This proposal will call for the implementation of a treasury management framework for Horizen DAO. If passed by the community, Horizen DAO mandates the Horizen Foundation to implement various automated, on-chain strategies to target the below asset mix for the Horizen DAO treasury.
Implementation of the treasury management strategy will not be immediate, but rather responsibly phased in over time.
Background
Horizen DAO has been allocated 3,000,000 ZEN with 750,000 ZEN (25%) unlocking at migration to Base and the remaining 2.25m ZEN unlocking linearly over 48 months.
Rationale
A sustainable treasury management framework will maximize Horizen DAO’s ability to fund ecosystem investments over the long-term while accruing value to ZEN. Deploying idle treasury funds will have the double-benefit of providing orderbook depth for ZEN on DEXs while earning fee revenue for the community.
Execution
With the migration to Base, Horizen DAO has the opportunity to drive utilization of ZEN across a vibrant deFi ecosystem and bolster utility for holders.
The proposed treasury management framework will emphasize support for Horizen across Base deFi and yield generation on Horizen DAO treasury.
All treasury operations will be automated on-chain via deposit of assets into single-sided vault strategies which deploy and manage concentrated liquidity positions for leading ZEN pairs across Base’s DeFi ecosystem. By leveraging automated liquidity provisioning strategies, Horizen DAO can generate fee revenue and provide depth to ZEN pairings while maintaining its target asset allocations.
Summary of Benefits
Yield on ecosystem assets - consistent yield earned from automated, on-chain liquidity provisioning
Bolstered ZEN liquidity - automated, on-chain strategy increases ZEN TVL across Base deFi ecosystem
Funding flexibility - diversification into stable and blue chips provides flexibility in funding community initiatives and alleviates sporadic sell-pressure on ZEN
Achieve industry alignment - Increases in ETH or BTC price result in ZEN buying pressure via rebalancing
Successful investments fuel ZEN - Tokens received from Horizen ecosystem investments feed into the ‘other’ category. Thus successful investments will result in rebalancing of those assets back into ZEN, blue chips & stables.
Cost
The Horizen Foundation will bear the cost of having the single-sided Ichi vaults configured and deployed ($40k). All vault strategies utilized for treasury management will also be publicly available to the Horizen community. With the passing of this zenIP, Horizen DAO authorizes Horizen Foundation to contract a third-party to configure and deploy the single-sided vault strategies.
Reporting
Treasury management data will be released each quarter detailing quarter-end positions and asset allocations, as well as yield activity such as fee revenue earned etc.
I’m a huge fan of this for a variety of reasons, including:
Diversifying the treasury and boosting ZEN when BTC and ETH go up
Seeding ZEN’s DeFi ecosystem on Base (and ultimately on our own L3, as applicable)
Generating sustainable revenue for the DAO long term
Automation is key here and we’ll have the best DeFi tools available by being part of the Base ecosystem, so we really ought to take advantage of that.
There’s one part not mentioned explicitly here that maybe should go into the actual ZenIP for vote: I think the excess sequencer fees collected should roll right into this process. Since they’ll be collected in ETH (gas for the L3), we’d ultimately have long term perpetual purchases of ZEN and other assets to fund long term sustainability.
Sequencer fees will likely be small at first, it’s important to create a mechanism linking the governance token of the platform, ZEN, with the platform’s success.
I fully support managing the Horizen DAO Treasury in this type of way. The way I understand it is it would provide liquidity for people to trade ZEN, and generates trading fees that provide an income stream to the DAO.
Is there any potential downside to this activity @tlogs ? Is there a way that the Horizen DAO may end up with less overall value than just holding ZEN?
Good question @blockops.. with the Treasury holding 100% ZEN, if ZEN outpaces bluechips (BTC & ETH).. then the DAO would obviously be better off holding 100% ZEN from a pure valuation standpoint.. but then how does the DAO realize those gains? Who makes the decisions on how much ZEN to sell and at what price point? In my opinion automating these actions is ultimately the best course of action. and there is the added benefit of producing revenue for the community and bolstering ZEN deFi TVL.
The other big point is that if ZEN underperforms USDC, BTC, or ETH, we lose out big time as an ecosystem. Diversification is always a good ex ante idea, even if there are scenarios where not diversifying would have had better ex post outcomes.
