2. Investment Strategy and Portfolio Management: Growth of DAO Treasury【DAO TOKYO 2024】

Transcript

all right hello ohas welcome to Dow Tokyo day one this is my first time here and just wanted to say thank you to all the organizers for this beautiful venue and great speakers that we have today so before we get started the topic of this panel is about investment strategies and portfolio management and so we have a really great lineup of speakers with you today so before we dive into the topics I'd love to have each one of you introduce yourselves which company you work with and anything else you'd like to add so maybe Dominica we can start yeah sure hi everyone and yeah great to be here and and awesome you know to to have a lot more community events in in Tokyo as well um I have been building the company from here um I'm the

co-founder of too uh we are building token compensation and employment compliance solutions for crypto we work with a lot of different types of orgs in the space some of our customers are you know fully centralized crypto companies others are foundations daos and so the whole Spectrum we work also with a lot of projects that are uh pre- toen launch and are sort of thinking about their journey to token launch or decentralization um and yeah a majority of my team is is outside of Japan but it has been quite a journey building building the the company from here as well hey I'm Colton uh colon. eth um I

work for carpat key we do onchain asset management specifically non-custodial Asset Management uh we work with Dows such as nosis Dow ens balancer cow um a um hi everyone my name is Arisa I also go by a toy and I am a co-founder of a protocol called Sega we are a defi structured Investments solution where you can connect your wallet and stake into a strategy that is powered by exotic options our strategies have an average return of around 25% apy with minimum Market risk and

we have set out to solve this problem in the defi space today where all of the products are either too risky or making really low returns that are below US Treasury rates so super excited to be here today and to talk about what is a sustainable and responsible asset management and hope that you all enjoy what we talk about awesome so as you can see we have a nice variety of speakers and their individual expertises uh my name is Micah I will be your moderator and speaker or moderator and Shepherd basically for the conversation today I'm the co-founder and CEO of a company called websy we build tools and services for safety and risk management so when

it happens to come to Dows you can understand any address on chain if you're sending money to someone who is potentially risky safety and sanctions related compliance related everything from hacks and scams to Social and civil so it's very powerful in terms of risk mitigation now before we dive into these topics I'm sure that people here you may be part of a dow you may be running a dow or you're building tools for Dows all of this is not Financial advice but I think that based on this topic there will be a lot of financial qu things that are being spoken about each individual opinion are their own so NFA NFA so the first question I wanted to start with is that if you were tusked with growing a dow treasury what would you do and where would you start

probably something we're all very interested in I would love to throw this to Colton to get us started yeah so kind of kind of like the room here I think like in my background I I work in governance right so this is kind of a growth role and I think of this not so much as what strategies we would employ um I'm actually more focused and I think what's more important here in the questions is like what are the intentions of the Dow like um I think that's very important for service providers and I think that's like really important for for Dows to have sused out before they invite service providers in um I think that conversation can be Collective uh but there needs to be actual Frameworks in place to support service

providers you know I look at you know ens which which is hired garaki and what they did really well there was they had the framework in place they had the intention they they put out an RFP process and the Mandate was really clear um so coming in as a service provider the job was really easy and I I really think that's a good model uh if there's any kind of like nugget of wisdom wisdom for a service provider or a dow contributor here I think it's like really important if you're a dow contributor to create a place to invite service providers in so they can actually like execute you know to your desire and then if you're a service provider I think it's really important to like read the room and understand what exactly they want so they can serve

you I think putting those two things together is going to you know actually have a successful outcome for regarding the treasury independent of like whatever nerdy defi strategy you like employ I do have a follow question on that so you you work with a lot of dows in terms of the treasury Management in your day-to-day work I want to know about what with different Dows how do you manage the risk profile of each Dow and then help them you know based on that risk profile grow and have those strategies yeah so I think like it it depends on the Dow itself and I don't think there's like one risk profile that we would we would would choose I think it it depends on the dowo um I think historically Kaki has generally favored

