Mobilizing the Uniswap Treasury

Authors: @AbdullahUmar (Arana Digital) & @Doo_StableLab (StableLab)

Summary:

The Uniswap DAO’s treasury, containing assets worth nearly ~$6B, predominantly in $UNI tokens, faces challenges due to its single-asset composition and the lack of a plan for productively putting it to work. To address the treasury’s volatility and underutilization, we propose forming the Uniswap Treasury Working Group (UTWG) to explore treasury management strategies aimed at achieving sustainability and growth for the DAO. This involves diversifying assets to stabilize the treasury and finding revenue-generating investments beyond the protocol’s core operations. The UTWG will examine various treasury plans for Uniswap DAO based on 8 weeks of research and interviews with various entities and individuals familiar with treasury management and adjacent subject matters. A deliverable will correspondingly be released on the forum where we present at least two viable treasury management options for the DAO to begin pursuing. Both of these options will be presented as their individual RFC/RFP, ideally allowing treasury managers to present their products and services to the DAO. The UTWG will help facilitate this process.

The proposal’s ultimate goal is to ensure the DAO’s long-term financial health and support the sustenance of Uniswap. However, there is one caveat–before implementing any of the proposed strategies, in other words, before moving any $UNI to and from the treasury, we must have clarity around the legal implications of administering this program. There has to be a way to pay taxes and limit liability. We hope that a simultaneous discussion around, say, DUNA, or other legal frameworks, takes place. It seems unlikely that the DAO will be able to conduct treasury management if it doesn’t open itself up to adopting a legal architecture. Our hope is that while the Foundation and potentially another working group sort out the legal side, we are able to make some strides on treasury management research. Upon adoption of a legal entity, we can then hit the ground running by actually implementing the conclusions derived from the UTWG’s research.

Treating the Uniswap Treasury as an Endowment

“Treasury” is a broad term that typically mirrors the nature of its underlying protocol. Some treasuries quite literally reflect a protocol’s balance sheet, where the holdings are used to cover capital expenditures, and income is either paid out as a dividend to token holders or used to further grow the protocol. Other treasuries are integral in managing risk, with Aave and Compound being prime examples. Then, some treasuries, like that of Uniswap, are structured more similarly to an endowment, where the DAO must manage a large pool of capital to further the sustenance of the protocol in the long-term.

The concept of an endowment refers to a collective pool of assets held by a nonprofit institution. These assets are employed to support an institution perpetually, with a clear directive of aligning with the desires of the contributing donor(s). In Uniswap’s case, the DAO was established upon the creation of the $UNI token–and 43% of the total supply was endowed to the DAO.


Source: Uniswap Labs

The goal of the DAO is to support Uniswap’s growth and development in a manner that aligns with the collective vision of the token holders and their entrusted cohort of delegates. These objectives can be achieved by funding development projects, liquidity incentives, community grants, and other programs that contribute to the ecosystem’s growth and resilience. However, such pursuits cannot be facilitated without robust treasury management.

The Native Token Problem

The Uniswap treasury is often touted as one of the largest sums of capital at the disposal of a DAO. As of today, Uniswap’s treasury boasts nearly ~$6B of assets, larger than any other DeFi protocol. That number, however, is highly inflated due to the composition of the treasury. Nearly 100% of the treasury is solely composed of one asset: the native $UNI token. Hence, the value of the treasury, in dollar terms, should be massively discounted.


Source: DeepDAO

Imagine if a traditional endowment was allotted billions of dollars in a singular, volatile asset, with a directive of using that treasury to sustain its core business–preposterous, right? That’s exactly the position where Uniswap is. What’s more is that there’s no current plan to mobilize this treasury in a productive manner. There lies a large amount of dormant capital simply sitting in the treasury without any explicit plan to be utilized. From our perspective, there needs to be an initiative to spur this dormant capital into action, even if it means doing so little by little. The goal of this proposal is to create a committee to begin researching ways by which we can put this treasury into effect.

