dYdX Treasury SubDAO Proposal

Treasury
1

Outline

Summary
Overview
Motivation
Specification

Summary

This proposal outlines a collaboration between karpatkey and dYdX, focused on managing the dYdX Community Treasury.

If approved, karpatkey will set up a Cayman Foundation to manage ~40M DYDX tokens from the Community Treasury. The treasury will gradually diversify by accumulating stablecoins through validator staking, helping to further secure the dYdX Chain. Two potential scope extensions include periodically using USDC to execute DYDX token buybacks and staking, and deploying USDC across DeFi protocols to generate additional yield for the treasury.

The staking program will be designed to drive both treasury sustainability and ecosystem growth. dYdX Chain validators will be delegated DYDX from the Community Treasury and will benefit from their respective validator commission.

karpatkey will request a 5% fee on the net (after validator fees) staking yield payable in USDC with a lower bound of $300k per year and an upper bound of $1M per year.

dYdX DAO retains the right to terminate this agreement through its governance mechanism.

Overview

About the dYdX Protocol

dYdX is a leading DeFi protocol focused on advanced trading. The dYdX Chain enables a trading experience that parallels centralised exchanges while allowing traders to maintain full custody of their funds onchain. The chain utilises a fully decentralised, off-chain order book and matching engine, secured by a diverse set of validators.

The protocol is governed by its community through the DYDX token. The dYdX DAO recently voted to form and fund two SubDAOs: the dYdX Ecosystem Development Program and the dYdX Operations SubDAO. The DAO is expected to continue expanding by adding more SubDAOs that each work on core functional areas of the protocol.

About the dYdX Community Treasury

The current value of the dYdX Community Treasury is $95M, comprised of 84.8M vested DYDX tokens and 19.4M vested stDYDX. Additionally, the Community Vester holds roughly 121.8M unvested DYDX tokens, with a value of $110M at current prices. These will continuously vest to the Community Treasury at a rate of ~2.04 DYDX/second through August 3, 2026.

About karpatkey

Founded in 2020, karpatkey is a DeFi-native organisation specialising in onchain finance. We help our partners grow their operations, deploy liquidity, and invest prudently for the long-term success and sustainability of their organisations.

karpatkey is the market leader in non-custodial asset management, working with many leading DAOs, including GnosisDAO, Balancer, ENS, CoW Protocol, Aave, SAFE, Arbitrum, Uniswap, and Lido. The total value of our partner treasuries exceeds $2.1B, and we currently manage over $1B in non-custodial AUM. To date, karpatkey has executed over 9,000 DeFi transactions for multiple partners with zero security incidents.

We focus on supporting our partners through the various stages of their growth. We have helped ecosystem strengthening through GNO large-scale buybacks, contributed to GHO’s growth to over $100M market cap, forecasted Balancer’s OpEx, managed the ENS endowment, served as a committee member for the Arbitrum Stable Endowment Program, and analysed the Uniswap Treasury as part of the Uniswap Treasury Working Group. We have produced research reports for the dYdX Foundation, and closely followed the evolution of the protocol since its inception.

Motivation

The dYdX Community Treasury is one of the largest in the industry, based on dollar value. However, the treasury is limited to a single asset type, namely the DYDX token and its liquid-staked version. This dependency on a single asset type introduces volatility and concentration risks that greatly impact the overall value of the treasury. Furthermore, the productive use of treasury assets in module accounts accessible through dYdX Chain governance faces uncertain legal and tax risks.

For these reasons, the dYdX Foundation has begun a dialogue on the present and future trajectory of the dYdX Community Treasury, including the formation of a Treasury SubDAO managed by a professional service provider.

Because of our extensive experience managing some of the largest and most complex DAO treasuries, we believe we can meaningfully contribute to dYdX’s mission.

Specification

This proposal outlines the initial scope of a strategic collaboration between karpatkey and dYdX to enhance the DAO’s financial sustainability and improve the treasury’s capital efficiency.

Within the scope of the current engagement, karpatkey will develop and set up the relevant legal and Cosmos-specific technical infrastructure required to perform the below-listed activities effectively. This includes bootstrapping a Cayman Foundation as a legal wrapper for the Treasury SubDAO. karpatkey will subsidise the costs associated with the initial setup of the Treasury SubDAO and Cayman Foundation infrastructure as a signal of our long-term commitment to the dYdX community.

The key initiatives of this collaboration include:

  • Staking program. Designing a transparent validator staking program to enable the Community Treasury to contribute to securing the dYdX Chain and increasing the share of stablecoins in the Treasury.
    karpatkey proposes staking DYDX tokens from the Community Treasury through validators. dYdX Chain validators will be delegated DYDX from the Community Treasury and will benefit from their respective validator commission. We will encourage a healthy validators ecosystem while redistributing DYDX tokens (e.g. prioritising competitively priced validators).