like low yield um risk adverse strategies that are more focused on Capital preservations you know Allah like un endowment um but like I think we are seeing more of an appetite for more more yield especially in the market today um and we are getting demand for that so I think to answer your question it's again and rooting it back to my initial Point like it's definitely something you need to discuss with the with the Dow contributors with the operators um so you can actually nail that down um and then when you are executing executing those strategies like it's very clear why you're doing so so there are a lot of defi options out there for treasuries to grow and manage their portfolio Adis I wanted to know in your eyes what kind of options do you

see out there in terms of defy products for these treasuries and then even what would you recommend yeah that's a really good question and I think in my intro I mentioned that right now in defi there's a really big uh ecosystem problem and that problem is there's only two types of yields on very um varying sides of the risk profile you're either investing in per and meme coins that are extremely risky and probably EV negative or you're opting to invest them below US Treasury rates on Lio or becoming a validator so I think what's really important is figuring out what are the kind of options that are available between those two

types of yields and how do you diversify your yield enough so that you're also diversifying other types of risks such as credit risks smart contract risks and just overall um like environmental like macro risk and I think um you know to kind of uh answer Micah's question directly like where would I start um I would first think about the portfolio optimization um or the composition that is optimal for your D and um I'm going to reference a traditional Finance book but there's a book called a random walk down Wall Street which talks about the expect expected value of your portfolio over a long period of time and what it

says is that you know when you're younger you should be able to invest in more Diversified yields and to also take a little bit of Market risk and then as you grow more mature and older you should focus on some more conservative strategy IES I think this applies to Dows as well where when you're just starting off I think it's okay to allocate a part of your treasury into blue chips like ethereum and then to also write out the market because the existence of your doubt is quite correlated with the growth of the market itself but as you grow and become a much larger Dow I think um often times Partners like Kaki would help manage

your treasuries and they have very sophisticated um understanding of what is an optimal allocation between different yield options like Sega um as well as perhaps some of the more um like uh like stable coin yield type of strategies or um some type of like lending and borrowing strategies so I think at the end of the day when you're more mature you should work with someone that has a lot of Industry knowledge and then diversify your yield across the different defi categories and perhaps work with kind of the category leaders in each of those sections so I think with lending and borrowing a is a great tool um I think with um stable coin

yields um I think you know curve is a great tool as well I also think with um options Sega is a great tool and really it's a combination of staking into those different services that will create a risk-managed stable return for your D treasury the piece about maturity and risk tolerance is really interesting and I think over the past few years we've seen in changes within the popularity of dows you know a few years ago there was a DA for everything from like pizza da to sauna da to Sushi da to Ramen da uh and then now we're starting to see Dows there's a fewer number of very large more mature Dows today and the the problems change within that life cycle but with any Dow compensation whether

it's you know writing grants to someone or paying the actual contributors to a DA this is a really really big topic within it so I wanted to ask Dominica who from toku what kind of interesting compensation structures have you seen or just you know regular compensation structures and are there any that stand out to you yeah so maybe before I you know dive into that and I think it's actually very related to what what Arisa and Colton were saying about you know sort of where do you start from from the investment perspective like a question even before you can you can answer that one is that okay what is my budget and you know interestingly enough uh um obviously compensation sometimes takes a a majority of that operational budget for for any project and um sort of figuring

that out like okay what's my starting point what what is actually the the money that that we have and what are we trying to achieve to cence point um not only with the money that we want to invest but also with that that we want to actually spend to accelerate the growth um that's the starting point I think that the from compensation perspective since it's such a sign significant uh part of of the operational budget um it also has to be like very tied to uh you know to those long-term objectives of of the Dow and I think that there is this sort of like bias to action where you feel like okay well we we have a token we have this liquidity we want to do all of those things we we sort of want to get best people and um and then you end up with