What Are We Optimizing For?

This proposal optimizes for two variables:

  1. Sustainability: the DAO should be a self-sustaining entity, able to cover its future costs in perpetuity.
  2. Growth: the DAO should utilize its capital to grow its principal $UNI allotment in terms of dollars, thereby further propelling the adoption of Uniswap and delivering value to relevant stakeholders.

Sustainability is the bare minimum. It acts as a floor. Unless the $UNI price continues to increase forever, the DAO, whenever it reaches into its treasury reserves, is reducing its runway. Hence, the first objective in any treasury management initiative should be to diversify out of the native token and into a more stable asset, like a basket of stablecoins. One could go as far as stating that any $UNI held in the treasury should actually be written down to zero. This mindset, where treasury $UNI is effectively treated as an unissued share, should spur us towards diversification.

Since crypto is prone to fat-tail events, the DAO should establish a more robust cushion in case the market crashes. In 2021, the Uni treasury value ran to nearly $19B, and it quickly fell into a limbo zone between $1.5B - $2B for nearly 1.5 years between Q2 2022 and Q1 2024. No endowment should be this volatile. We should be in a position where if the DAO needs to fund certain initiatives, there are reserves to draw from without causing significant impairment to the token price. For instance, when the Foundation needs to be funded again, it should ideally be the case that a large portion of those requested funds are given in the form of stablecoins for instant liquidity.


Source: TokenTerminal

Beyond mere diversification, the DAO needs to pursue growth. Currently there are no programs in place for the treasury to increase its net asset value beyond $UNI appreciation. This is where the treasury can be used to generate revenue, either from operating or non-operating activities. Let’s break this concept down–distinguishing between the operating and non-operating income for the DAO is important for defining the source of treasury growth.

Operating Income: Operating income would pertain to any income generated from the primary business activities of the protocol, which, in Uniswap’s case, is fees from swaps. Currently, the DAO does not collect any income from fees and likely won’t in the future under the Uniswap Foundation’s recently proposed fee architecture. The Uniswap DAO will therefore not be sustainable in the long-run by relying on income from operations–fees generated will most likely be paid out to token holders in full, leaving the DAO with near zero income. To that end, we must rely on non-operating activities to ensure the sustainability of the Uni DAO.

Non-Operating Income: All income not generated from fees falls into this category. If the Uniswap DAO does not plan on attaining revenue from operations, then it must utilize its current treasury to collect income via alternative methods–likely through yield-bearing strategies and investments. Reliance on non-operating income further establishes why the Uni treasury mirrors the setup of an endowment, where the long-term sustainability of the protocol is built on indirect investments detached from the protocol’s core operations. These methods are to be further explored, and the present proposal aims to pioneer such exploration.

Working Group Details

Based on the above reasoning, the UTWG will conduct 8 weeks worth of research into the types of treasury management initiatives that the DAO may reasonably pursue in the short-to-medium term. The group will note on the experience of treasury management practices of other DAOs, adopting practices that have historically worked well and conforming them to Uniswap’s current situation, along with the presentation of new models that we believe are potentially more effective. Considering treasury management has been a key aspect of many prominent DAOs like Maker and Aave to Lido and Gnosis, we believe that there are many case studies and frameworks that can be explored to ensure initial experiments will return positive results.

The UTWG will also try to collaborate with those working on various legal developments including the recent Wyoming Decentralized Unincorporated Nonprofit Association (DUNA) Act. This process may fall outside of the jurisdiction of the treasury committee and may require outsourcing entirely to another party. It’s vital that this treasury research is analyzed in the context of potential legal structures, and we won’t move forward with implementing our research unless there are proper legal frameworks in place. The Uniswap DAO has yet to formalize its opinions on how to set up legal entities, so this caveat may delay the implementation of the proposed treasury initiatives. The UTWG’s research may conclude that a legal working group should work in concert with the treasury group to effectively bring this program to fruition.