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  • Treasury Management. karpatkey recommends allocating ~50% of the vested DYDX tokens (approx. 40M) in the Community Treasury to the staking program. We believe this to be a good balance between decentralisation and generating non-operating revenues for the treasury.
    This will enable the allocated funds to generate USDC-denominated yield, simultaneously growing the treasury and diversifying its composition.
    More on the expected outcomes below.

  • Financial planning. Supporting the DAO in forecasting and optimising expenses and suggesting non-operating revenue streams to ensure the buildup of USDC reserves with a long-term target of reaching 18 months of secured runway.
    Here is an example of our previous work on forecasting Balancer’s OpEx.

  • Reporting. We will provide detailed and timely reports on dYdX Treasury’s asset allocation and performance, including relevant expense forecasts.
    Other than our traditional reporting system, karpatkey will develop and set up Cosmos-specific reporting to maximise transparency and visibility of the treasury management activities performed within the Cosmos ecosystem.

We are ready to offer two optional elements to the dYdX community that will be subject to separate follow-on proposal/s, shall the current one be successful.

  • [Optional] karpatkey recommends leveraging the USDC accumulated through the staking program in DeFi strategies to grow the treasury further. karpatkey only interacts with renowned and battle-tested DeFi protocols to minimise risks (e.g. technological, market, or governance risks). The USDC tokens generated from the staking program will be allocated to DeFi strategies on Ethereum mainnet (e.g. lending stablecoins in AAVE, or USDC liquidity provision in Balancer). Protocols in the dYdX Chain or Cosmos ecosystem will also be considered as they become available. This approach will generate further returns without adding exposure to volatile assets.

  • [Optional] karpatkey can operationalise the deployment of a portion of the USDC accumulated through the staking program towards buybacks of the DYDX token in the open market, followed by staking of such tokens. Such an initiative could return value generated by the dYdX network to holders of the DYDX token by reducing the token’s circulating supply.

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To summarise, we are presenting the dYdX community with a proposal to offer a Staking Program, Treasury Management, Financial Planning and Reporting. Optional services of DeFi Strategies and Buybacks will be subject to a follow-on proposal, conditionally to the current proposal being accepted.

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Expected outcome

karpatkey aims to allocate assets within the dYdX ecosystem to ensure long-term sustainability and foster growth. To drive ecosystem growth, the DYDX tokens in the Community Treasury will be staked with external staking providers (existing and potentially new).

The average reward the dYdX network has paid out to stakers throughout 2024 is 16.8%. The staking program would increase the amount of staked dYdX by ~16%, reducing network yield. Using the current asset-weighted average validator fee on the network of 10% (excluding Santorini as an outlier with a 100% fee), we expect a net contribution to the treasury of 4.8M USDC per year. Our DYDX price assumption is $0.99, the 30-day moving average price.

The main priority will be diversification of the dYdX treasury to build sufficient runway and resilience to survive market downturns by reducing long-tail asset exposure.

Fee structure

karpatkey will subsidise the costs associated with the initial setup of the Treasury SubDAO and Cayman Foundation infrastructure as a signal of our long-term commitment to the dYdX community.

For the services included in this proposal (setup of the staking program, treasury management, financial planning, reporting), karpatkey requests a 5% service fee on the net (after the validator fees) yield generated under the Staking Program to be paid in USDC. To accommodate for the volatile nature of crypto markets, we introduce the following bands to our fee:

  • Minimum fee of $300K per year
  • Maximum fee of $1M per year

[EDIT] To clarify, currently, karpatkey will request $300k per year, as the 5% fee currently equates to approx. $250k. This will remain at the minimum until substantial growth in the dYdX ecosystem is achieved.

The optional elements will be subject to separate follow-on proposals with their own respective pricing.

Termination

dYdX DAO may terminate the engagement under this agreement for any reason by its Governance Mechanism. It may do so at any time after the first 12 months. karpatkey DAO may terminate this agreement upon four weeks’ notice posted as a new discussion thread in the dYdX’s forum. Regular fees will be collected until the day of termination.

[EDIT] Based on community feedback, we are clarifying two elements of this proposal:

  • the operations of the Treasury SubDAO are designed to serve and support the dYdX ecosystem. Consequently, we welcome community participation and collaboration with other dYdX SubDAOs.

