Table of contents
Link to Temperature Check + Demo
Purpose (what’s the “why”?)
Background (what is the reasoning behind the proposal?)
Functional description (what is this being proposed?)
Reasoning & analysis (what is the case for the proposal? What are the pros and cons?)
Technical implementation (who will be writing the code? what is the scope required?)
Impact (how does this contribute to the long-term resilience, sustainability and/or growth?)
Appendix (security & whitelabeling)
@Moss & @eek637 from Avantgarde. We are the core devs of Enzyme, the operating system for onchain asset & treasury management.
Here you can find our initial Temp Check, published on Aug 4th 2022.
Also, here you’ll find a recording of the demo we gave to the Radicle community on July 28th 2022.
There is an ongoing brainstorming within the Radicle community about strategic treasury management including short, medium and long term perspectives. It also involves the creation of a dedicated Treasury Working Group that can plan, propose and implement a well designed strategy.
We fully support this initiative as we believe professional treasury management is an integral part of any DAO’s long-term success. To maximise the chances for success, both short term cash management and long-term capital productivity should be well defined and executed. The goals are capital preservation, liquidity, and income generation.
First off, we would like to separate conceptually operating and strategic cash. The specific scope of this proposal is the management of the strategic part, thus increasing its usefulness as a tool to fund the protocol through responsible and risk-averse treasury management. We’ll therefore focus solely on the current USDC balance in the treasury.
Radicle holds a substantial part of its treasury in $USDC, as there is approximately 20m USDC in the treasury at the time of this proposal. The treasury’s current balances are reported here.
Taking as a reference the estimated monthly and annual burn rate stated by @lftherios on this post, we can conclude that this would be the approximate split among operating and strategic cash.
In total, according to the estimated burn rate, operating and strategic cash would cover the DAO expenses for the next 53 months.
The rationale of the proposal is that:
Strategic USDC treasury is tied to USD, thus currently heavily outpaced by inflation, which rapidly erodes the purchasing power of the reserves. Those reserves could be earning yields for the DAO through a series of conservative but well defined/executed strategies on various high-quality DeFi protocols.
As stressed in our Temp Check, Enzyme allows Radicle to efficiently delegate the operation of the treasury without making any trust compromises or giving up custody of the DAO funds. Using Enzyme ensures the perfect mix of control, risk management, trustless delegation, efficiency, speed and transparency. See the graphic illustration of the solution below:
We propose that the Radicle Treasury is through an Enzyme Vault where:
- The Vault Owner is a Gnosis Safe controlled by the Radicle DAO core devs/founders.
- The only permissioned Depositor is the Radicle Treasury Timelock.
- The Asset Manager is an EOA wallet or several EOA wallets controlled by Avantgarde Finance.
Avantgarde Finance builds asset management products and services in the decentralised finance space leveraging its unique position of being one of the first development teams in DeFi. The team boasts an aggregate of over 60 years experience in Traditional Finance and nearly 6 years in DeFi having founded and built the first ever on-chain asset management infrastructure. Our experience spans across DeFi smart-contract and web3 development, asset management, understanding and structuring financial products, portfolio construction, technical and financial risk assessment and financial reporting. We are proud to service some of the industry leaders today and assist them with our Treasury Management services. You can see an example of a vault managed by Avantgarde for Nexus Mutual here below.
If this proposal gets approved by the Radicle DAO, we would suggest implementing a conservative strategy, diversified amongst blue chip protocols with varying degrees of counterparty risk. An example of a vault running a similar strategy is the following (can be found live on Enzyme here.)
Reasoning & analysis
As pointed out by @noturhandle in his reply to our Temp Check, there are some open questions:
- Who defines the future goals of the treasury and the strategy to achieve that goal?
- What is the exact treasury management strategy?
- What treasury management strategy would be executed? And, more importantly, by who?
The aim of this concrete proposal is to unbundle the different open questions, and avoid Radicle falling into a typical paralysis analysis situation.
We thus propose a step-by-step approach:
Phase 1: Radicle DAO starts with a conversative strategy for the strategic cash, run on an Enzyme vault and managed by Avantgarde Finance.
Phase 2: Once step 1 is implemented, Avantgarde works with the Radicle core team to define a clear path towards the formation of a dedicated Treasury Working Group.
Phase 3: The Treasury WG gets elected and is eventually appointed as delegated asset manager of the Radicle vault, replacing Avantgarde Finance.