It’s also important to emphasize that the deliverables of the UTWG will aim to highlight potential treasury management options rather than pinpointing specific service providers. If the committee comes to the conclusion that an RFP process is the ideal manner by which treasury managers should be appointed, for example, then one of the UTWG deliverables will be a call to action for various service providers. After ample discussion in the forum, the most promising service providers will qualify for a vote of confidence from the DAO. The elected members will then collaborate with the UTWG to implement a proposed treasury management initiative–granted a legal framework is in place. At this point, the working group will act as the liaison between the DAO and the service providers, ensuring proper accountability and transparency for the sake of the DAO.

Note that it’s too early in the research process to conclude the exact operations of the treasury initiatives–the above paragraph simply outlines a potential order of operations, which is subject to change based on our research. Our goal is to simply present the DAO with an assortment of options, backed by interviews and research.

The Uniswap Treasury Working Group Members

The UTWG will be composed of four members. 2/4 members are listed below and are a part of working group zero (WG0).

StableLab

  • StableLab is a governance firm focused on professional delegation, DAO framework design, and product development. StableLab works with various projects, from the ones just starting their journey to decentralization to the most prominent DeFi protocols.

Arana Digital

  • AD is a professional governance group. The team is deeply steeped in the crypto space and has multiple years of participation in protocol governance. With delegation history for DEXs, money markets, L2s, liquid staking protocols, and stablecoins. AD brings a diversity of experience to DAOs–its members have consulted for companies like Immutable and dYdX, worked at crypto investment and trading firms, set up various validator nodes, and run educational events for university students.

They will be helping administer and organize this proposal. The other two members will be elected via a Snapshot vote. Elected members, along with WG0, will be responsible for helping conduct research and aiding in proposing the final deliverables to the DAO. After the 8-week research period, the 4 UTWG members will act as the the liaison between the treasury managers and the DAO for 6 months. The UTWG’s role would then focus on ensuring accountability and transparency for treasury management initiatives. A UTWG election will be conducted in every 6-month interval thereafter.

Budget
The UTWG asks for a budget of 6,000 $UNI. The hourly rate will be the same as the Accountability Committee at $200 per hour. If this committee is formed, then the UTWG will form a 3/4 multisig to conduct payroll. Retroactive compensation will be distributed to WG0 based on their input hours by the start of the program (i.e. once the onchain vote passes).

Tentative Next Steps

  1. March 19 - March 26: RFC

  2. March 26 - March 30: A temperature check will go live to gauge the interest to launch the The Uniswap Treasury Working Group.

  3. March 30 - April 6: If temp check to form UTWG passes, a 7-day period will take place for prospective candidates to apply to the working group on the forum

  4. April 7 - April 11: A Snapshot election will take place, allowing the DAO to vote for the two remaining members of the UTWG out of the given applicant pool

  5. April 12 - April 19: the onchain vote will be live, batching together the formation of the working group, its four members, and sending the budget to a multisig

  6. If the onchain vote passes, then over the course of 8 weeks, the UTWG will examine various treasury initiatives for the Uniswap DAO and create at least two viable treasury management options, which will be put into their separate RFC/RFP processes.

The exact implementation of this program after step 6 is to be determined based on the working group’s research and adjacent legal developments.

12 Likes

I’m new to Uniswap, and my number one concern is whether the Uniswap development team understand the importance of making the treasury accrue sustainable value with diversified assets. Genuine question: has the Uniswap development team ever talked about this? I would like to hear their thoughts.

If they understand the importance, then I’m not concerned and would assume the reason why nothing meaningful has been done with the treasury yet is due to legal challenges.

Overall, I support mobilising the treasury, but there needs to be a separate discussion on the rules of treasury management. I would also like to hear more thoughts from the development team.

