Note: I wrote this on March 9th , but just posting now: Actually, DSR is at 15%, as expected in the post, and some numbers regarding POL might have changed but core ideas remain the same
Hello Shutter DAO Community, last week I have been chatting with @Loring @luis regarding Treasury Manager needs for the 0x36 DAO and seems a good idea to continue the conversation on the forum.
I will share some personal thoughts regarding different topics/questions that need to be addressed IMO when it comes to Treasury Management while also commenting about some initial steps 0x36 could start thinking about.
Some background on my side:
Iâm an Argentine accountant with a deep passion for DeFi:
I have been managing Kleros Treasury since mid-2022, with the main goal of preserving our capital while seeking the best risk-adjusted yields available and complementing this to manage administrative operations and transparency effectively.
To portray an example, we recently released our treasury reports and I have dived deep into some examples of risk-adjusted yields & client diversification.
Current State 0x36
Firstly, since this RFP was published, some things have changed:
When it comes to Treasury Management, each protocol has different resources and needs and this changes in every point in time, more in volatile industries such as ours.
Some questions I will try to answer with some rough information I was able to gather
- Whatâs our non-native token treasury?
- Whatâs our burn rate?
- How will contributors be compensated?
- How much Protocol Owned Liquidity we need in DeFi
- What kind of integrations do we want in DeFi
- Synergies between tokenomics and treasury management
- Operations & Admin
Start with an overall idea of how the actual health of the treasury seems a good starting point.
- Non-native treasury is roughly 8M USDC.
- As far as I know, the actual monthly burn-rate is close to 250k.
- So, the actual Runway (atm of writing on March 9, 2024) is 2.6 years or 32 months.
Yes, I knowâŚmany things could happen until then and also we need to have some liquidity across DeFi.
An extra detail here is that we require long-term aligned team members & contributors since this should enable Shutter DAO 0x36 to pay a part of the payroll in native (SHU) tokens.
An example of how runway changes with USDC vs USD + SHU. You can see the estimated amount of SHU needed.
I think this option is feasible since personal expenses for contractors should be covered with fiat payment (USDC) and the selling pressure should be that high on SHU.
Added value from contractors to Shutter Network will be > than SHU-denominated expenses (SHU Tokens) while they are also encouraged to continue adding value to Shutter products given they have skin in the game.
Every Treasury should be managent different because every protocol has different needs and funds. One of the decisions most we need to take is whether to just hold stablecoins or take a directional bet such as Ether.
Besides I am a big fan of Ether & Ethereum itself, after talking with some core contributors and Shutter and being aware of the actual Runway the company has, actual volatile of the market may not create the best scenario for taking a directional play such as Ether with our actual non native treasury.
This could be discussed later, but letâs assume we just hold stables.
The question later is:
- How much do we use for liquidity on $SHU?
- Do we invest the rest?
Assuming we keep the same amount of USDC providing liquidity than know (around 890k), we have roughly 7.1m USDC, and with stablecoins yields being around 5% (we will discuss later risk-adjusted yields and decision process for selecting a stablecoin) we could have a scenario like the following:
At this exact moment,DSR seems to be changing to 15% so letâs see what happens.
Around 31 months of runway (while still having the 1m USDC on Uniswap)
| Index |
Month |
Year |
Treasury only USDC |
Yield Generated |
Expenses |
| 1 |
April |
2024 |
$7,000,000 |
$29,167 |
$250,000 |
| 2 |
May |
2024 |
$6,779,167 |
$28,247 |
$250,000 |
| 3 |
June |
2024 |
$6,557,413 |
$27,323 |
$250,000 |
| 4 |
July |
2024 |
$6,334,736 |
$26,395 |
$250,000 |
| 5 |
August |
2024 |
$6,111,130 |
$25,463 |
$250,000 |
| 6 |
September |
2024 |
$5,886,594 |
$24,527 |
$250,000 |
| 7 |
October |
2024 |
$5,661,121 |
$23,588 |
$250,000 |
| 8 |
November |
2024 |
$5,434,709 |
$22,645 |
$250,000 |
| 9 |
December |
2024 |
$5,207,354 |
$21,697 |
$250,000 |
| 10 |
January |
2025 |
$4,979,051 |
$20,746 |
$250,000 |
| 11 |
February |
2025 |
$4,749,797 |
$19,791 |
$250,000 |
| 12 |
March |
2025 |
$4,519,588 |
$18,832 |
$250,000 |
| 13 |
April |
2025 |
$4,288,419 |
$17,868 |
$250,000 |
| 14 |
May |
2025 |
$4,056,288 |
$16,901 |
$250,000 |
| 15 |
June |
2025 |
$3,823,189 |
$15,930 |
$250,000 |
| 16 |
July |
2025 |
$3,589,119 |
$14,955 |
$250,000 |
| 17 |
August |
2025 |
$3,354,074 |
$13,975 |
$250,000 |
| 18 |
September |
2025 |
$3,118,049 |
$12,992 |
$250,000 |
| 19 |
October |
2025 |
$2,881,041 |
$12,004 |
$250,000 |
| 20 |
November |
2025 |
$2,643,045 |
$11,013 |
$250,000 |
| 21 |
December |
2025 |
$2,404,058 |
$10,017 |
$250,000 |
| 22 |
January |
2026 |
$2,164,075 |
$9,017 |
$250,000 |
| 23 |
February |
2026 |
$1,923,092 |
$8,013 |
$250,000 |
| 24 |
March |
2026 |
$1,681,105 |
$7,005 |
$250,000 |
| 25 |
April |
2026 |
$1,438,109 |
$5,992 |
$250,000 |
| 26 |
May |
2026 |
$1,194,101 |
$4,975 |
$250,000 |
| 27 |
June |
2026 |
$949,077 |
$3,954 |
$250,000 |
| 28 |
July |
2026 |
$703,031 |
$2,929 |
$250,000 |
| 29 |
August |
2026 |
$455,961 |
$1,900 |
$250,000 |
| 30 |
September |
2026 |
$207,860 |
$866 |
$250,000 |
| 31 |
October |
2026 |
-$41,274 |
-$172 |
$250,000 |
| 32 |
November |
2026 |
-$291,446 |
-$1,214 |
$250,000 |
But Shutter is here to stay, so what we will do after these 31 months?
