How to Structure a Protocol's Treasury

Fiscal policy: how much to spend and what to spend onAsset allocation: how the treasury should be diversified to fund key protocol development irrespective of the market environmentReporting: financial statements of the treasury and summary of key transactions

Protocol treasuries need to be structured with an infinite time horizon. This requires thinking effectively about:

Propose treasury budget to discuss and vote onDefine liquidity requirements based on budgetDecide asset allocation policy and review this policy allocation every monthDefine policy for liquidity mining, token buybacks, salaries and vesting schedule of core contributorsPublish monthly / quarterly financial statementsPublish monthly / quarterly repor... See more

Protocols should set up a 5-7 member treasury management committee, which will work on the following:

There is currently a negative perception associated with selling the protocol's token because it could signal that the treasury has lost confidence in the protocol. This has a short-term impact on price. Selling large amounts of the protocol’s tokens would involve slippage, especially if it’s not done thoughtfully. However, this can be avoided if t... See more

How can protocols diversify their treasuries?The simplest method to diversify is to sell some of the protocol's tokens to buy other assets (e.g. ETH, DAI, etc.). Treasuries can’t be diversified overnight. But plans can be made to reach a steady-state allocation over several years.

Insurance cover and options. Example: rolling buys of smart contract cover or short-dated puts on the protocol’s tokens. This could benefit the protocol during Black Swan events like contract hacks, economic exploits, and market drawdowns. 

Protocol’s tokenStablecoins (DAI, USDC, etc.), a portion of which earn yield. Stablecoin allocation depends on the liquidity needs and treasury budget.Blue chip crypto assets (BTC, ETH)DeFi index (DPI)Early-stage token investments and M&A that improve the protocol's competitive positioning. The discussion between Keep and NuCyphur is an example... See more

Here is a sample allocation (without knowing the numbers above):