2 Likes

Hi, the developement team, which I’ll assume is referring to Uniswap Labs, is entirely separated from treasury conversations. Their focus is on product development like Uniswap v4, X, and the their wallet app. It’s up to the DAO, in concert with Uni Foundation, to help resolve issues around the treasury and legal side. The purpose of this proposal is to do exactly as you mention:

Thanks for the clarification. So, is it safe to say that it is the majority of UNI token holders who are concerned about legal challenges, hence why the treasury is still the way it is after all these years?

Thanks @AbdullahUmar and @Doo_StableLab for the post and tackling this piece. This topic is something we’ve always dabbled with and something we’ve always been interested in exploring. However, given the legal nature of this, and anything that involved taking profits/selling $UNI being a very obvious taxable event, it’s been tricky to move forward at all.

However, with recent DUNA legislation, there seems to be a very realistic chance of us being able to actually do something in the near future. This is super exciting and of course peaks our interest as we wholeheartedly agree that the treasury should be significantly discounted due to only having $UNI.

Moving forward, we’re definitely very interested in getting involved. Whether this means trying to help on the working group or contributing to legal infra in general, setting up a DUNA and understanding the practical ramifications of that should be a priority in our opinion.

3 Likes

Pretty much, yes. Large token holders have been on the side of conservatism to prevent legal issues. But now feels like the right time to flesh out these ideas more concretely as we potentially begin taking action on the legal front.

1 Like

Thanks for putting this together! I think this is a great initiative for the DAO, and I’m excited to see findings from the UTWG’s research!

4 Likes

Another issue with the previous suggestions for treasury management also has been that the proposals did not give the community enough options. Which is why the Working Group aims to find different options for the community to consider

  • below is my personal opinion, and does not represent the view of my affiliated entities

hey guys, thanks for putting up this detailed proposal with clear steps ahead - i think it’s an appropriate time to think about treasury management and perpetuity of the DAO given the relative maturity of the DAO, as well part of the market cycle we’re in. more importantly, a coordinated approach via Treasury Working Group will help the DAO to eventually form a thesis on treasury deployment and spending, instead of thinking in terms of piecemeal proposals that could be redundant.

you rightly pointed out that different projects have different objectives when it comes to Treasury Management; the objectives naturally drive the risk appetite and method of the deployment. Aside from examples that were highlighted (Aave, Lido, Gnosis, Maker), ENS would be another good case study, as their goals (endowment) and token (governance) are more similar to Uniswap.

2 Likes

Hey, I’m happy to see this proposal and strongly support the idea of diversifying/derisking the treasury as soon as the legal concerns are alleviated. It makes sense to do this regardless of whether we think about it from the mark-to-market value’s perspective ($6 billion) or from the unissued shares perspective.

However, I have some comments, perhaps to consider in your working group.

First, I’m not exactly sure what you mean by “delivering value to relevant stakeholders.” It is clear that Uniswap is not a traditional business. The main role of the DAO, as I see it, is to govern the protocol, work with, and support the different actors in the ecosystem. UNI token holders are surely one of them, but the protocol would still work without the token, while without LPs, traders, or working smart contracts, it would have zero value. Uniswap is also not a typical DAO in the way a lot of the development and research work is done by Uniswap Labs, who do not participate in the governance, do not have any claims to the DAO-controlled operating income from the protocol, and have their own path to sustainability. Funding protocol/ecosystem development from the treasury is still an important matter, but it’s not an existential one, allowing the treasury burn and allocation to be more conservative.

Second, all DAOs are only a few years old. Sustainability to perpetuity is not a basic goal; it’s a very aspirational goal, in my opinion, something that no DAO can confidently say they have achieved. Moreover, we have seen a few DAOs being good at treasury management and many that have screwed up very badly. (Interestingly, the Golem Network probably has one of the most sustainable treasuries in DeFi, precisely because they do almost nothing with it.) Studying the good examples is not a bad idea, but consider the failures as well. Not just Lido, but also Ooki DAO and The DAO. Commit resources to some form of internal red-teaming.