  • the Treasury SubDAO will be able to tap into a large set of skills and expertise. A dedicated team covering treasury, risk and data will be set up for the dYdX ecosystem and led by an experienced Treasury Management Lead.
    The karpatkey organisation will be available to support this endeavour with 20+ professionals specialised in relevant topics (treasury management, governance, risk management and TM infrastructure development) as well as its larger karpatkey team (legal, BD & growth, capital raising, M&A and VC, among other areas).

Community AMA

Join us for an AMA with the dYdX Foundation to discuss our proposal on Thursday, September 19th, 3 pm UTC, on the dYdX Foundation Twitter Spaces.

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when comparing the two submitted proposals, the one by Steakhouse and this one by Karpatkey, despite the similarities in how they both plan to allocate funds, I find Karpatkey’s proposal to be more clearly and elegantly presented. The information is laid out in a way that is clear and easy to follow, making it accessible to all members of the community, regardless of their comfort with numbers or accounting

at the current staking yield, Karpatkey is projected to earn a minimum of $25k per month, with a maximum cap of approximately $85k per month. Given that the yield is at an all-time low and may stay that way for some time, I consider the $25k payment to be reasonable and fair. If the protocol performs well, the fees will increase as well, with a $85k cap which serves as an effective safeguard. This ensures there is a limit, preventing any future conflicts if the protocol experiences significant growth which I think we all expect to happen at some point

great gesture as well to finance the initial setup of the Cayman Foundation and cover all related costs. I believe this shows a strong commitment to the project’s future and a clear intention to grow alongside the protocol

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At Govmos, we have already presented our welcoming support to the creation of a Treasury subDAO which is perfecly suited to answer the present and future prospects of the dYdX chain. To this day we have received two propositions in this forum. To present a balanced comparison, we’ll focus on their respective strengths, keeping the evaluation nuanced and leaving room for everyone’s subjective preference.

We currently stand with no preference towards one or the other, we simply noted some key differences in their designs and vision. To share these findings with the broader community, we will break down our comparison into separate categories.

1. Structure of the Treasury DAO

  • Karpatkey Proposal: Karpatkey presents a detailed structure based on their experience managing other DAOs, proposing to bring their expertise to dYdX. As they state, “The Karpatkey team proposes to establish a Treasury SubDAO to manage the dYdX Treasury. The team has extensive experience in managing DeFi treasuries, including with Gnosis and others.” This highlights a professional, scalable structure that emphasizes operational clarity.
  • StakeHouse Proposal: StakeHouse also proposes a solid framework but places more emphasis on a community-led model. They note, “Our goal is to create a more decentralized structure, allowing the community to have a significant role in decision-making.” This model favors an adaptable structure, allowing for flexibility as the treasury grows and evolves.

Comparison: Both proposals offer strong structural frameworks. Karpatkey brings in a tried-and-tested approach, while StakeHouse promotes a decentralized, community-driven model that leaves room for adaptability.

2. Governance Approach

  • Karpatkey Proposal: Karpatkey aims to balance decentralization with professional support. As outlined in their proposal, “The governance of the Treasury SubDAO will be decentralized, but Karpatkey will provide operational and strategic support.” This suggests a governance system that seeks efficiency while maintaining community involvement.
  • StakeHouse Proposal: Governance in StakeHouse’s proposal is more explicitly community-driven. They highlight “a hands-on approach for the dYdX community, ensuring all major decisions are made in a decentralized manner,” giving token holders a more direct role in managing the treasury.

Comparison: Karpatkey offers a hybrid model with professional oversight, while StakeHouse focuses on empowering the community in governance decisions, which may appeal to those favoring a decentralized ethos.

3. Risk Management

  • Karpatkey Proposal: Risk management is a cornerstone of Karpatkey’s proposal, where they emphasize “robust risk management strategies, including diversified treasury allocations.” Their experience in other DeFi projects suggests they have a clear framework for protecting treasury assets.
  • StakeHouse Proposal: StakeHouse also highlights risk management but takes a more flexible approach. They mention “adapting risk strategies based on market conditions and community input,” allowing the community to play a role in shaping the treasury’s risk profile.

Comparison: Karpatkey’s approach is more structured, drawing from their experience in treasury management, while StakeHouse offers flexibility and community involvement, which could lead to more innovative strategies depending on the community’s risk appetite.

4. Transparency and Accountability

  • Karpatkey Proposal: Karpatkey places significant emphasis on transparency, committing to “regular reports and external audits to ensure accountability.” This structured reporting ensures that the community remains informed and that operations remain transparent.
  • StakeHouse Proposal: StakeHouse also prioritizes transparency but leans more toward community oversight. They suggest “open reporting to the community, with all financial operations visible on-chain,” allowing the community to monitor activities directly.

