Comment on page
The case for Seigniorage and Actively Managed DAO Treasuries
As established throughout, seigniorage perpetuates an internal incentive structure through the interplay of the currency issued, the availability of bond tokens when peg drops below 1, and receiving algo-pegged currency by staking share tokens when peg goes above 1. DAO treasuries exist in seigniorage models as a second line of defense to maintain the stability of the peg.
DAO treasuries outside of a seigniorage system seek to maximize their treasuries’ utility. The value proposition is clear. Suppose you are not comfortable trading your assets and risk minimization strategies. In that case, there is great appeal in having exposure to a well-managed fund through holding a DAO token.
While seigniorage protocols do utilize a treasury, they are often underutilized. The ones seeking to employ their treasury often lack diversity in their investment thesis. It is reasonable to expect those who can build a DeFi protocol are familiar with opportunities outside of their products. Still, there is often negligible diversification into assets outside of the realms of the team’s expertise.
Throughout the remainder of this paper, we make a case for creating multi-utility share tokens that underpin seigniorage ecosystems by printing new algo-pegged currency into circulation and reaping the benefits of a diversified and highly utilized treasure. We propose that a DAO treasury plays a significant role in insulating algo-pegged tokens AND reaping additional benefits for investors through an actively managed treasury.
$METIS is the native token for the Andromeda Ecosystem. Please refer to the in-depth fundamental analysis on $METIS for more information.
There is much to be said for Metis. However, we will briefly touch on Decentralized Autonomous Companies/Corporations (DACs) and Polis middleware technology.
DACs are an evolution of a DAO. Vitalik Buterin published an article on DAOs and DACs back in 2014 where the concept of DAOs was nothing more than ideation.
DACs involve releasing DAOs with permissioned and permissionless layers. Effectively, the administrative processes within a traditional business, such as payroll, scheduling, HR management, task assignment, invoicing, etc., can all be built into a DAC. Sensitive information can be stored and made only accessible to contributors that have permission to access that data.
Middleware technology is an underrated feature of Metis that will be able to bridge fiat and crypto into the Andromeda ecosystem seamlessly. Furthermore, they boast IPFS storage capabilities that enable decentralized data storage for businesses operating as a DAC.
The inner workings and mechanics of Tomb Finance are well detailed in documents. Although, It is pertinent to understand the ‘why’ behind Tomb.
Specifically, why did they decide to peg $TOMB to $FTM, the native token for the Fantom ecosystem? When Tomb launched in June 2020, the price of $FTM was around $0.30 USD. Since then, the cost of $FTM has hit an all-time high of $3.46 USD, which is around an 11x increase.
Tomb Finance believed, and likely still do, that $FTM is heavily undervalued. They were one of the first protocols to create awareness in the Fantom Ecosystem, and they recognized significant room for upside as the Fantom ecosystem continues to grow. Tomb placed a bet that the Fantom ecosystem would adopt a network effect. It appears they were right to peg their token and, by extension their fate, to the $FTM token. They also have taken initiatives to give utility to $TOMB as collateral for their FTMPad that launches new products into the Fantom ecosystem.
Andromeda mainnet has been live not much longer than 1 month (at the time of writing). $METIS has less than half a billion-market cap. When we look toward the performance of the Fantom ecosystem, we start to see some similarities. At the time of $FTMs meteoric rise of layer-1 blockchains aligned with the primary narrative. Since these layer-1s have been battle-tested and improvements to scalability are still required, the need for layer-2s is becoming increasingly apparent. Layer-2s embody the scalability narrative, and in an era of adoption, scalability will enable the masses to participate.
We believe Andromeda Mainnet and the $METIS token will play a significant role in capitalizing on the Layer-2 narrative and creating a demand for the products and functionalities pending integration into the network. As these functions become available, the incentives for investors to participate in the Andromeda Mainnet increase.
When we look toward the most successful layer-2, Polygon achieved a market cap just shy of $20B. We can see that layer-2s has received some attention. Currently, no other layer-2 can hold a candle to Polygon’s TVL and network activity. When we look at optimistic rollups such as Arbitrum, they now have over $2.5B of total value locked (TVL). Andromeda has 1/10th of Arbitrums TVL, around $246M. The upside to $METIS is remarkably apparent given on just about every metric; Andromeda outperforms Arbitrum.
We propose utilizing our DAO treasury to invest in new projects entering the Andromeda Mainnet to position the treasury to capture the upside of the network effect.
*Note, the document was written on the 10th of January 2022, figures may not be accurate.
As discussed, there are numerous strategies to utilize a DAO treasury, many of which do not exist or are relative unknowns. Here we wish to briefly discuss an existing DAO treasury management fund and the limitations of their utility.
Multi-Chain Capital ($MCC) is a simple concept. Investors purchase $MCC and pay taxes on buying and selling. A portion of each sale goes into the treasury as a non-native asset. These assets are staked in yield-generating instruments across a variety of blockchains. The profits are then used to buy back the $MCC token and burn it. This mechanic places perpetual buy pressure on the token. Several other DAO treasury models specialize in asset classes like NFTs, P2Es, seed investments, and yield generating instruments.
As discussed, contributors or those responsible for managing a DAO treasury may have a particular skill set in capitalizing on investment opportunities outside of the DAO. If you are a developer who has made money from flipping NFTs, you would likely utilize or take profit on NFTs to replenish and grow the DAO treasury. If you are a developer with a wealth of experience in DeFi protocols, you will seek yield generating instruments. If you are a day trader or swing trader, you may actively trade the DAO treasury and feed profits back to DAO token holders.
While being able to invest with those that may be considered professionals, on balance, this inevitably leads to missed opportunities. As trends and asset classes continue to be born into existence, you need contributors that can manage the DAO treasury so that these novel opportunities and emerging use cases are not missed.