2 Likes

Thanks for the proposal @AbdullahUmar and @Doo_StableLab

I generally support the idea of investigating this treasury diversification. As you have accurately pointed out the legal implications surrounding this issue, I wonder if the foundation has conducted any preliminary research on this topic or has gathered any initial sentiments from the largest holders?

About the operational process, I’d be happy to see multiple independent teams doing their own investigation and suggesting one proposal each as opposed to multiple proposals by the same team. This would allow the DAO to see if theres actually a ‘best case’ that comes up from independent investigation or is there genuinely no consensus amongst independent experts on this matter.

My suggestion:

  • Skip the popularity contest associated with selecting individuals
  • Mandate a maximum and minimun team size (eg: 2-4 orgs/individuals)
  • Allow teams to express interest in doing this and select the top ‘N’ (eg:5) teams to do the actual research based on a snapshot temp check.
  • Provide a clear eligibility criteria for ‘what constitutes a valid submission’
  • Put a bounty on submissions along with a clear deadline
  • Divide the bounty pot between all qualified submissions
  • Let the DAO vote on all submissions to identify the best course of action
3 Likes

Thanks for the comments!

We have considered various options but after discussing with various delegators as well as treasury management entities for their feedback. Having one focused group that are voted in by the community was seen as more optimal and provide more legitimacy to the strategy.

However, once the strategy is set, then for groups that can execute such strategy indeed will be multiple teams submitting their methods of executing such.

2 Likes

Thank you for partaking in this discussion, Atis.

Agreed–it’s a general pursuit we should look into regardless of market conditions. After doing some surveys last year, the sentiment was pretty mixed. Legal aspects aside, many folks wanted to wait for a bit of a run up before selling to prevent further tanking the price.

Correct. By stakeholders we are referring to a swath of groups, not just token holders (“shareholders”). This would involve LPs, swappers, target chains, delegates, Foundation, Labs, etc. It’s very much an ecosystem that collaborates to make sure Uniswap is sustained and grows. Treasury-based initiatives are meant to, in large part, indirectly deliver value to these groups of stakeholders. And yes, outsourcing development to Labs enables us to be more conservative if needed. Although I don’t know how sustainable Labs would be say, 10 years down the line. They’ve started introducing revenue streams, but is it truly unlikely that they never come to the DAO in the future for funding? Not sure. But in case that day comes, let’s be ready and have ample funds.

Agreed–and wouldn’t it be great if Uniswap is able achieve this goal? Gotta aim for the highest standard and be the DAO others look up to.

True.

1 Like

I am curious what designs this comittee would come up with. However:

Overall against the structure of this proposal. The treasury is huge for a group to decide how it is managed. The DAO already targets stakeholders, and funds can be directed to the DAO over time if they prove value to those stakeholders.

As seen with the ARB grant committee all the ARB was sold without any feedback from governance. A committee with free reign to sell and do things with the treasury without much oversight would be bad for all stakeholders. There is such little oversight and information about what is being funded, and value added. I could see this happening with the treasury commitee. ARB to USDC swap

I am for treasury management programs that are ran through the DAO as experiments w/ core mechanisms that increase the protocol’s mission, with smaller funds seeded from the treasury via votes.

Once a treasury mechanism is found then it can be implimented ie. Like the uniswap v3 fee switch.

One group is not deciding how funds are managed. This proposal is merely setting the first stepping stone for enabling proper treasury management. The WG will do 8 weeks of research and present the DAO with options on treasury management, acting as a guide. The DAO will be the entity to elect which treasury managers they like and the types of management initiates they prefer. And the working group, after conclusion of the research phase, will act as the liaison between the DAO and the treasury managers, ensuring proper reporting.

The WG’s job is to help the DAO make a better decision and help facilitate the treasury management process–not actually do the treasury management. Someone has to take on this role otherwise we’ll be disorganized.

This may very well be a conclusion derived from the WG’s research. Tbd.