Comparison: Both proposals highlight transparency as a priority. Karpatkey’s use of external audits adds a professional layer, while StakeHouse’s on-chain, community-monitored approach offers a more decentralized method of ensuring accountability.

5. Long-Term Sustainability

  • Karpatkey Proposal: Karpatkey’s focus on long-term sustainability is evident in their detailed roadmap for treasury growth. They emphasize “stable, risk-adjusted returns over time,” with clear mechanisms to ensure the treasury’s growth while minimizing risk exposure.
  • StakeHouse Proposal: StakeHouse also aims for sustainability but takes a more adaptable approach. They propose “adjusting strategies as the market evolves,” allowing the community to decide on shifts in the treasury’s strategy as needed.

Comparison: Karpatkey offers a more fixed, methodical approach to sustainability, while StakeHouse allows for greater flexibility, letting the community adapt strategies in response to changing market conditions.

6. Financial Proposition and Fee Mechanisms

  • Karpatkey Proposal: Karpatkey proposes a 5% service fee on the net yield generated under the staking program, to be paid in USDC. They also introduce a minimum fee of $300K per year and a maximum fee of $1M per year, accommodating the volatile nature of crypto markets. Additionally, they state that Karpatkey will subsidize the initial setup costs for the Treasury SubDAO and Cayman Foundation infrastructure as a signal of their long-term commitment to the dYdX community. Optional elements will be subject to separate proposals with their own respective pricing.
  • StakeHouse Proposal: The StakeHouse proposal does not specify a fee structure in their current submission. This leaves the financial compensation model for their services open for future clarification or further proposals.

Comparison: Karpatkey’s proposal offers clear financial terms, which provides transparency and predictability for the dYdX community. In contrast, StakeHouse’s proposal does not include fee details, which could invite further discussion or follow-up clarification about the cost structure for their services.

7. Treasury Funds Allocation and Seeding Mechanisms

  • Karpatkey Proposal: Karpatkey proposes a methodical approach to seeding and growing the treasury by focusing on staking as the primary mechanism for yield generation. They emphasize setting up a Staking Program for the dYdX treasury, where treasury funds will be allocated to staked assets to generate yield. As noted in their proposal, “Our focus is on implementing a staking program that will diversify risk and generate sustainable yield for the dYdX treasury.” This approach indicates a reliance on staking as the central strategy for treasury growth, which comes with predictable returns, especially under market conditions favorable to staked assets.
  • StakeHouse Proposal: StakeHouse takes a different route, proposing to “explore a fundamental change in the tokenomics” suggesting that treasury funds could seeded directly from the protocol revenues, essentially proposing to redirect a share of the revenue toward the treasury account and subsequently reduce the current allocation to stakers.

Comparison: Karpatkey’s approach is more focused on staking as the primary mechanism for seeding and growing the treasury, which offers stability and predictability but may be more conservative. StakeHouse, on the other hand, suggests a community lead initiative to reform tokenomics and reward distribution.

Conclusion: Balanced Insights

Both Karpatkey and StakeHouse present compelling proposals for the dYdX Treasury SubDAO, each with its own strengths. Karpatkey brings a wealth of experience and a structured, risk-conscious approach that many may find reassuring, especially in terms of governance, risk management, and transparency. Their methodical approach offers stability and predictability, ideal for those looking for steady long-term growth and a well rounded plan.

StakeHouse, on the other hand, advocates for a community-centric model that emphasizes flexibility, decentralization, and performance-based incentives. Their focus on community decision-making and adaptability could attract those who prioritize decentralization and dynamic strategies that evolve with market conditions.

Ultimately, both proposals offer well-considered frameworks for managing the dYdX treasury, one significant difference resides in the choices to seed the program. Despite this design difference, the choice may come down to whether the community prefers a more professionalized, structured approach or a collaborative and adaptive model that encourages direct participation.

At present, our designated validator, (PRO Delegators), is expected to abstain from choosing one candidature over the other. We incline to let our delegators cast their own vote instead. This post is specifically designed to help them do it with the necessary information.

Hoping that our review will help every token holder making a well advised decision when the time comes, we thank you for reading this extensive post.
Govmos.
pro-delegators-sign

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It’s interesting to reflect on which metrics we should aim to maximize for treasury management. Let’s try to carry out this analysis regarding the proposals received

For treasury management, there are several key metrics that we should consider maximizing to ensure efficient administration. These metrics can guide us in decision-making regarding the proposals received. Below are some of the most relevant:

  1. Operational liquidity: It is crucial to maximize the available liquidity to cover short-term financial commitments without resorting to costly financing. A high liquidity ratio (current ratio or quick ratio) indicates that the company has sufficient resources to meet its obligations, ensuring operational continuity and reducing the need for external financing.
  2. Return on cash reserves: Maximizing the returns on idle cash reserves is essential to generate additional revenue. Strategies like short-term investments or interest-bearing accounts can enhance the profitability of cash holdings.
  3. Debt coverage ratio: Ensuring that the company can comfortably cover its debt obligations is key. Maximizing this ratio through strong cash flow management can reduce the risk of default and maintain a good credit standing.