I fully agree with this proposal. It provides more stability to the treasury through smart diversification into BTC, ETH, and stables, while also helping the ecosystem by providing liquidity. I especially like the small risk bucket, which, in my opinion, should be allocated for protocols within our own ecosystem. It’s great that this can all be done while keeping the majority of our holdings in ZEN to capture all the upside.
Is it correct that the DAO splits its ZEN funds according to the ratios shown in the picture and then provides liquidity in the DeFi ecosystem (e.g., on Uniswap) with the ZEN/ETH (or USDC, BTC) pairs it holds? Am I understanding this correctly?
I obviously really like this idea. It’s similar to what I suggested in my campaign for special counsel. I would strongly suggest a much larger allocation to BTC, at least 20% of total allocation.
haha i also love BTC, but just clarifying that the 5% is an open bucket for tokens the DAO receives over time by doing things like funding grants to projects that end up giving tokens back when they launch. It’s not meant to be a speculative part of the portfolio, just a realization that the DAO will receive various tokens over time and we’ll want to limit the economic value of those tokens to no more than 5% of the portfolio (e.g. convert them to ZEN, USDC, BTC, and ETH in the LPs if they end up being big winners).
Yes, that’s the idea: diversification + our DeFi markets support, which even if we don’t see 100% ZEN allocation here, supporting ZEN’s DeFi markets ultimately helps ZEN.
Yes @AltTimeHigh this is a target 5% allocation. Rob is correct, any ecosystem tokens received as a result of Horizen DAO investments via the Sustainability Initiative will be added to this ‘Other’ category.
The intent here is to establish guidance around a ceiling for ‘other’ token values as a percentage of total treasury value. For example, if tokens in the ‘other’ allocation outperform ZEN, single-sided vault strategies can be calibrated to responsibly convert that excess value to ZEN and other bluechip assets by providing concentrated buy-side liquidity.
We are set to have deep ZEN liquidity on both Uniswap (V3 at first) and Aerodrome, potentially PancakeSwap as well. This is an immediate priority upon migration!
The implementation of this treasury management strategy will be more nuanced than selling ZEN for the other assets in the framework @nrdl.
ZEN will be deposited into single-sided vaults which automate deployment of concentrated liquidity positions to USDC_ZEN, BTC_ZEN, and ETH_ZEN pairs across DEXs. Strategies will target high ZEN inventory levels in the vault (~80% of value) and automatically adjust concentrations of LP positions based on whether the vault is over or under the target ZEN inventory level.
Thus if 100k ZEN is deposited in a USDC_ZEN pool targeting 80% ZEN inventory, we will consider the position to equate to 80k ZEN and 20k ZEN worth of USDC for purposes of treasury management.
Regarding timing, ZEN will be incrementally deposited into these strategies while managing ZEN inventory levels in the single-sided vaults. As ZEN is absorbed by the market, additional ZEN will be deposited while avoiding over-inventory levels in the single-sided vaults (the state resulting in the most sell-side liquidity for ZEN). This gives us flexibility in implementing the target allocations.
Which is also important for projects that launch on Horizen and allocate tokens to the community: they’ll know we have a responsible treasury management process for retaining and rebalancing those tokens vs just dumping them on the market.
Ideally, the DAO becomes a super valuable partner for projects that launch on Horizen.
One of my concerns is timing and how we’d transition into the target allocations. We clearly don’t want to shock the market with a bunch of sell side liquidity to bootstrap this strategy.
It’s good to see that the plan is to ease our way into these targets over time.
This is great. I agree it is much better to allow the natural demand flow to approach the allocations over time than force it upon the markets disruptively.
I would maybe target something like the following since BTC has been more stable and inverse to alts like zen than ETH in recent times. Obviously this could change but it would be hard to envision the institutional volumes and liquidity on BTC not being #1.
I’ve been having a hard time decreasing the ZEN allocation below 60% since we’re talking about a Horizen treasury, but I think @Primordial has a good point and I can see sliding it down to 50%. I just really wouldn’t want to go lower than that.
I also agree that BTC should play a role, maybe the prominent role beyond ZEN, but I’d still keep ETH as a healthy part of the mix since we’re building the platform on Ethereum, it’s the primary gas for the network, and you never know what kinds of needs we’ll have over time for it. Keeping a healthy stash of ETH would be beneficial for doing things like providing gas incentives for dApps that build with us.
In that light, I’d slightly adjust this to:
ZEN - 50%
USDC - 15%
BTC - 20%
ETH - 10%
Other - 5%
