Why are we holding so much in stablecoins?

Why is the DAO holding so much in stablecoins when the future of USD is so uncertain? Bitcoin and ETH are the lowest they’ve been in a while and the financial sanctions on Russia may prove to backfire massively on the dollar. I could list another dozen reasons why I find this approach wrong, but I would like to see some replies before arguing this point further.

I think at least 50% of the treasury funds should be in BTC/wBTC/ETH. I understand the current allocation is generating “safe” yields, however I still do not think it is the right approach considering several, very different factors.

I would like to have a discussion on this and come up with a proposal to change the allocation of treasury funds.

4 Likes

I certainly agree with the sentiment that some amount of stablecoins in the treasury should be converted into BTC. If the DAO wants to make this a long term project, then for the health of the MC token there should be a significant amount of BTC in the treasury to combat the issues that come from heavy exposure to increasingly inflationary USD.

I would personally wish to see a MIP-12 vote for converting $10M of treasury USD to BTC.

3 Likes

I certainly agree with the sentiment that we have far too much in USDC, think it is something like 44% of the treasury is held in USDC which seems far too much for a treasury of this size.

I would certainly support putting more into BTC and/or ETH, plus with the staking returns available of ETH it is another way to generate yield. I personally wouldn’t say that 50% of the treasury in BTC and ETH is my preference. I would prefer something along the lines of say a maximum of 20% of the treasury should be kept in USDC. We are also sending 60% of all realised profit back to the treasury in USDC so this pot will likely continue to increase over time.

Right now I would support $5M of treasury USDC to BTC and $5M of USDC to ETH and this amount to be staked. Plus a guideline to keep the USDC in the treasury to a maximum of 20% of the treasury value.

1 Like

I would say the main benefit of stablecoins is “Quick liquidity” - The stable coins in our treasury are meant to be used for investments, purchasing BTC/ETH would of course be good for hedging but we already have hedging devices in place. Most investments are invested using USD and as such makes sense to hold USD. Ultimately, as the p2e sector grows, our investments will grow and our stable coin balance will drop accordingly. Holding USD not only provides an ease of access but also ensure we are prepared and have liquidity to invest as compared to having to liquidate BTC/ETH before making investments.

50% of the treasury funds in BTC/ETH would make us almost an BTC/ETH ETF instead of a p2e index. Not sure if it’s something the community is looking for.

3 Likes

I support 50% of treasury in BTC.

And, further, I would propose changing treasury reporting currency from USD to BTC.

My reasoning is: this is a long term crypto economy investment, we are here to beat BTC returns, not USD. So growing our treasury in BTC should be our benchmark. Open to other’s input.

Huo

2 Likes

In these times it is indeed a bad strategy to hold USD. Every well known investor turns to gold or bitcoin or ETH (I prefer ETH due to ETHs 2.0 burning mechanism + higher network effect + staking opportunity) . But on the other hand like @newoc says, we still need liquidity for new investments.

We need to know for how long we need a minimum of a year (maybe 2 like Illuvium) working capital + liquidity for investments. This is up to the fund manager to disclose more insides about the allocation of the stablecoin treasury. How long can we survive on the current stablecoins when a disaster happens? How many investments can we do without having any return on investments? If we invest in a new project, the treasury needs to be filled back up to that number of investments and all excess can be invested in either BTC or ETH. (My opinion).

Henlo,

This proposal sounds like a Bitcoinmaxi is having his period on a dark winter day.

I vote “no”.

2 Likes

I think it’s important to clarify why the DAO is holding so much stables first. I would think there are 2 primary reasons:

  • Ensure there is enough runway for DAO, in case the market drops significantly. At the moment, as far as I understand, everyone working on MC (other than maybe a couple of people) are being compensated by Merit Circle Ltd from the pre-LBP capital raise. I assume the plan is to transition this to the DAO at some point? Would be great to know roughly what the cash burn is. What are the expenses associated with some of the initiatives in the latest vision post, specifically the marketplace buildout. Once we have some information about this, we can think about how much stables we need to secure the runway for 2-3 years.

  • Investment purposes. SAFTs and SAFEs are mostly in USDC, although token swaps are possible as well. The last 3 announcements (AFAR, Ascenders and MetalCore) totaled $2.8 million. Is this coming from the DAO or the Ltd? Is all of this being paid for in stables? How much of these investments are made from realised gains on other investments vs. from the reserves?

Overall, I would agree that it makes sense to hold more ETH, BTC and perhaps even gold (Paxos Gold has good on-chain liquidity). If you haven’t read Arthur Hayes’s latest article, would recommend. But to decide on how much of the Treasure should be in these assets vs. stables, we need some more information.

Most investments currently go in the venture capital bucket. This is investing in Human Capital - investing in innovation. The average return rates on this will far outperform that of Gold, Bitcoin and Ethereum over the long term. Especially since this is a domain where we can maximally leverage our brand and expertise. For this reason, this is where we deploy most capital.

Part is invested in our own Human Capital, scaling our current and building out new verticals. Most of this has been funded from the ltd, at zero expense to the DAO. In the long-run more of this could be funded by the DAO. To any contractor that can create value for the DAO, not just Core Contributors. The return on these investments should also generate a lot of long-term value to the DAO. I believe the $ to value creation ratio in this bucket will even greatly outperform our venture arm when we look back in 3,5 and 10 years.

At the same time, the DAO recognizes the role of ETH, BTC and Gold in a robust and diversified portfolio, which is why the DAO owns all of them.

I believe the venture pipeline should always be the biggest part of the treasury and ETH nor BTC should be anywhere near 50% of the portfolio. However, I do agree it is worthwhile discussing if we should add a bit more. Additionally, the buyback split is another lever we can tweak over time.

Don’t believe there was much appetite for an increase during the last temperature check. Personally, I would definitely be open to slightly increasing the relative % amount of the current BTC and ETH in the treasury. In a world of 7% CPI inflation and probably 10%+ real inflation, you don’t want to sit on idle USD. Rest assured that the DAO has been rapidly deploying most of the idle cash, but it will take a bit of time. If we don’t want to compromise on the quality of investments, something we shouldn’t compromise on.

@verto0912 Great article. The DAO does in fact own (tokenized) gold and all USDC project investments are made from the DAO and the value accrues back to the DAO treasury.

4 Likes