Signalling Proposal: Aragon DAO Guidelines for Financial Proposals

Aragon DAO
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Signalling Proposal: Aragon DAO Guidelines for Financial Proposals

Description

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.

Objectives

Financial Principles

  • 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).

Financial Strategy

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:

  1. Generate a yield on the treasury through staking initiatives, providing such staking initiatives are considered low-risk.
  2. Boost ANT’s liquidity on decentralized exchanges to reduce our reliance on centralized exchanges
  3. Earn returns from investing in other assets, generating capital gains or other financial rewards
  4. Diversify financial risk across a range of risk profiles
  5. Balance financial capital across multiple, complementary initiatives

Methodology

  1. Each funding proposal should explicitly state weather the funds requested are for:

  2. OPEX (in which case they will come out of the Budget Vault operating budget) or

  3. Treasury/Yield Management (in which case they will come out of the Yield Vault operating budget)

  4. In the case of Treasury/Yield Management proposals, the proposal should further specify:

  5. Financial Risk Assessment (why the proposal creator believes it is a high/medium/low risk investment)

  6. Initiative:

  7. 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:

  1. OPEX expenditure to date + amount of budget remaining
  2. 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.

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OnChainCoop thanks @Eagleops for the detailed proposal. Clear guidance around the state and objectives of the treasury is essential. We want to pose the following clarifying questions/comments:

  • Will the yield be representative of the Aragon treasury - i.e., USDC represents 60% of Aragon’s treasury, so it shall also represent 60% of the yield vault?
  • The Aragon DAO Financial Dashboard should reflect the categorical granularity of the table in this signaling proposal - i.e., although there might be enough funds in the yield vault, the provision for a specific type of allocation might be depleted.
  • The Growth guild will publish an ecosystem incentive strategy that includes venture as an incentives deployment mechanism - is there a hold on an allocation for that mechanism, or is it up to the delegates to ensure sufficient resources for strategic venture investments in the venture provision?
  • Will impermanent loss, drawdowns, and write-offs be reflected in the OPEX budget?
    – At what frequency (annual, quarterly)
    – Against what benchmark (i.e. will the impermanent loss on ETH/ANT be calculated vs the “do nothing” strategy or vs initial value at deployment)
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Thank you @OnChainCoop for the clarifying questions / comments.
We will provide more insights per bullet point:

We suggest that the treasury/yield part of the Vault will have a dollar based value (i.e. 25% of the eligible treasury), rather than a token based value. To ensure the sustainability of Aragon’s token position, we urge delegates to carefully evaluate proposals and consider if the requested amount puts Aragon’s token position at risk. For instance, if Aragon’s entire stable coin position is already reserved for critical infrastructure and runway, it’s less likely that a proposal requesting for additional stables will be approved.

It is highly recommended that the Aragon DAO incorporates the categorical granularity outlined in this proposal. This will ensure that specific types of allocation are accurately tracked and reported, allowing for better decision-making regarding future funding requests. While individuals are technically able to request funds from any category (as long as the total allocation doesn’t exceed $40 million), proposals requesting funds from an already allocated category should be actively discouraged. Therefore, it is crucial for proposers to thoroughly review the dashboard in order to maximize the likelihood of their proposal’s success.

If these proposed guidelines are approved, it is recommended that the Growth Guild requests its ecosystem incentive strategy funding from the “other” category. This category contains 20% of the treasury/yield part of the Vault, which could provide adequate resources for strategic venture investments. However, it will be up to the delegates to adhere to these guidelines when they are approved. Therefore, it is also important for the delegates to thoroughly review the dashboard.

Just to be sure, this proposal refers only to the treasury/yield part of the Vault and not the OPEX part.
The potential losses shall be monitored and subsequently reported on a monthly basis.
The treasury/yield part of the vault will be rebalanced on 01-01 of every year, with a value of 25% of the eligible treasury.

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Vote is live: Aragon DAO

Please vote

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The suggestion to constrain annual allocation per “Initiative” seems too restrictive, given the fast-paced financial environment we are involved in. I would suggest leaving this part more open and probably voted on a yearly basis, leaving more options open on the table.

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I’m afraid I have to disagree creating a long-term horizon for the treasury and product development is key. Having clear financial pools which align with the long-term development of the protocol is crucial. It is also ratifying what was initially voted on when it was agreed to move the funds to the DAO

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