- The business model should attract revenue (I donât think itâs likely will be enough to cover expenses, even though)
- Increase SHU-based compensation (if we expect Ether price given market sentiment and we see $SHU as an asset correalted with Ethereum ecosystem with higher upside and risk, we can expect an alpha >1 compared to Ether)
- We could raise more funds using the Shutter Treasury
So, we have 7m in stables and we need to get the best risk adjusted yield.
At Kleros, es estimate risk adjusted yield with a subjective framework in which we try yo estimate total risk of the investment (say asset A,B on Protocol X on Chain C) and compare with the actual yield of the investment in question. So, for example a risk adjusted yield of a stablecoin could be negative.
Having said that , and without entering into details we could go with 2 of the best risk adjusted options at the moment:
- sDai from Maker on Ethereum or Gnosis
DSR from Maker distributes yield from Maker Daoâs Treasury, and could be consider similar to risk free rate for stables in DeFi or at least, the risk-free vs holding DAI.
Source: Bluechip
For optimizing risk-adjusted yield while having some level of diversification and not taking directional bets, we could illsutrate and example distributing our stables between 2 options:
- 50% to 60% or 3.5m of sDai in Gnosis
Contractors could be paid monthly with a batch payment using sDai on Gnosis for example.
- 40% to 50% of USDM on Mainnet (ideally going through KYB)
- Something more complex but with good returns could be depositing sDai in Gnosis as collateral either on Spark or AAVE ( nowadays Savings DAI could provide a 18 % APY while borrowing cost is 5% aprox) and borrowing xDai to pay monthly expenses to contractors. (we could replicate it on Mainnet or distribute risk between both, but the idea here is to illustrate the cheap borrowing vs yield bearing collateral)
This could be changed if 15% DSR rates get approved by Maker DAO.
| Month |
Year |
sDai Gnosis DSR --xDai |
Income 1 year |
Expenses 1 year |
Net APY |
| April |
2024 |
$7,000,000 |
$1,260,000 |
$150,000 |
15.86% |
Shutter DeFi Landscape
Letâs analyze:
- $SHU liquidity: LPing strategies & Implications
- Treasury Swaps
- Lending Markets:
SHU LIQUIDITY
Actually, a 10k trade to buy $SHU causes a 1.5% price impact.
And a 100k trade causes a price impact > 10%
When engaging with well-regarded and promising protocols like EigenLayer and Espresso, itâs beneficial to provide substantial liquidity.
On the other side, having all liquidity in Uniswap V2 has greater impact on the market; trades have a more significant impact on price, which can amplify FOMO and price increases during a bull market.
Conversely, in a bear market, the impact is negative.
Maintaining a layer of liquidity on Uniswap V2, offering full-range liquidity, while also allocating a layer to Uniswap V3, where liquidity can be concentrated, could enable Shutter to:
- Give deeper liquidity to big investors which might not enter a position with such a big price impact and slipage as there is now
- Replicate limit orders while benefiting future investors
- For example, if we deploy a Uni V3 pool on SHU/USDC in the ranges 0.1$ to 2$, we will be able to provide way deeper liquidity for traders, while we might gain native tokens; As SHU price gets closer to 2$, SHU is âsoldâ for USDC and above 2$ all liquidity would be USDC. We will still have the V2 positions but also more USDC and we could replicate this same scenario constantly with wider ranges.
Note that 0.1$ is 50% below LBP price and here we assume that $SHU price increase given that it will have a high correlation with Ether.
Anyways is good to have in mind the different scenarios if the position gets out of range:
A) $SHU price increase (above our range) - â We further decentralize the $SHU distribution while increasing non native holdings and providing deeper liquidity to investors.
B) $SHU prices decreases (below our range) â We âloseâ USDC and grab more $SHU (replicating buybacks) and would need to stay with V2 liquidity and come back to the discussion of raising more non native assets or provide more compnsation in $SHU and less in USDC.