By focusing on these metrics, the company can ensure optimal use of its financial resources and maintain a solid financial position, especially when evaluating the proposals received. Delegating treasury management to a financial company can be an effective strategy to optimize cash administration and reduce the internal operational burden. However, it is crucial to thoroughly evaluate the financial company’s offer to ensure it aligns with the organization’s objectives and needs.

Key Points to Evaluate in a Potential Offer

  1. Experience and Reputation of the Provider

We are facing two offers from the most reputable teams in treasury management in DAOs. I believe that, in any case, it will be an excellent decision to have their support, and we should not even rule out the possibility of involving both teams to provide support in different areas of the project.

Karpatkey is a company specializing in non-custodial asset management, working with several prominent DAOs, including GnosisDAO, Balancer, ENS, CoW Protocol, Aave, SAFE, Arbitrum, Uniswap, and Lido. The total value of the partner treasuries exceeds $2.1B, and they currently manage over $1B in non-custodial assets under management (AUM). To date, Karpatkey has successfully executed over 9,000 DeFi transactions for multiple partners with no security incidents.

SteakHouse Steakhouse Financial is a boutique advisory firm that provides financial consulting services to a variety of DAOs, Stablecoins, and other crypto projects. Steakhouse helps organizations harness the power of public blockchains by designing on-chain financial infrastructure, creating blockchain-based financial reporting, and providing strategic advisory services tailored to the needs of the client.

Opinion

It would be interesting to have presentations on the performance data of both projects and their expectations for the dYdX treasury. Another important topic is the relationships they can establish with other protocols. For example, the relationship with MakerDAO could add significant value by allowing the protocol to consider using DAI as a stablecoin, which could provide an additional revenue stream. Based on the information provided, we could note that Karpatkey has shared more details about their operations with other treasuries, while Stakehouse seems particularly strong in providing advisory on the financial strategy for the project. It is indeed difficult to form an opinion on two highly reputable actors, but the foundation should evaluate which one best fits the current needs of the project. It would be important to review the cybersecurity measures they have implemented to ensure the confidentiality and security of financial information.

Costs and Fee Structure

Karpatkey

karpatkey will request a 5% fee on the net (after validator fees) staking yield payable in USDC with a lower bound of $300k per year and an upper bound of $1M per year.

SteakHouse

We are requesting $62.5K in DYDX per month, $750K annualized (calculated as the 30-day TWAP as of the final day of the month) of funding from the dYdX Chain community treasury

Opinion

Analyzing the cost independently doesn’t make much sense, as it ultimately depends on the results achieved. In this regard, I think it’s valuable that the offers include a component tied to the results obtained, which allows for variable costs based on the goals reached. One way to align these commitments would be for the payment to be made to dYdX with a fixed number of tokens, which I believe aligns the common goal of creating value for the project. The costs they have shared seem reasonable for the financial capacity of the project.

In this regard, karpatkey´s offer is more aligned with performance. However, it’s a performance based on the treasury, which certainly makes sense as it is fundamentally their responsibility, but I think it would be interesting to link it to the Token price to better align it with the overall interest of the project.

Returns and Investment Policies

Karpatkey

The average reward the dYdX network has paid out to stakers throughout 2024 is 16.8%. The staking program would increase the amount of staked dYdX by ~16%, reducing network yield. Using the current asset-weighted average validator fee on the network of 10% (excluding Santorini as an outlier with a 100% fee), we expect a net contribution to the treasury of 4.8M USDC per year. Our DYDX price assumption is $0.99, the 30-day moving average price.

SteakHouse

Earn yield on the DYDX diversified out of the community treasury

  • Due diligence opportunities
  • Provide allocation options and recommendations to the community
  • Develop transparent treasury reporting to provide visibility to performance
  • Monitor allocations and partner with the community to make adjustments as needed

Opinion

It is important to provide stability to the company by building a treasury that does not put pressure on the token price during its lowest valuation moments. However, it is crucial to understand that the resources must primarily be employed to help the project grow. This is a complex balance, but necessary to ensure the project’s stability. I believe it would be valuable to have independent financial advisory to assess the expenses in each area and evaluate their efficiency. The project could greatly benefit from this type of consultancy.

