Beyond the Treasury: How DAOs Can Build Sustainable Revenue Without Spending Their Way to Zero

Transcript

Okay, thank you everybody. Um, yeah, again my name is Brick. I'm the head of finance at a firm called Entropy Advisors and I'm here today to kind of talk through the arbitrary dice history as well as then what kind of lessons can be applied to how to basically build out sustainable revenue um without spending out the treasury basically to zero. I guess in short just an overview of what arbitum is. Um I'm sure most of you are familiar with arbitrum one but it's an optimistic rollup. um the leading L2 right now when you look at total value secure that's around 16 billion um but I guess arbitum is much more than that as

well um through the orbit stack which is basically arbitum's technology that allows um anyone to basically build L2s and L3s utilizing the arbitum technology um I think arbitum da or when it comes to the arbitum da it's a notoriously I guess active DA or has been so historically at least with around 230,000 delegates right now and actually just this week we passed the 70th onchain proposal but um yeah there's been over 300 or so offchain proposals as well and uh short introduction on entropy advisors we

basically got funded with a grant through the arbitrum foundation and have been working with the DAO um since the beginning of 2024. Um right now we're in a two-year exclusive contract with the DAO. So we're basically fully DA funded and fully work with the DAO. Um in the beginning when the DAO was a bit more, let's say chaotic. We did quite a lot of different things, but right now um we've gotten to kind of uh put our focus more into our core capabilities which are basically data treasury management and finances um incentives as well as something that we call uh special projects which is basically kind of BD and partnership type of work.

So I guess as a short introduction of like the arbitrum dows formative period um I think when the DA was formed the arbitum foundation kind of deliberately took a step back um and took a more of a passive role meaning that there wasn't kind of any core figures or so to say core drivers who would have like been spearheading the DAO side of things. um which then led to a lot of different like contributors coming into the DA and starting to push forward their own initiatives. I guess the kind of friction that came about from that was that the all of the initiatives that were pushed forward were kind of operating in their own silos. Um and a lot of the kind of contributing

uh people were doing so with like overlapping mandates and tasks as well. So it was quite a messy time back then. Um and because of like programs back in the day used to run for like let's say three or six months it was pretty difficult to find any continuity um across these initiatives and this again put quite a lot of like pressure on delegates themselves because basically everything was discussed in the forums. You might have periods or weeks where there's like five or 10 different proposals that are being discussed. Um, and basically delegates were kind of expected to oversee everything. Um, which of course like could be compared to almost a full-time job with the amount of um, hours had to be put in.

And then because of the amount of proposals that were up on the forum, you basically or as a delegate, you were constantly like facing um, like lobbying pressure. And then I think the third point I want to bring up is the kind of amount of love the treasury itself got in the beginning which was basically zero. So there was no kind of long-term financial thinking or um any thoughts about like basically diversifying away from anything else than ARB. And yeah, basically back in the day, all of the initiatives were funded through what I call just in time liquidity. Meaning um when an initiative was kickstarted, the arbitrum or the ARP tokens would be

converted then into like a cash or cash like um asset and then fund the initiative. And yeah, kind of what the impact of this was that it was in the beginning quite difficult to attract any talent because you wouldn't know how long you would actually be able to work with the DAO. Um, and you had to go through this like very frictious governance process basically which also then sometime led to like proposal gridlocks because yeah, everything had to be defined so rigorously and you had like hundreds and hundreds of counterparties. you had to um speak with which made it such that it became basically difficult to to like push anything through and yeah lack of

synergistic execution. And I think I already kind of talked about this but not that many initiative worked well together um as a whole. And then the graph I have here is just to show that like um until the beginning of 20125 of the total treasury um like ARB as a percentage of the total treasury it never dipped below 95%. Um so the exposure directly to ARB was very high and this just means that like even small price fluctuations in the underlying token means that the treasury value can like turn around quite a lot. And the problem with this is also that it is very difficult with investors or for an investor to kind of reason what the

spending will look like over the next you know year or two years or I should rather say what the float will look like of the underlying tokens because you might suddenly one month have a proposal that floats a lot of Arab tokens into the into the market basically. So I think this was one of the major changing points for the DAO. Um it's called the arbitramaligned entities vision which basically kind of changed the way the the operates and pushes through initiatives. The vision basically defined uh five different entities as the let's say core contributors who each own their own like delivery areas. Um and these comprise us

as in entropy advisors offchain previously offline chat offchain labs um doing engineering product partnerships the arbitum gaming ventures which is basically a gaming fund uh spun up by the DA. Then we have the arbitrum foundation doing educational and technical uh advancements working as D legal rapper as well as then doing marketing and kind of back office functions and most recently OPCO which basically works kind of as a bridge between then delegates and these like contributing entities and I think it's important to highlight that delegates still like have full control over the treasury itself. So they need to like

approve all of the proposals that want to withdraw any funds or um approve for example this higher level AE engagement. So the delegates role has more turned into like highlevel watchers and uh basically people who push forward the vision for the DA without having to like be a part of every single dayto-day operational decision. So I think where we're at right now kind of what the results of this change have been um is that the D now has two new diversified revenue streams. The first one being time boost which is basically an auction-based express lane that

allows the DAO to capture MEV or internalize some of the MEV um proceeds that happen on the transaction layer. uh I'll go into that a bit more further uh down the presentation as well as then uh we've actually started doing like active treasury management which has been a big development uh for the DA when it comes to like both activating idle capital to make it compound as well as then stabilizing kind of the let's say runway of the DAO. Um another big difference has been fiscal discipline.

