This is a proposal to have KarpatkeyDAO create, train, support, and audit a Core Treasury Team within CoW DAO that would work jointly with KarpatkeyDAO to develop CoW DAO’s treasury, allowing CowSwap to efficiently provide its own liquidity, fund its operations, development, and evolution while optimising yield for idle funds.
Adequately managing a DAO’s treasury is time-consuming, requiring several hours a day of research to ensure that tokens are utilised in the best possible way. An idle treasury has a significant cost of opportunity. Therefore, delegating the administration of the treasury to a professional non-custodial treasury management DAO such as Karpatkey would optimise its growth with a carefully curated strategy with controlled risk.
Even though we can’t promise results, we can show our past performance as advisors for Gnosis DAO’s treasury when our goal was to obtain a sustainable growth of funds with low exposure to risk (before shifting to maximising the growth of the Gnosis Chain). As the chart illustrates, the yield obtained by Karpatkey’s strategies was greater than that of the 65 largest DAOs in the ecosystem.
We achieved those results while looking after the runway, taking care of providing enough liquidity to face all of Gnosis’ obligations, covering all operating expenses and funding every single approved Gnosis Improvement Proposal:
Source: Autonolas independent research (link to original report here)
The following chart displays Karpatkey’s 2022 YTD performance.
We will create, train, support and audit a Core Treasury Team that will work jointly with us to carry out several treasury-related tasks. Its initial goal will be to provide enough liquidity to secure Cow DAO’s runway.
In order to be able to fund Cow DAO’s operation adequately, an initial analysis will be carried out to determine the organisation’s expenditure needs, including the following:
- Solver execution costs
- CoW Grants Program
- Monthly payments to contributors
Payments will be forecasted in a timeline which will be used as input for the liquidity needs analysis. Once the necessary liquidity has been secured, the rest of the funds will be grown following our yield strategy.
Regarding the tasks, CoW DAO will set up a new Safe multi-signature wallet with a 3 out of X setup, where Karpatkey will only have 2 signatures (insufficient to execute any transactions) and CoW DAO’s Core Treasury Team members will have at least 3 signatures. Therefore, the funds will be accessible to CoW DAO at all times, without any need for KarpatkeyDAO’s intervention.
Karpatkey will assist CoW DAO in bootstrapping its liquidity and optimising the yield for its idle funds by suggesting a series of strategies tailored to suit CoW DAO’s needs and risk profile.
Execution meetings will be held with the participation of KarpatkeyDAO and CoW DAO’s trusted signers from the Core Treasury Team, where the strategy drafted periodically by Karpatkey’s Financial Engineering team will be carried out. A tight security protocol provided by Karpatkey will be observed during those meetings.
KarpatkeyDAO’s goals are the following:
- Design and implement an efficient and robust treasury management system
- Identify the best economic opportunities for the treasury tokens
- Facilitate COW liquidity
To align with CowSwap’s vision and ethos and increase transparency with COW token holders, we propose making information about investments available to the CoW DAO community. The treasury would be handled in a completely transparent way, positively impacting CoW DAO’s reputation and trustworthiness.
KarpatkeyDAO will provide a weekly report and support in identifying data elements upon request from CoW DAO’s community. Also, KarpatkeyDAO would review the data reported and assist in performing analytics and quality reviews to confirm the accuracy of the data.
Karpatkey is organised into different teams, as shown in the following org chart.
They constantly monitor the market, comprehensively analysing existing and emerging protocols for financial viability and security. After the conclusion of each analysis, the team drafts the execution strategy and submits it to the execution team.
This team carries out the execution strategy during periodically held videoconferences, abiding by a strict security protocol audited by Cipherblade. They ensure that the underlying reasons behind each transaction are met before execution, checking that price impact, impermanent loss, liquidity, yield and other parameters are within range. At least one trusted signer from the client must participate in each meeting to approve every transaction.
They put together periodic reports to show the state of the treasury and the performance of all positions so that its health and growth can be constantly monitored. Also, they check existing positions where tokens have been allocated on a daily basis, to determine if they are still the best ones to suit the strategy, tailored to the client’s goals and risk profile.
This team is responsible for the setup and maintenance of infrastructure, nodes, routers, bridges and keepers.