Debt coverage ratio

It is not common to talk about debt in a protocol, although I think it would be interesting to know the opinion of both providers on the matter. There is the possibility of using lending protocols with dYdX tokens to access capital both for the company’s operations and to arbitrage interest rates without the need to sell tokens. In this sense, it would be a concept similar to corporate debt, though with a significant risk related to liquidations, something that does not occur in traditional debt environments. This approach would allow for access to capital at a very efficient interest rate and provide the opportunity to generate external returns for the project. Ultimately, the returns obtained through staking would reduce the need to remunerate staking providers.

Conclusions

It would be interesting to have a call with both providers, where we could ask additional questions and make a more informed voting decision. In any case, I believe that working with either of the two providers would bring significant value to the project, especially in such a critical moment. In this regard, I think we should ask them for an additional effort in terms of fixed costs, which could be compensated based on the results of bringing the project back into a growth phase.

It is also important that technical effort decisions receive input from the financial side in order to prioritize, whenever possible, those efforts that can provide more financial resources and therefore be more efficient.

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Will the selection process be exactly the same as before? and will it be publish ahead of time so that validators have time to prepare and present all the various value adds we bring to the table?

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Would it not be most beneficial to deploy the USDC yield into dYdX upcoming MegaVault

This way it earns a yield whilst providing liquidity into the dYdX orderbooks, increasing dYdX potential

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Hey,

Can you outline the expected costs and time commitments for managing the 40m dYdX and yield generated from it?

At the bottom range of 300k a year (Which at current price and APR you are not getting to btw (0,05 * 10% apr * 40m * ~$1 = $200k) you seem to estimate roughly 3000 hours of work at $100 an hour (not accounting for costs) which is ~1.5FTE, at the higher range (1m USD) this goes to ~5FTE. It would be great to be able to compare these numbers against your estimates.

Additionally, staking is a very simple management strategy and performance is wholly out of your control, why do you believe a performance fee to make most sense?

best.
Ertemann
Lavender.Five Nodes

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The selection process will be transparent and ultimately incentivise and reward the “good validator” behaviour.
We have already started collecting suggestions from validators on what elements to consider when selecting validators for the staking program. And we welcome anyone to reach out with suggestions or questions. The goal is to build together a solid staking program that supports the dYdX ecosystem.
All the details will be published in the forum.

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The staking of Community Pool funds by the treasury subDAO will further reduce the APR for existing delegators.

A decline in APR directly correlates with a decrease in the token’s value.

It is necessary to clearly explain how diverting profits, which would otherwise go to delegators, to the Treasury subDAO and Validator serves to enhance the long-term value of the dYdX token.

From the perspective of a Validator who benefits from receiving delegations, this is advantageous; however, this is not the case from a delegator’s standpoint.

I am in favor of establishing a Treasury SubDAO to make effective use of the funds, but such a move requires a well-thought-out strategy. Simply stating that the funds will be staked with a validator will not satisfy the community.

What is crucial is whether there is an entity capable of managing the assets of the SubDAO with true leadership.

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As stated in the proposal, protocols and initiatives on the dYdX ecosystem will also be considered as they become available. This includes MegaVault.

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The Treasury SubDAO will be able to tap into a large set of skills and expertise. A dedicated team covering treasury, risk and data will be set up for the dYdX ecosystem and led by an experienced Treasury Management Lead.
Based on our experience managing large DAO treasuries (the total value of our partner treasuries exceeds $2.1B, and we currently manage over $1B in non-custodial AUM), we believe a mix of skills is needed to support projects in various stages of their growth. Our ultimate goal is to support DAOs in perpetuity.
For this reason, the karpatkey organisation will be available to support this endeavour with 20+ professionals specialised in relevant topics (treasury management, governance, risk management and TM infrastructure development) as well as its larger team (legal, BD & growth, capital raising, M&A and VC, among other areas).

We carefully select the projects we work with, and we fully believe in dYdX’s growth potential. Setting a variable (%) fee incentivises us to go above and beyond for the network of projects we serve.

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At karpatkey, we have extensive experience managing large DAO treasuries - the total value of our partner treasuries exceeds $2.1B, and we currently manage over $1B in non-custodial AUM. Our network of partner DAOs includes GnosisDAO, Balancer, ENS, CoW Protocol, Aave, SAFE, Arbitrum, Uniswap, and Lido.

You can learn more about our contributions here and read our reports here. Happy to answer any additional questions you may have on karpatkey.

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Community AMA

Join us for an AMA with the dYdX Foundation to discuss our proposal on Thursday, September 19th, 3 pm UTC, on the dYdX Foundation Twitter Spaces.

We hope to see you there!

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I get all of this, but it doesnt really answer my question.