like a a lot of different contributors that are lost because you know it we obviously still have an onboarding problem and then then also is creates a problem of like how do you actually measure that sort of return on that um on that investment on on on on on bringing people on board um from purely just like addressing the compensation question uh we still see um a sort of wide range of different models so we still see people working on a project basis where there is a governance proposal and you bring someone for you know a quarter six months a year to do something very specific um ideally you you know you you know you you go for this RFP process which is a sign of

maturity of The Da if they can figure figure out like what are the uh Key decision- Making criterias for bringing someone on board and you create those kpis which feel like you know over like corporate war that we uh all have an allergy to but you know it is there for a reason to be able to hold people accountable for whether they achieve the the objectives or not um so hopefully you know those are those are there um and that sort of one one of those models then would be this sort of project base there are grants uh there there is you know retroactive funding um and and so on there's also a lot of different models when it comes to more at hoc uh type of work where you maybe have like a

bounty program and you want something small to be achieved and you know people come in do this small thing and and then maybe do it you know for a couple of different Dows at the same time um more and more more so as a result of this maturation in the space and a sort of emergence of a bigger Dows uh we see a lot more people working full-time and the next question then becomes like okay if I work for this Dow full-time and um you know how how can I think about it from my lifestyle perspective uh problems that taco specifically solves is also how do I pay taxes if I work for a d how do I get a Visa if you know sort of my employment feels a little

unstructured from from regulatory perspective so um you know we are one of those service providers that can help but we still a lot of variety which is which is great uh but each of those have a lot of different considerations and I think that the most important thing is just being very clear um as a Dao and as a contributor like what is your plan what do you want to do um and then how you know how sustainable it is in the long term um and then I have been talking for way too long but just the final thought and I I think that uh that colon and Arisa also have some thoughts on this but is this idea of professionalization of services where you instead of bringing on board an individual you bring a service provider

who has a deep expertise in a very specific topic so I think that that that that's also something that we are seeing more more often yeah I think setting up a DA is really hard from a regulatory and operational perspective right now so having like a setup as a service type of service would be pretty helpful for a lot of people starting in the space and you know back in 2019 2020 you can spend an entire year setting up a dow but now the speed is different when you're a builder you want to focus on the product building and all the legal setups all the payment setups you know it it is a Time suck and to be able to rely on services like tokko I can definitely see

a lot of the viability around it but I guess I'm also curious like in ter terms of um you know how security is viewed in Dows like Mah do you have any thoughts on how we could like better leverage these services to also U maintain like better security around Dows this is a really tough question because I think a lot of these Dows are now leveraging really excellent platforms for things like Dow governance and voting uh which abstracts a lot of the security issues so in my mind when it comes to security around Dows there's two things there's access to the treasury and then actual voting on governance proposals and those are two different verticals of security you have to think of them differently uh a lot of Dow treasuries use unn is safe on multi-

saying and that security is pretty good but there are cases where somebody you know uh their their private key got exploited and if it's multisig typically that's okay but there are cases for example with l2s that I will not name where maybe one person has access to all of the multisig right so these are situations of risk that you have to manage and there are tools out there like web that helps you monitor these types of transactions now when it comes to governance proposals there's another risk here because nowadays we were just talking about this backstage it's harded to tell what is spam and Cil when it comes to who's voting uh because how do you really know uh if it's well managed there's some really really mature cibil systems and cibil people out there uh if you go on Twitter and look at it some

people have written up really really detailed methodologies for cibil to not get caught and also be counted as valid members of a team uh so I'd actually love to throw it maybe to Colton to start what kind of things have you seen within the governance voting space Have you seen anything malicious how is that managed yeah I just want to throw that general question to you yeah I mean so so kaky interfaces with with many Dows were embedded in in a lot of dows um it's main channel of communication um there are customers um were on their forums I I think there there was recently a discussion and one of the the protocols were involved in about essentially AI delegates and it's kind of a Hot Topic but there

