Implementing new Zodiac Roles, such as the disassembler bot. This bot is engineered to autonomously withdraw liquidity from any position when specific pre-set criteria are met.
    • Enhancing the automation aspects of our emergency protocols to ensure faster and more efficient responses to changing market conditions.
    • Broadening and improving our alert system. This will be achieved by incorporating cutting-edge metrics and machine learning algorithms, as well as extending our monitoring capabilities to cover a wider range of scenarios and indicators.

Reporting

  • Consistently delivered weekly operational reports. In July 2023, we shifted to monthly web-based reports, introducing a range of new metrics specifically designed to align with the interests of the Balancer community.

Future Reporting Endeavours

  • Enhance the user experience of our reports by including more customised metrics, ensuring they are both informative and user-friendly.
  • Launch a real-time version of our web-based report

Other contributions

Balancer on Gnosis Chain

  • Led Balancer deployment on Gnosis Chain by working with the team to:
    • Create strategic pools and gauges
    • Provide initial liquidity
    • Solve oracle contingencies

Balancer’s TVL facilitated by karpatkey

  • As per the latest monthly report which covers the existing positions on December 2023, karpatkey was responsible for providing a considerable TVL when managing the funds of partnering DAOs as well as its own funds. Below is a table that showcases facilitated TVL by pool across Balancer (mainnet and Gnosis Chain) and Aura:
Position

TVL

agEUR/EURe

$ 3,752

AGVE/GNO-Unstaked

$ 377,494

auraBAL/B-80BAL-20WETH

$ 3,048,651

BAL-GNO-wstETH/WETH-WXDAI-Unstaked

$ 332,326

BAL/WETH/GNO/WXDAI-Unstaked

$ 548,946

COW/GNO

$ 3,661,548

COW/WETH

$ 312,328

EURe/sDAI

$ 515,523

EURe/staBAL3-Unstaked

$ 199,163

Locked AURA

$ 1,936,046

Locked B-80BAL-20WETH

$ 1,998,547

rETH/WETH

$ 13,007,020

sDAI/USDC/USDT

$ 1,212,811

sDAI/USDC/USDT-Unstaked

$ 3,015,375

sDAI/wstETH-Unstaked

$ 11,612,124

staBAL3

$ 1,000,310

staBAL3/wstETH-Unstaked

$ 4,657,678

Staked auraBAL Compounder

$ 4,976,634

stEUR/EURe-Unstaked

$ 484,208

wstETH/BAL/AURA-Unstaked

$ 1,062,378

wstETH/COW

$ 38,605

wstETH/COW-Unstaked

$ 501,211

wstETH/GNO-Unstaked

$ 16,486,505

wstETH/WETH

$ 4,435,465

wstETH/WETH (v2)

$ 1,230,366

wstETH/WETH-Unstaked

$ 5,607,072

Grand Total

$ 82,262,087

Thank you for entrusting us with this crucial role throughout 2023. We are committed to continuing our contributions and dedication in the coming year and beyond, with the aim of securing the long-term success of the Balancer DAO.

5 Likes

It is always a pleasure to read Karpatkey’s reports, which showcase transparent and professional DAO treasury management. I look forward to seeing the continued growth of the balancer DAO treasury throughout 2024 and am particularly interested in seeing BAL utilised in yield generations strategies.

A question of curiosity - Why is external DAO liquidity deposited on Balancer/Aura but not Balancer DAO treasury liquidity? Conflict of interest?

2 Likes

Hello @naly,

Thanks for your kind comments.
Balancer and Aura are not advisable options for yield generation, as it is counterproductive for the DAO to engage in farming its own protocol rewards. These incentives are designed to boost liquidity and should be exclusively allocated for that objective.

1 Like