Treasury Swaps
We could explore strategic partnerships through token swaps with other protocols to diversify and secure our native treasury, enhance our relationships with these entities, and tap into revenue streams from their varied business models.
Lending Markets
At this stage, I donât believe too much effort should be directed towards lending markets.
A fast, permissionless, and trustless method that allows individuals to deposit $SHU and earn additional yield could be established by creating a SHU/USDC pool on AJNA to test for product-market fit.
Using SHU as collateral in a lending market would allow long-term bulls to leverage their exposure, and the opposite would be true if SHU is used as the debt token.
This aspect, along with the opportunity costs associated with liquidity provision, voting on governance, and other factors, should be taken into account for a lending market.
I generally believe that market forces tend to regulate themselves, and it would be beneficial to have at least a SHU pool in AJNA.
Tokenomics & Business Model
I recommend reading this post to understand the possibilities for Shutter to grab revenue and transform into a profitable business. If not let me give portray a summary of the blogpost:
Ultimately, the direction chosen by Shutter DAO 0x36 and market reception (indicating product-market fit) will be pivotal in determining the pace at which Shutter can generate revenue and distribute it within its ecosystem.
Here are some personal insights:
- Implementing a fee since inception might introduce resistance, potentially hindering the initial revenue that could be generated. Therefore, it might be prudent to begin operations without imposing fees (aka fee switched turned off)
- The valuation of crypto assets tends to be more speculative, often reflecting the broader industryâs potential rather than grounded on immediate financial projections like discounted cash flows or short-term fundamentals (check Celestias earnings vs FDV of TIA âŚclearly there is a lot of value on estimated future revenues & integrations). Considering Shutter is venturing into sectors with significant growth potential (such as Layer 2 solutions, EigenLayer, Data Availability, and MEV), itâs possible that the tokens associated with these sectors might experience value appreciation, reflecting their market potential.
Approach 1: Market Size Estimation Based on MEV Risks
- Shutterâs market size and revenue potential are determined by the financial risks of MEV in crypto transactions.
- Users would be willing to pay a fee for Shutterâs service to mitigate potential losses due to MEV.
- The fee market for MEV protection is expected to grow with the increase in MEV opportunities, paralleling the expansion of the crypto market.
Approach 2: Revenue Estimation Through Transaction Fees
- Revenue is estimated by calculating the volume of transactions protected by Shutter and applying a set fee per transaction.
- The integration of Shutterâs services with Layer 2 platforms is vital, as these platforms are expected to host a growing number of DeFi transactions (+ Dencun soon)
- Revenue potential is linked to the adoption of L2 solutions, which provide scalability and reduced costs, broadening Shutterâs applicable market.
Additional Features from Tokenomics:
- Incentives for users and keypers using Shutterâs native token to encourage participation and network security.
- Governance lock-up mechanisms to foster long-term commitment and stable governance.
- Keypers staking and delegated staking to ensure service reliability and network security.
- Staking tokens to reduce service fees, making Shutter more attractive and competitive.
- Discounts on service fees when paying with Shutterâs native token to increase its utility and demand.
There are a lot of potential revenue streams and possibilities for both redirecting value to $SHU holders and treasury itself, but timing and partnerships have the same importance IMO than the decision to be take.
Contributors
Contributors could be external service providers or core team members.
How they could be paid is expressed before and should be considered for treasury management.
Ideally, there should be a mix between both (USDC & SHU) but for those contributors that are willing to receive $SHU tokens only, the possibility should be opened since enables bootstrapping the growth of the project in a healthy way (given the amount of native vs non-native token 0x36 holds)
- Long term alignment, maximizing non native treasury by compensating contributors with SHU vested tokens if possible for those who have another income source.
- 1 year agreements on the DAO needed to be reviewed year by year
During my discussions with the Shutter team, I understood that the initial vision for the DAO wasnât to hire a full-time Treasury Manager, but rather to bring on board someone who could facilitate Shutterâs initial growth while efficiently managing its resources.
I believe it would be wise for the DAO to engage an advisor with the requisite experience and knowledge to navigate the complexities discussed earlier. Such an individual should be capable of recommending risk-optimized strategies to the DAO and devising a robust plan for managing SHU liquidity across various DeFi platforms (ensure that there is enough liquidity for $SHU traders and also manage treasury funds without needing to be active constantly but yes to have a long term plan that aligns with Shutter Roadmap)
I also believe that this contributor should receive compensation that aligns with the DAOâs values: remuneration in $SHU, which is currently less scarce, ideally with a vesting schedule. This approach ensures that the DAOâs funds are preserved for the core team focused on developing Shutterâs main offerings.
Operational/Admin structure
There is no need to address this topic in the forum but the interesction between Treasury Management and efficient administrative operations exist and is important. This needs to be taken into account to keep a transparent while efficient structure and keeping contributors happy and allowing them to focus on what matters the most: Encryption and shutter development.
Imo, A good admin work is the one that is not even noticed and where employees/contractors donât even talk about it