um as well as I guess I already talked about the multiasset treasury but um now since all of the or most of the initiatives that get pushed forward are um as a result of an AAE um I'd say the initiatives are much more targeted and maybe better budgeted than they were previously where that I was spending quite a lot of capital on a quarterly basis and then I guess where the ecosystem is right now um we're still kind of the leading L2 to um becoming more and more the home of RWAS with especially tokenized money market funds as well as then tokenized equities and I think you could argue that arbitum release a prim uh destination for

enterprises as well as stratify partners most recently with the Robin Hood uh kind of partnership that was announced and their chain is going to be launching soon uh built with like arbitum technology. So when it comes to this diversified revenue streams, the first one is active treasury management and the way the kind of treasury management portfolio is structured is it's managed through the ATM committee which comprises again entropy advisors as well as the arbitum foundations who custodies all the funds as well as deploys them and the deployments are made based on suggestions um that entropy advisors makes to a

committee called the OAT um who then either approve or reject that suggestion. If it gets approved, then deployment of course happens. Um it's a hund00 million portfolio right now comprising RWA's ET correlated assets as well as then stable coins. Um most recently we deployed into USDA which was basically a big like ecosystem growth play and this kind of comes to the point that the treasury management portfolio or the treasury management portfolio's mandate is kind of twofold which is both growing the like ecosystem as well as then maximizing risk adjusted returns.

Um but kind of rule number one is don't lose any capital. So this is more of a like stable or safe haven for assets, let's put it that way. We're deployed across like D5 protocols. We're doing covered calls. We hold tokenized money market funds. Um so both a mix of like onchain and offchain uh kind of deployment places. I think the target state for this would be to start covering expenses or recurring expenses with like pure yield without actually spending down the portfolio. And then the kind of second diversified revenue stream or new revenue stream I wanted to talk about is time boost which was launched in um April 2025 and basically

previously how the arbitum um onechain sequence transaction was on a first in first out basis but time boost basically kind of replaces that or it doesn't replace it but it introduces something called an express lane which um any entity they can basically bid on. It's a sealed bid, second price action, and the winner of that bid um receives a 200 millisecond advantage over anyone else on that chain. Um and yeah, basically allows the DA to internalize some of the MEV revenue. And the chart here I think shows pretty well that um these new revenue streams have

kind of uh enabled the Dow to um sta stabilize its top line because yeah in recent months for example even while transaction fees have kind of started trending downwards these two new revenue streams um have stayed relatively stable and uh in April made up 60% of the total gross profit of the DA. Then when it comes to the fiscal discipline and multi asset treasury part I think I'll start with the Dow token holdings right now um at the end of 20124 the rout the DA did already by itself run a program that basically diversified some AR holdings into tokenized money market funds but um last

year it was taken kind of forward with the basically initiation of the uh ATMC committee um who again did another round of basically diversification into tokenized money market funds but also um increase the Dows like stable coin holdings um which has then allowed the kind of this part of the portfolio to stay more stable and even as the wider market has kind of gone down um this provides some like runway stability from that point of view. The other part is this fiscal discipline uh like portion of this slide I guess um which just shows that if you

look at the beginning expenses from like uh the fourth quarter of 2023 until the third quarter of 2024 uh the Dow was spending around like 20 to 40 million on incentives on a quarterly basis. So it's a logarithmic um chart and we were basically able to redesign the incentive program in such the way that uh this large spending isn't even necessary anymore and I think we've been able to kind of maybe produce even better results with a smaller budget and this brings me to the drip which is basically the D5 ren renaissance incentive program. um which is the DAO's

new incentive program which was designed by again entropy advisors with um help from the arbitrum foundation as well as OUCL. It's an 80 million ARB um incentive program which is um cut into four separate seasons and each season is targeting a very specific activity. Um, season one ended in February or midFebruary. Um, and basically was fully uh targeting like money market activities. So specifically looping both ETH and stable coin assets. Um, so the user would deposit for example LSTs or LRTs or yield bearing tokens and then loop that

trade up. um we made a decision to kind of work very closely with a lot of issuing partners as well as money markets themselves to build up this program and we're adjusting it continuously throughout uh the program's life cycle which I think was a big part of why it has been so kind of successful. I think historically a lot of like incentive programs have mostly been looking at like TVL growth on its own which I think is misleading because um TVL growth is basically driven a lot by the current market environment. So you kind of need to adjust the um TVL growth on your own chain with how your market share is also

changing. So like if your TVL grows throughout the program but your market share compared to like your competitor stays flat then you can basically argue that the incentive program didn't have any impact because the total market just grew. And this is kind of what the adjusted cost effectiveness metric here tries to capture. So on the left hand uh graph I guess you can see that even though we only spent around 4 million on season 1 um we achieved around a 51x um cost effectiveness metric which just means uh basically kind of how much TVL penetration you have gotten per dollar spent on this um incentive program. And then the last point I wanted to mention

is because of how the program I think was designed um it has also led to like quite sustainable results in a way where we grew the yieldbearing stable coin market on arbitum specifically from around like 200 million at the beginning of September when the program was started to over 1 what was it again 1.2 two billion around um at its peak. And even though the market has recently been pretty choppy, um the market cap has still stayed around like 750 800 million, which is a 3x increase compared to when the program was started. And that's all I wanted to say today. Thank

you very much for your time.