As per the original proposal voted in by ANT holders to transfer funds from AA to Aragon DAO governed by Delegates, the following and initial financial thresholds were provided:
“Annual operational expense is initially capped at 10% of the starting (USD) value of the treasury. Annual treasury/yield management is initially capped at 25% of the starting (USD) value of the treasury.”
This proposal aims to build on this by providing more detailed guidelines upon which proposal creators, guardians and delegates can rely on when making or reviewing financial proposals. Moreover, it aims to establish a financial strategy for Aragon DAO’s treasury management for yield generation to help ensure the financial proposals made to Aragon DAO are both compatible and cohesive to material financial returns within mutually agreed financial risk boundaries.
It’s imperative to have clear guidelines so that proposal creators, guardians and delegates have clarity on matters such as:
- What % of funds remain unallocated within the 10% of treasury value operational budget
- What % of funds remain unallocated within the 25% of treasury value for treasury/yield management budget
- Whether or not a specific financial proposal should come out of the operational budget or the treasury/yield management budget
- What Aragon DAO’s desired financial risk exposure is
Without clarity on such matters, it will be simply impossible to have effective accounting, reporting and financial accountability. We need a system to know what constitutes an operational expense, what constitutes an investment, loan, swap or something in between so that it’s clear in which budget the capital allocation should come out of or be applied to.
- Maintain a long time horizon - The Yield Vault should utilize funds in low-risk opportunities, in order to maintain a long time horizon, so that there will be enough runway to fulfill Aragon’s strategy
- Provide transparency - The treasury should be managed transparently and data should be made accessible in a timely manner to the community, in order to facilitate governance decisions
- Provide accountability - The treasury should be managed with clear reference to budgets to help ensure accountability.
- Allocate capital effectively - Capital should be allocated in a systematic manner according to a well thought financial strategy (more on this below).
Specifically for Treasury/Yield Management funding proposals that impact the Yield Vault, ringfence funds according the following risk-based allocations, happy to discuss these in the forum:
|Initiative||Description||General Risk Category||Annual allocation %|
|Venture Investments||Asset investments or swaps in other projects that have a token||High||10%|
|Staking||Staking existing treasury assets including ETH||Low||60%|
|Liquidity||Boosting ANT liquidity on DEXs and earning LP rewards||Low||10%|
|Other||Any other community proposed initiative that does not fall within one of the aforementioned initiatives (Ex: Options, loans & derivatives).||TBD||20%|
The resulting financial strategy can help position Aragon DAO to:
- Generate a yield on the treasury through staking initiatives, providing such staking initiatives are considered low-risk.
- Boost ANT’s liquidity on decentralized exchanges to reduce our reliance on centralized exchanges
- Earn returns from investing in other assets, generating capital gains or other financial rewards
- Diversify financial risk across a range of risk profiles
- Balance financial capital across multiple, complementary initiatives
Each funding proposal should explicitly state weather the funds requested are for:
OPEX (in which case they will come out of the Budget Vault operating budget) or
Treasury/Yield Management (in which case they will come out of the Yield Vault operating budget)
In the case of Treasury/Yield Management proposals, the proposal should further specify:
Financial Risk Assessment (why the proposal creator believes it is a high/medium/low risk investment)
Type: Staking, Loan, Swap, Financial Option, Investment in a security, Investment in a non-security, Other.
Here is a template financial proposal for the capital allocation from the Yield Vault.
The Aragon DAO accounting team is responsible for extracting relevant information from each funding proposal and compiling the Aragon DAO Financial Dashboard. This dashboard provides a real time view of:
- OPEX expenditure to date + amount of budget remaining
- Treasury/Yield Management ROI to date + amount of budget remaining
This dashboard can be quickly referenced by proposal creators or Delegates who want to know whether a given funding proposal falls within the agreed annual budgets.