They create and improve the code of the dApps and modules that we use to sustainably scale our operations, increasing capital efficiency and security through audited automations which are comprehensively tested before deployment.
This team continuously monitors the regulations that apply to every activity in which KarpatkeyDAO takes part, ensuring compliance. They also follow the legislative trends to be proactively prepared to abide by potential future regulations.
They encompass HR planning, recruiting, compensation and benefits, training and development.
KarpatkeyDAO will design an efficient strategy to get the most out of the treasury, protecting it and making it readily accessible to CoW DAO to fund its operations and growth. We will analyse the instruments available in the market to obtain a yield from the tokens held in the treasury.
Liquidity and Risk Management: The fundamental goal is not to lose principal. No token allocation should be so risky that CoW DAO cannot recover the initial investment. This is particularly important in short-term scenarios where token liquidity is essential to cover OPEX and tokens are allocated for a short time to gain income.
Planned/Unplanned Funding Needs: It should be easy to convert positions where tokens are allocated into cash on little notice. Enough positions need to satisfy a short-term operational need for funding, even if it was not planned/forecasted. This combines the liquidity analysis of each position with the consideration of potential secondary markets for illiquid positions and the creation of a predefined strategy that determines the order in which positions should be liquidated in the event of an emerging funding need.
This strategy would complement an emergency withdrawal strategy to derisk/liquidate/swap all positions in the event of a market crash, hack or any fortuitous event that requires to stop loss.
Earn a return: Once enough runway to face a contingency and a bear market has been secured, Karpatkey will seek to optimise the return on token allocation.
KarpatkeyDAO will charge the following fees:
A yearly management fee (in monthly instalments) of 0.5% of the NAUM (non-custodial assets under management) will be charged to finance the services detailed above. This fee will be due in arrears, payable in the first week following each month’s close.
Management fee = Weekly portfolio balance * 0.5% / 52
A monthly performance fee of 10% of the yield obtained during the last month will be collected 100% in COW tokens.
Performance fee = (Weekly liquidity mining rewards - trades slippage - deposit/withdrawal fees) * 10%
CoW DAO may terminate KarpatkeyDAO’s engagement under this agreement for any reason by way of the Governance Mechanism. KapatkeyDAO may terminate this agreement upon four weeks’ notice posted as a new discussion thread in the CoW DAO forum. In case the termination is requested by Cow DAO without at least a four-week notice, KarpatkeyDAO will be granted an exit fee equal to the fees collected during the last two months, which will be paid in DAI or USDC. Regular fees will be collected until the day of termination.
KarpatkeyDAO is not a custodian of funds. CoW DAO will never transfer any funds to KarpatkeyDAO wallets, except for fees. The funds will be in possession of CoW DAO at all times. The positions can be disassembled by CoW DAO at any time.
KarpatkeyDAO will sign transactions using two addresses.
Likewise, KarpatkeyDAO is not responsible for loss of funds caused by the existence, identification and/or exploitation of vulnerabilities through hacks, mining attacks (including double-spend attacks, majority mining power attacks and “selfish-mining” attacks), sophisticated cyber-attacks, distributed denials of service or other security breaches, attacks or deficiencies with smart contracts or protocols which are not owned by Cow DAO or KarpatkeyDAO.
The plans outlined in this proposal are subject to discussion by CowDAO and may need to be (re)structured to account for legal, regulatory, or technical developments as well as governance considerations. This document should not be taken as the basis for making investment decisions nor be construed as a recommendation to engage in any transactions.
It is proposed the new Gnosis Safe deployed at 0x616dE58c011F8736fa20c7Ae5352F7f6FB9F0669 as a Treasury Management Safe with the following setup:
Signature threshold: 3 out of 6
2x Karpatkey DAO
2x CoW Treasury management team (core team)
2x Backup signers from CoW DAO existing Safe
Funds proposed to be transferred and managed by the Treasury Safe:
- DAI: 803k (GC)
- GNO: 536 (GC) + 13,265 (Mainnet)
- ETH: 187 (Mainnet)
- USDC: 2.2M (Mainnet)
- COW: 8M (Mainnet)
The proposed transaction should:
- Send all funds from CoW DAO mainnet to new Treasury management Safe
- Send dedicated amount of USDC from KYC sub-safe to Treasury management Safe
- On Gnosis Chain: bridge relevant funds to mainnet Treasury management Safe