Can you be more specific about how many hours your team will need to spend to manage the treasury and subDao setup?

best,
Ertemann

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Hello Karpatkey Team! I’m from TTT VN Validator (also known as TTT Labs), and we have a few comments as follows:

If the proposal is approved and your team manages 40,000,000 DYDX tokens, do you have a detailed validator delegation policy? Or will you operate a new validator and stake all these tokens? If you do plan to stake, could you please share your detailed allocation plans? We are very keen to contribute and dedicate more to the current dYdX chain and continue to do so in the near future.

I see that your team “Karpatkey” wants to request a fee of 5% on the net staking yield of the 40 million DYDX tokens (after deducting validator fees) paid in USDC with a minimum of 300,000 USDC per year and a maximum of 1,000,000 USDC.

Before the 40,000,000 DYDX tokens participate in staking:

  • 236,614,851 DYDX tokens are locked, and the trading fees generated are approximately 1,521,798 USDC.

After the 40,000,000 DYDX tokens participate in staking:

  • 276,614,851 DYDX tokens are locked, but the trading fees generated remain approximately 1,521,798 USDC (assuming no change in trading volume). This means that with the additional 40,000,000 DYDX tokens, the revenue generated is only around 220,060 USDC per month. So, is it reasonable to spend such an amount on the management fee to “Karpatkey”? This would be approximately 11.36% of the total revenue generated by locking 40,000,000 DYDX.

The following scenarios could occur:

Scenario 1: If the trading volume on the DEX remains unchanged: The 5% fee on the revenue generated by locking 40 million DYDX would be 220,060 USDC = 11,003 USDC, which is insufficient, and the minimum fee of 25,000 USDC/month to Karpatkey would be applied.

Scenario 2: If the trading volume on the DEX doubles: The 5% fee on the revenue generated by locking 40 million DYDX would be 440,120 USDC = 22,006 USDC, which is still insufficient, and the minimum fee of 25,000 USDC/month to Karpatkey would be applied.

Scenario 3: If the trading volume on the DEX decreases by 50%: The 5% fee on the revenue generated by locking 40 million DYDX would be 110,030 USDC = 5,501 USDC, which is insufficient, and the minimum fee of 25,000 USDC/month to Karpatkey would be applied.

Scenario n: …

Therefore, it is necessary to find solutions to stimulate trading volume on the dYdX protocol. The more DYDX tokens are locked, without an increase in trading volume, the less incentive there will be for stakers, and they may leave the platform.

Of course, if trading volume increases significantly, more trading fees will be generated, and stakers will receive more rewards. This is the ideal scenario, but the worst-case scenario could also happen in the future.

So, what value does the Karpatkey team bring to the dYdX chain, stakers, and validators? Could you provide more details?

Note:

  • Assumed validator fees are based on the average fee of 60 validators, approximately 7.71%.
  • The trading volume on the dYdX DEX is calculated from August 20 to September 19, 2024 (around $9,078,312,681/month), which is the period with the lowest trading volume on the dYdX DEX.

The current staking yield of DYDX tokens is too low because the DEX trading volume is declining significantly, with only around 1,521,798 USDC generated from trading volume between August 20 and September 19.

The more DYDX staked on the chain without an increase in trading volume, the less USDC stakers will earn. Currently, 236,614,851 DYDX are locked in 60 validators, and last month, after deducting all fees, these 60 validators generated approximately 1,521,798 USDC.

The issue for dYdX is to stimulate increased trading volume and make the DEX more widely known. Our team, Validator TTT VN (or TTT Labs), would like to discuss this with Karpatkey, other validators, stakers, and OGs.

Thank you very much!

4o

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As mentioned, the Treasury SubDAO can tap into many skills and expertise. Because of the nature of this initiative, we believe this is a key strength karpatkey provides to the Treasury SubDAO.

Our approach to treasury management goes far beyond simple staking strategies. We offer a comprehensive suite of services that contribute to the long-term sustainability and growth of the dYdX ecosystem.

For the scope of the current proposal:

  • initially, our in-house legal team will lead this effort, focusing on the set-up of a Cayman Foundation and related initial bootstrap activities;

  • in parallel, our in-house tech team will prepare all of the required pieces of infrastructure (e.g. the SubDAO structure, reporting engine, etc);

  • a dedicated team covering treasury, risk and data will be set up for the dYdX ecosystem and led by an experienced Treasury Management Lead. This team will be dedicated to the design of the staking program and related selection process for onboarding validators, followed by its execution. Additionally, this team will take care of treasury management, financial planning and reporting activities.

karpatkey is fully equipped to expand or revise the scope in line with the future evolutions of the dYdX project and ecosystem.