was actually someone spinning up you know AI Forum posts in AI accounts and they were fairly convincing um I I think for me that's that's interesting and and a little bit scary uh cuz even myself I I feel like I'm fairly Savvy but like there was actually a moment where I'm like is this really real like because we all like are are fairly you know distributed we're Anonymous like I may not have met this person on the call um unless I do like I don't know if I if I believe they're real and I and I guess it's probably getting better where I could even be tricked in that situation um but yeah that that's probably the most recent thing that I've seen currently um but I would expect there to be more challenges in the future I think like like that's continually evolving

and and as long as these treasuries are large and as long as you know there is something to take advantage of I think it's always going to be a risk that we're going to have to like think about and mitigate yeah I just learned this actually backstage which is more of an insight to my lack of knowledge Within the Dow space is that a lot of the Dow treasury management choices and decisions are by governance vote which is pretty wild to me and so we we were coming up on the second half of this panel and I do want to throw out a question about Adisa you brought up the fact that there's when it comes to options for yield and options for investment strategies there's one on the really low and safe end which is lower than some US Treasury yields and then there's risky really risky on the other

end so my question to the entire panel is do you think that Dows should actually take a more risky approach or more safe approach considering the current crypto environment maybe as someone that works closest to the crypto markets I could start um I think it's I would always focus on starting from the more safe Alternatives first and the way I see it in crypto and to make references to the traditional Market I think a validating service or um something like Lio is or U maybe tokenized us treasuries are essentially what I would consider like a bond in a portfolio and there's a pretty

famous like 6040 split in traditional markets where um something um very optimal would be 60% in safe assets and a 40% in Risky assets and so I would say 60% of your Dow portfolio or 70% depending on your risk appetite could definitely be in you know these US Treasury tokenized um assets or something like Lio and then maybe 30% can be in a Step Beyond Lio but maybe a little bit before meme coins imp perss so I think treasury should always be a little more conservative but I think you know it doesn't have to be 3% yields it

could be something like 15 20% yields and there um definitely some products out there so you know obviously Sega products have around like 20 to 25% yield that you can diversify 40% of your treasuries into um you can also do um like L2 uh token staking which also has similar yields like that um so I think there's definitely options um that you can explore for this extra 40% but you definitely would want to be on the more conservative side and you want to start by allocating more than half of your assets into something very safe you mentioned something earlier kind of

like thinking about you know the state of maturity and and where you're going to like par Park your Park your assets I you kind of alluded to like a life cycle fund or something so like the risk profile is going to change over time I I think that that's an interesting model to explore and to be honest I haven't seen too many dolls think of it that way like that complete analogy I I know you know we work with ens and ens you know has thought of like the waight and where they are and I think where the discussion that was happening internally was like there are a lot of people that rely on this protocol like we need these funds to be safe so they did lean and skew more towards the the less risky um strategies um I I think my big takeaway

from this and and kind of like something I think we sometimes lose sight of is like Risk is correlated or yield is correlated with risk you know unless it's like an entirely boosted pool um so I think like we we do need to like have priorities and I think this is like also why like investment policy statements like these like fundamental you know Frameworks need to be in place um so the expectations are clear and you can make those decisions um much easier yeah I I think that there's like really interesting thoughts um around Dow treasury management though because I think a lot of Dow treasuries have this policy of only doing delta neutral strategies for those of you that haven't heard of the term delta neutral it means you don't take any Market risk like zero directional risk for or if the markets

are going up or down but I actually think you know even in traditional markets funds don't have a completely delta neutral approach I think if you're making a 20% return with a one less than 1% Market risk it's an incredibly good trade and I think the 1% Market risk people put too much fear and uncertainty in doubt around this 1% when if you actually look at the expected value so what is like statistically the likely outcome of putting funds in a 20% yield 1% risk Vault it actually is a lot more profitable than if you were to put something in like a 3% um 0% Market risk Vault um and so I think in crypto

