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:
- 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.
- 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.
- 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
- 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.