1 Like

One quick comment on the Labs hypothetical - while I agree with the rest of the points.

The way I see it, the goal of foundation and DAO should be to fund developments that otherwise wouldn’t happen. Labs have raised $176M in total, at unicorn valuation during the bear market. If they believe developing something is good for their business goals, they don’t need DAO funding for that. The same applies to other companies with similarly high ability to attract VC funding. And if such a company isn’t sustainable 10 years from now, then there’s all the more reason for the DAO to not get involved.

One exception is when the DAO / foundation has a proper procurement process in place for something the DAO needs and has specifications for, and Labs win the procurement because they have the better offer. Even then the situation is a little bit icky, with a potential conflict of interest, and best avoided.

4 Likes

The proposal presented here is both timely and forward-thinking. It addresses the critical challenges facing our treasury with a well-structured approach, emphasizing the necessity for legal clarity, the importance of asset diversification, and the power of community involvement. These are indeed the pillars on which a resilient and prosperous Uniswap DAO can be built.

One aspect that stands out is the cautious approach towards understanding and navigating the legal landscape before any treasury movement. This not only ensures compliance with existing regulations but also safeguards the DAO’s operations against future legal uncertainties. Moreover, the proposal’s commitment to diversifying the treasury’s assets and generating non-operating income is a prudent strategy that could greatly mitigate risks and stabilize the DAO’s financial health. Well done!

I also commend the emphasis on community involvement in the decision-making process. The collective wisdom and diverse perspectives of the Uniswap community are invaluable resources that can significantly enhance the proposal’s outcomes.

As a suggestion, though I am sure you’ve considered this, is it might be beneficial to explore partnerships outside the eco with established financial and legal advisory firms that have a proven track record in the crypto space. I do realize there is already significant bandwidth here so maybe not needed. Partnerships here could provide additional insights into complex regulatory environments and offer innovative strategies for asset management and growth.

This proposal lays a solid foundation for a sustainable and growth-oriented treasury. I believe we’re on the right path towards securing a prosperous future for Uniswap. Looking forward to seeing these initiatives come to fruition and am excited about the positive impact they will undoubtedly have on our DAO.

1 Like

Thanks for the proposal @AbdullahUmar and @Doo_StableLab. My team and I would recommend aligning to the following tenets to help guide decision making when mobilizing the Uniswap Treasury. These tenets are designed to be iterative and improved with feedback. Many of them are already well demonstrated in the above proposal.

  1. Risk and Diversification: Enhance treasury stability through risk management and asset diversification in blue chip asset.
  2. Governance: Foster stakeholder alignment with transparent governance.
  3. Innovation and Ethics: Drive growth with DeFi innovation and ethical practices.
  4. TVL Growth and Fee Use: Boost Total Value Locked and effectively use fees for sustainability.
  5. Market Stability: Implement sell pressure mitigation and target volume growth.
  6. Transparency: Ensure stakeholder trust with clear, regular financial reporting.

Eager to help however we can.

Don (Solo Labs)

4 Likes

The Temp Check is now live!

Please vote here

1 Like

The below response reflects the views of L2BEAT’s governance team, composed of @kaereste and @Sinkas, and it’s based on the combined research, fact-checking, and ideation of the two.

We’re voting in favor of the proposal during temp-check as we believe treasury management is important and having a dedicated working group research best practices and deliver actionable suggestions to the DAO is necessary for this to move forward.

Following the discussion held in the comments above, we’d suggest the following:

  • On top of the UTWG publishing the treasury management options, we’d like to also see the associated research published so any other team could use it to base their own treasury management proposals on it.
  • Before the on-chain proposal, there could be an additional budget reserved for legal work that might need to be outsourced to a third party. Ideally, the delivered options should also present their associated legal implications which might be outside the expertise and scope of the UTWG. If the budget isn’t used, it can be returned to the DAO’s treasury at the end of the 8-week period.
3 Likes