The Phonon DAO Treasury Diversification Edition

DAO Economics: Treasury Diversification Proposal


This proposal seeks to outline and ratify a: ‘Treasury Management Framework’ that maximizes long-term ‘$Phonon DAO’ token-holder’s value and aligns with the Phonon DAO’s value and mission. The treasury’s goal is to allocate resources to enable that growth in a sustainable way.

Treasury Management is an active process with the ultimate goal of mitigating operational and financial risks while simultaneously providing flexibility for Phonon to sustain, initiate and incentivize operations regardless of the overall market condition (bull/bear cycles.)

  1. The goal of the DAO is to propagate growth of the protocol, while the goal of the treasury is to allocate resources accordingly in order to sustain intrinsic value and ensure the DAO has significant resources to allocate as need be.
  2. Each dollar a protocol owns or receives as revenue should be allocated to its most profitable use. Typically, this includes saving the money in the treasury, reinvesting it into growth or new products, or paying it out token holders via token buybacks or dividends.
  3. The DAO treasury needs to survive bear markets. Which essentially means that: “Building an economic framework that will sustain the protocol for at least two to four years even if the entire market collapses by 80% (and remains in the red for quite some time.)”

Considering the known operating expenses of major DAOs with large dev teams and liquidity mining programs, very few if none satisfy that condition today. That means, most or all of them should use the bull market to sell tokens and build real treasuries with stable assets that will not only make them survive the coming bear market but hopefully put them ahead of their competitors.

DAO treasuries should understand their application-specific liabilities and hedge them. For example, a lending market might plan that some % of loan positions will fail every year. While they don’t say so explicitly, it is implicitly understood that the lending market underwrites that risk. So the underwriting becomes a regular cost on their balance sheet and can be hedged accordingly. Meanwhile, a leaner protocol like Uniswap may underwrite no additional risk and hence could do fine with a much smaller treasury.

Objectives and Goals:

Strategically guarantee the protocol’s success regardless of the market’s condition. (bear|bull).

Having substantial non-native treasury assets ensures that the Phonon DAO can continue to fund and support its operations. The Phonon DAO treasury diversification proposal has arisen from the necessity to strengthen the DAO within volatile market conditions.

Treasuries enable the sustainability of organizations. They enable the organization’s ability to sustain itself throughout the protocol’s existence. They’re the operational centre and/or hub for the DAO’s ability to deal with:
- operational costs
- working capital
- acquisitions
- interactions with other DAOs
- Token swaps
- Legal Disputes(if any)
- Dealing with income from trading activities.

Percentage Proposal Example

(Example of a Sustainable Managed DAO Treasury)
** Treasury Allocation**

- 65% Phonon: Native Protocol Token
- 20% StableCoins
- 10% Network Tokens (Proposed 8% ETH native with reserved 2% allocation for an L2)
- 5% Reserved for Strategic Partners (These tokens could also be put into DeFi protocols while retaining the ability to vote on Governance Proposals using Element Finance's Voting Vaults)

Asset Management Example


  • Yield Aggregators: Yearn & Convex
  • Stablecoin AMM’s: Curve & Uniswap
  • Stablecoins: FRAX, DAI, USDC, USDT
  • Lending Protocols: Compound, Maker
  • Innovators: RGT (RARI Capital)


  • Flaws in accounting logic
  • Governance or Custody risk
  • Malicious Proposals
  • Poor Risk Management Decisions
  • Faulty price Oracle Feeds
  • Market Manipulation
  • Flash Crashes and Black Swap market Crashes
  • Excessive leverage
  • Illiquidity

Other Considerations

Please keep in mind that this is an initial draft written in order to spark up the Treasury conversation and get community feedback. That being said there are certain aspects which still have to be considered.
- Setting a time period for how often we rebalance the treasury in accordance to the proposed allocations.
- Strategic Round Phase who’s objective is to bring in: a group of value investors, angels, and other outside contributors to Phonon DAO.
- Some of us are also actively looking into other DAOs (from their treasury status to their actual protocol success/strategy/framework and members (or lack their of)) in order to spot possible acquisitions. -

Any feedback here would be greatly appreciated.

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I agree with what you’re saying here in this post. My main question would be, how do we decide on an allocation? Is the example you gave your general proposal, or is it random numbers?

Yessir, this is how i’d initially allocate it. There are some additional tweaks though(subject to community approval and the numbers with which we’d be operating with.)

  • Interest Bearing stablecoins instead of holding just stables. (USDC, cUSDC, yDAI)
  • Curve LP stablecoin-stablecoin pair staked in Convex
  • Possibility of staking FRAX-3CRV and making use of DeFi bribing mechanisms.

Addendum : for reference
1 Like