there's this dichotomy between the 0% risk and 1% risk that no other markets are looking at and if you think about some of the safest funds around the world that is traditional like the Japanese pension investment fund the gpif they take directional risk they're mostly delta neutral and mostly in bonds but they still take some directional risk because that is where you can really differentiate your yield and your Returns versus other funds around the world so I I actually think there's a lot of value into looking into some lesser delta neutral strategies it sounds like there's a lot of options out there and my brain does happen to go to taxes how do you even

manage especially when you have your treasury involved in all these different positions um Dominica you might be the right person to ask for this but what options do Dows have out there to manage taxes on this yeah that's a topic that no one likes to talk about uh you know both in your personal life when you when you get that that email from your Tax Advisor that it's time is like the the scariest email of the year um but but overall I think that it comes down to the structure of the Dow um you know this I think that there is another panel during this event about legal structures for Dows and there is a lot of different models there are Dows that have done you know gone down the path of um of of sort of staying away from any jurisdiction

and staying away from any sort of Incorporated entity um those are the ones that have highest exposure to liability and of course when it comes to taxes it also creates the highest risk uh there there's a lot of interest from Regulators in going after those both about you know from contributor perspective because they are easier to identify and then um obviously over time to to sort of the the broader Dow on the other end of the spectrum we see a lot of structures where there would be a dow there would be a foundation there would be you know a development company and they would be all separated but part of the same ecosystem and sort of working together for the advancement of of that specific you know protocol idea um and

and so on and so each of those entities obviously has a very specific objectives and they would be taxed and and looked from regulatory perspective very differently but this separation really helps because it Shields the liability across those sort of different pools and um I think that um you know this idea that you create a DA and it sort of belongs nowhere and and belongs to the internet is is has been proven wrong already um and at the end of the day like if you're really building something for the long term and and and building sustainable sustainably you need to think about how to how to stay compliant and not not only from the perspective of taxes but also how are you exposing your

contributors to to those risks so there's no one question about how to you know how how those how those taxes would work they would largely depend on the legal structure and then if there are gains and the entity is is incorporated you know there there are corporate taxes and and and capital gains taxes the same way that um you know for for a normal um sort of uh company uh but that helps right like you want to leverage those wellestablished Frameworks to make sure that you can tell everyone that you are building for the long term and playing by the rules and um something that that we sometimes you know see is that people try to innovate for the on the wrong thing and like taxes compliance is is is

just not that like you you can spend your creative you know sort of mental powers on on things that are really important on the on the protocol on the community and and not on the um on the things there um and to earlier Point there's also an emergence of service providers that specialize in making sure that you can stay compliant and if you have a you know preference for um creating a legal rapper for your Dao and you wow this is so aggressive yes yes I'm I'm my my rant about taxes is over anyway no I thank you I I'm really grateful that companies like toku and you are building in the space that can

at least have that knowledge so that everyone else can spend their time building other stuff in the crypto space but always super important and I think we all know that but now that we're all super experts within uh portfolio management and investment strategies I hope all of the Dows that you are running go to the moon and before we close out this panel I wanted to give a chance to all the speakers to tell about where to find them and the companies and anything else you want to say so maybe ad can start with you yeah um thanks everyone for listening in today um if you want to follow me or follow about Sega my Twitter is Arisa Toyo um I also have a Japanese Twitter it's Arisa Toyo JP I go byi um and then in my protocol Sega we have discord.gg sea and we're

also uh available on Twitter uh @ segaf and we recently started a meme account called Sega intern so yeah that's five accounts for you yeah so my my personal socials um you can just go to Twitter and it's colron _ eth and it looks like that photo um for for carat key you know I think one of the the things I want to highlight is that we all of our reports are public so you can go to reports. carp.com and you can see all the portfolios we manages uh which pools were deposited in and it's very transparent and if you're interested in what we're doing and how we do it that's that's exactly where to go um you can find too at too.com or on our Twitter use too um and if you want

to reach out directly team at t.com awesome and web is web.com and my personal is ugawa on Twitter and everywhere else all right I think we'll wrap it up here thank you all thank you so much