Phase 4: The new WG defines, proposes and executes improvements and updates on the TM strategy on a regular basis, following the evolving requirements of the DAO. These further improvements could go in the direction of more speculative initiatives like the one proposed by @cloudhead in this post.
This proposal allows for a swift implementation and helps Radicle avoid getting “stuck”, which is otherwise a likely scenario. It moves things forward in a clearly defined and technically sound interim stage until the further steps are finally implemented.
The current proposal does not include taking immediate advantage of opportunities like acquiring ETH during the current bear market, which is the rationale of @cloudhead in his post. We acknowledge this, yet we believe that a more prudent approach based on stablecoin yield generation is the next best step for Radicle. In particular, given the unpredictable nature of the markets, any speculative moves would generate community pushbacks that can paralyse sound improvement initiative for months.
This proposal does not require development work or resources from the DAO. The Enzyme smart contracts have been live on mainnet since February 2019, and subject to continual development from various teams coordinated by the Enzyme Council DAO. Here you can find the most recent audits.
Below is a list of the relevant parameters, along with our suggested configuration. Following that is a high-level overview of the steps to deploy and seed it with funds, as well as more information on Avantgarde Finance.
- Vault Denomination Asset: USDC
- Management/Performance Fees: see relevant section below
- Allowed protocols: Paraswap, Curve, Convex, Maple, Compound, Aave
- Delegated Trader Permissions: manager.avantgardefi.eth
- Target vault exposures: 100% stablecoin
Deploy and Seed Vault
- Configure vault owned by Radicle multisig with appropriate policies as discussed and voted by Radicle DAO
- Deposit denomination asset balance into vault (USDC)
- Delegated manager to optimise for yield opportunities within parameterized constraints and maintain target asset exposures
- Coordinate with the DAO for proposal of strategy changes that are subject to DAO approval/vote.
To cover expenses involved in managing the vault, Avantgarde would propose the following fee structure based on value-adding performance
It is important to note the following:
Fees are payable in shares of the vault and are implemented using the Enzyme fee contracts. Performance fees are taken as a percentage of profit (i.e. not paid in case of negative performance).
As the Vault owner, the Radicle DAO will always be fully in control of the addresses to which it delegates trading privileges and the fees it pays in the form of Vault shares to those addresses. If it is the case that Avantgarde Finance is not living up to its end of the bargain, both permissions and fees can be easily terminated by the DAO.
We have a longstanding experience in governance matters and can help Radicle form an effective treasury strategy working group. If needed, we could help Radicle undertake the task of creating a WG, which is elected by the community.
The future WG would be in charge of day-to-day management of the treasury Vault, and tasked with making proposals to expand the scope of the strategies undertaken to achieve the treasury’s mandate. While the day-to-day tasks could be executed by the WG, any larger strategy changes would likely require a reconfiguration of the Vault to access new protocols, and hence a DAO-wide vote. Given the conservative nature of this vault, we would not anticipate many such instances. Members of the Treasury WG shall be elected by the DAO and one or more key members of the Avantgarde team may be picked to take a seat in such WG, thus further strengthening the bond and the strategic alignment among our projects.
Also, Avantgarde can help steer the product roadmap of the Enzyme dapp in order to build out new integrations and features that would benefit Radicle and thus help the DAO meet some of its pain points when it comes to treasury management objectives.
Appendix A - Security
Top Tier Audits
Enzyme’s contracts have been audited formally by PWC, Open Zeppelin and Chain Security and audits are available publicly here.
Any upgrade or change to the Enzyme protocol is implemented by the Enzyme Council DAO, which is composed of technical experts.
Bug Bounty Program
Enzyme runs one of the largest bounty programs ($400,000) and has recently teamed up with Immunefi to give it more visibility.
In terms of upgradability, there are no admin keys or backdoors. Vaults are version-specific and can only be upgraded from one version of the protocol to the next if Vault Managers opt in and signal an upgrade. Depositors will be notified if this occurs and they have a 7-day window to opt out if they do not like the new upgrade parameters being signalled.
Appendix B - Vault whitelabeling
We recently launched a new feature that would allow Radicle to create its own whitelabeled Enzyme vault, under a unique URL. This URL can be linked to the Radicle website in order for Enzyme to become an invisible layer of DeFi technology that is seamlessly integrated in the DAO community experience. Here you can see a mockup we’ve prepared for Radicle.