Arbitrum Treasury and Sustainability - Working Group

[thedevanshmehta]

We are thankful to @Khan and the Centrifuge team for their help with providing research into Real World Asset diversification. You can find their full post and report here

@Khan

Through the Treasury and Sustainability working group , the community has expressed interest in a general topics covering treasury management, real world assets, and best practices.

The Centrifuge team is sharing a perspective for the Arbitrum community, intended to provide general advice on the development and implementation of a treasury management practice within decentralized organizations

Their report directly addresses point 5 on our taskboard, viz

@thedevanshmehta

Methods or case studies for how DAOs can diversify treasury holdings to traditional instruments like stocks/US bonds

Accordingly, they are the winners of 2000 ARB for the month of December!

@thedevanshmehta

We are also allocating 2000 ARB a month (upper limit: 4000 ARB) for thoughtful engagement and help with tasks by the community

Below is a review of their report

The Good

I loved the first half of the report: it is quite thought provoking in terms of how we should be approaching treasury diversification. Specifically,

• creating an investment policy that balances the conflicting objectives of capital preservation, generating income (yield) and maximizing return. As a DAO, we need to think of the relative proportion of holdings fulfilling these 3 objectives

• creating a risk framework that sets the tolerance limit for the volatility our treasury is exposed to. Currently, we are entirely vulnerable to price swings of ARB. And maybe that’s a good thing! In any case, we need to consciously decide the limits of volatility for our treasury.

• tech tooling to manage volatility and achieve our investment policy. We are curious to see the research output from @Aera and how autonomous treasury management tools can help our DAO both in managing risk-reward and also figuring out the right level for it in the first place

The Bad

Perhaps the most high level criticism of the report is there is nothing specific in it for Arbitrum - it could have been prepared for any DAO (not alleging this to be the case, just that it was so high level as to not be particularly specific to our own situation)

After the exhaustive analysis of liquid real world assets, I would have liked some actionable recommendations or insights. For example, after their breakdown of the difference between US treasurys, bonds and securities, I would have liked a range for how much of each we (or even more generally a treasury similar to our position) should optimally hold in proportion to our native token or crypto assets

I would have also liked some hard numbers on other DAOs and their holdings of these assets (at least those where such numbers are publicly available).

The Ugly

While praising the benefits of RWAs and talking up their interest rates, Centrifuge did not run any comparisons with the de-fi world. Understandably so, as their business focuses on t-bills and RWAs.

I would still have liked some comparison between the yield on these products and for eg what USDC on compound might offer, so we can accurately assess the risk-reward ratio.

Overall, its an easy to read report that has provided a very valuable framework for diversification (balancing objectives of capital preservation, maximizing returns and passive income generation); underlined the need for a risk framework that sets the bounds of acceptable volatility in our treasury’s net worth; and broke down the offerings available as bonds/treasury’s from the US government that we can invest in.