[RFC] - Balancer DAO Financial Reporting

Abstract

We propose the establishment of a financial reporting system for Balancer DAO’s assets. This system will deliver insights into the DAO’s financial status, aiding strategic decision-making.

In the initial phase, we will offer analytics and insights into the treasury. Based on the DAO’s goals and community feedback, we will refine the system to align with the needs of the community and Maxis.

Motivation

Karpatkey has been serving as Balancer DAO’s treasury manager, aiming to help the DAO achieve sustainability. Understanding the DAO’s financial landscape is crucial for making informed business decisions.

Currently, there is no comprehensive method to effectively visualize the DAO’s dynamic financial positions. Available resources include:

  1. Karpatkey’s monthly reports on the Karpatkey-managed portion of the treasury.
  2. Defilytica’s balances of the DAO as a whole.

However, these resources do not offer an in-depth analysis of the DAO’s overall financial position over time or the flow of funds. Due to the protocol’s multi-chain nature, Balancer is unique in holding assets across various chains, including Mainnet, Arbitrum, and other L2s.

Therefore, Karpatkey proposes building and maintaining a financial system for the DAO Treasury. This system will facilitate Balancer’s integration with GAAP (Generally Accepted Accounting Principles) and enable the DAO to better understand its finances, leading to more informed decision-making.

Specification

Based on GAAP, every transaction since the DAO’s inception would be reviewed and categorized with specific labels (e.g., “Fjord LBP”) and categories (e.g., “Operating revenue”).

The categorized transactions would then be refined into the following information:

  • Balance statement (i.e., Initial vs. Final Balances and USD conversions).
  • Fund flow analysis.
  • Expenses breakdown (e.g., by Service Providers, Payroll, etc.).
  • Income breakdown (e.g., Swap & Yield fees, Fjord LBP, L2 fee, etc.).
  • Cash flow forecasting (TBD).

The reports will eventually be available on an interactive website, where users can filter and sort based on the desired timeframe for analysis. Until a satisfactory UI is developed, the reports will be delivered in PDF format.

Illustrations of the proposed outcomes can be seen in the following links:

Other concomitant responsibilities will include:

  • Integrating the bal_addresses repo for automatic indexing of all on-chain transactions in alignment with the DAO’s labels.
  • Reviewing the efficiency of the DAO’s financial structure and publishing findings/recommendations to optimize expenses, operational results, and treasury management.
  • Communicating with and supporting Balancer DAO to ensure the system can ultimately be used as a source of truth for potential taxes, legal, accounting, and other inquiries:
    • Conducting workshops with the Maxis to incorporate custom/technical details into the system.
    • Assisting future service providers, legal teams, and accountants in utilizing the system’s data and structure.

Budget

We propose a one-time grant of USD 20,000, fully payable in BAL, to Karpatkey for developing the financial reporting system. Additionally, we propose a quarterly fee of USD 6,000, also fully payable in BAL, for maintaining the system, providing monthly reports, and publishing findings and recommendations. For the one-time grant, the amount of BAL to be disbursed will be determined based on the 90-day moving average price of BAL on the payment date. For the quarterly fees, the amount of BAL to be disbursed will be determined based on the 90-day moving average price of BAL on the last day of the third month of each quarter.

Furthermore, Karpatkey pledges to lock each payment in the veBAL contract for at least one year from the moment it is received in Karpatkey’s wallet.

Next steps

We encourage the community to review and provide feedback on this proposal. Our goal is to develop a comprehensive and useful toolkit for the DAO and its community to leverage for gaining deeper insights into the DAO’s finances.

Below are the suggested future steps and timeline:

  1. Conduct a temp-check and review suggestions/feedback from the Balancer community.
  2. Collaborate with the Balancer Product team/Maxis to validate tags, labels, and other technical aspects of the system.
  3. Generate financial reports in PDF format on a monthly basis.
  4. Build and conduct user testing of the interactive UI.
  5. Present the demo UI/product to the community for final feedback.
  6. Deliver the UI and commence maintenance.

Termination

Balancer may terminate Karpatkey DAO’s engagement under this agreement for any reason through its Governance Mechanism. Karpatkey DAO may terminate this agreement upon four weeks’ notice, posted as a new discussion thread in the Balancer forum. If the termination is requested by Balancer without at least a four-week notice, Karpatkey DAO will be granted an exit fee equal to the fees collected during the last two months, which will be paid in ETH. Regular fees will be collected until the day of termination.

3 Likes

I have been advising @karpatkey in building out the first POC / UI demo described above. I am generally impressed and fully support this project for the following reasons:

  • as our treasury manager, @karpatkey already has the needed knowledge and context to create meaningful insights
  • DAO contributors summarized financial performance in quarterly reports based on data from sources like dune and Balancer Analytics with sufficient accuracy but that approach was always error prone and cumbersome. This approach fully indexes all activity on-chain and is automated
  • The reports will aid us greatly in analyzing the DAOs overall financial performance

I also like that the funding request is in BAL. It would be interesting to know if the received BAL will be locked? As an alternative, funding could also go through grants (cc @burns)?

4 Likes

Full support.

The Balancer Foundation would rather take care of bookkeeping for the DAO, but having Karpatkey as a facilitator and service provider to such on-chain related accounting will only benefit our decentralization and strengthen the DAO, protecting it against jurisdiction overreach.

I’d only advise to add to the proposal there will be a service agreement signed between both entities, mimicking governance resolution.

3 Likes

Thank you for your comments @Xeonus and @0xDanko.

karpatkey pledges to lock each payment for at least one year from the moment it is received.

2 Likes