It’s important to note that our team’s involvement isn’t measured in simple hours worked, but in the value we create through our expertise, network, and dedication to the project. Our model allows dYdX to access a diverse team of experts across various domains.

While some professions often bill by the hour, the nature of crypto treasury management requires a different approach. Our work involves:

  • constant market monitoring and quick decision-making, which doesn’t always translate to billable hours;

  • leveraging years of accumulated experience in a rapidly evolving field;

  • managing significant risks and responsibilities that go beyond time-based metrics;

  • providing value through our extensive network and ecosystem relationships;

  • delivering results that can have exponential impacts on treasury value, which aren’t captured by hourly rates.

This performance-based model aligns our incentives directly with dYdX’s success, ensuring we’re motivated to maximize value creation rather than billable hours. We believe that this holistic approach to treasury management will contribute significantly to dYdX’s long-term success and sustainability, justifying the proposed fee structure and providing excellent value for the ecosystem.

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We will design a transparent validator staking program to enable the Community Treasury to contribute to securing the dYdX Chain and increasing the share of stablecoins in the Treasury. A key element of this is staking DYDX tokens through validators.

dYdX Chain validators will be delegated DYDX from the Community Treasury and will benefit from their respective validator commission. We will encourage a healthy validators ecosystem while redistributing DYDX tokens. This means, the selection process will be transparent and ultimately incentivise and reward the “good validator” behaviour.

Key principles that will guide the selection process will be:

  • value positive contributions to the ecosystem
  • be transparent on the selection criteria
  • consider validator metrics

We have already started collecting suggestions from validators on what elements to consider when selecting validators for the staking program. And we welcome anyone to reach out with suggestions.

The goal is to build a solid staking program that supports the dYdX ecosystem together.

The scope of our current proposal is specifically focused on (responding to the call to action shared by the dYdX Foundation)[A Take on the dYdX DAO's Treasury Management (July 2024) | dYdX Foundation].

However, we agree that ecosystem growth, stimulating trading volumes and making the DEX more widely known are important timely challenges.

karpatkey is fully equipped to expand or revise its scope in line with the needs and/or future evolutions of the dYdX project and ecosystem. Because of the nature of this initiative, we believe this is a key strength karpatkey provides to the Treasury SubDAO.

Our approach to treasury management goes far beyond simple staking strategies. We offer a comprehensive suite of services that contribute to the long-term sustainability and growth of the dYdX ecosystem.

Here’s an overview of the various areas we have in-house expertise on:

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TL;DR: if there’s an appetite to expand the scope of the Treasury SubDAO to support growth and ecosystem expansion, that’s something karpatkey is fully prepared to do.

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Thank you for your response!

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Thank you for the detailed discussion, @ttt_vn, and for presenting specific numbers.

I have clarified the key points based on the same assumptions(correct me if the number is wrong :sweat_smile:).

If we assume that protocol revenue remains constant and delegations are evenly distributed among validators, delegators will incur a loss of around 15%, and Big Validators will see little to no benefit.

On the other hand:

  • Small validators will experience a revenue increase of over 40%.
  • Medium validators will see their revenue increase by over 14%.

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image1580Ă—674 31.4 KB

For all entities to benefit, protocol revenue would need to increase by at least 17%.

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image1576Ă—651 41.9 KB

Ref: dYdX Token APR Simulation With Treasury SubDAO

To achieve this, we need to establish a strategy and consider the question: “How can we increase protocol revenue by at least 17% using the Treasury SubDAO revenue?”

I would also be interested in understanding the strategic approach @karpatkey is considering from this perspective.

Additionally, it is clear that delegators are bearing the risk disproportionately. Perhaps, as a way to share the risk more equitably, we could explore lowering the minimum commission for validators? (Just an idea.)

In any case, it’s crucial for the entire community to come together and discuss ways to increase protocol revenue.

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Assuming there are no significant changes to the proposal above, the Ops subDAO is planning to launch two text proposals for the dYdX community to consent to the formation of the Treasury subDAO on Monday, September 23rd.

A successful text proposal will enable the proposer to formally establish the Treasury subDAO as a Cayman Foundation. Once the Treasury subDAO Cayman Foundation is formed, a separate community treasury spend proposal will be launched for the dYdX community to consent to the Cayman Foundation formation documents, the mandate of the Treasury subDAO, and the funding of the Treasury subDAO multisig with x number of DYDX from the dYdX Chain community treasury.

Unfortunately, the dYdX Chain does not support multi-choice voting, so we will launch two separate text proposals simultaneously.

Important Note on Vote Results:
If both proposals pass, the proposal with the highest percentage of “Yes” votes will be considered successful.

Please let us know if you have any questions or concerns.