Imagine you’re on a date with Michael Jackson. He picked you up in his car.

It’s a full moon. The car runs out of gas. So you get out and walk, reluctantly.

At a certain point he stops, turns to you and says: “You know I like you.” You smile. “I have something I want to tell you.” You smile again, but it’s forced. “Yesterday, I took a job in treasury management. I’m going to be responsible for millions of dollars.” This time you grin. For real. “Oh Michael, that’s so exciting! What company is trusting you with so much money?” He shrugs – the way only he can shrug – and answers: “You’ve never heard of it. It’s DAO.”

You don’t know what a DAO is. You’re too embarrassed to ask. You take his hand, and you start walking again. The Fall air is filled with cricket sounds. You’re happy.

He’s not like other guys

I’m not going to carry the analogy through to its logical conclusion, you know, the one in which Michael turns into a werewolf howling at the moon and has to deal with an army of zombies who, very obviously, are the many risks a DAO treasury manager has to contend with.

That would be too obvious.

But it is Halloween, and I did want to plant those images in your head, because that’s how I think of DAO treasury management. All those risks. They’re zombies, and they’re scary. And DAO treasury managers? They are definitely not like other guys.

Before we move on to the more boring part of this post, please spend a few minutes rewatching the music video that made the artform: https://www.youtube.com/watch?v=sOnqjkJTMaA.

The other guys

Traditional treasury managers have a difficult job. Managing millions, or billions of dollars isn’t for the faint of heart. The mission may be straightforward:

• earn 2% without taking unnecessary risks, and
• always make sure there’s enough liquidity to cover operations,

but it’s still stressful.

Even in normal times, managing non-traded interest rate risk, market risk, and liquidity risk is real work, and lots can go wrong. Luckily, it’s a well-understood problem, and the financial tools to do the job have existed for a long time.

Treasury managers don’t run out of gas in the middle of the night, and they don’t grow whiskers when the moon is full. They’re safe, and reliable. What most people would call “a good catch”.

The werewolves

Now let’s go back to Michael, our newly-minted DAO treasury manager. What are his goals? Can anyone articulate them?

• Make money when market is 🚀🚀🚀?
• Don’t lose money when market is 📉?
• Predict the unpredictable? 🦋
• Stop the zombies? 👿🧟‍♂️👹

These aren’t reasonable goals. Fact is, there are no rules. There are no norms. We’re in uncharted territory.

DAO treasuries don’t hold cash. They hold stablecoins. You can’t put them in accounts guaranteed by a government, and you can’t even guarantee that they’re going to stay stable. If they’re backed by assets, how can you be sure those assets will cover their liabilities? If a big government decides to shut down a stablecoin, can it? In many cases, yes. That’s not a risk a traditional treasury manager has to worry about. USD credit risk? EUR regulatory risk? Ha. Inflation is a worry, but guess what, it’s a worry for any instrument pegged to a government-issued currency too. Michael has to deal with all those risks. Day 1.

A DAO treasury’s safest, most vanilla asset is already a scary zombie for traditional bankers. Can it get worse?

You bet.

What else do we tend to find in DAO treasuries? Usually, a lot of native tokens. 😱

Don’t get me wrong, we all love our tokens, and we know they’re going to go up in value as our projects mature, but in the meantime they’re very volatile creatures. And unless you’re an old, established project, no OTC desk or derivatives market is going to be much help.

OK, so maybe we can convert some of those native tokens to other DeFi tokens – diversification is a risk management strategy, right? 😉 – and hold those. Yes, we can. Good idea. Are any of those likely to be less volatile than our native token? Possibly, but even the grandad tokens, BTC and ETH, aren’t stable by, well, grandad standards. At least we can manage their volatility. So there’s that.

Scared yet? 🎃

Thriller

Even though we don’t quite have market, credit, liquidity, operational and regulatory risks under control, we have a job to do with all this money. We need to make it work for us. We need to earn more.

Let’s look at the safest options: lending to a protocol like Aave or Compound. The interest rates they pay out look awfully juicy. How is that possible? Couldn’t be indicative of unusually high risk could it? 👻

Oh boy. Should we keep going? Are you brave enough?

Nah, let’s stop here. You get the idea. In DeFi, “safe” assets aren’t by traditional standards. And the equivalent of depositing money into a savings account is a risky proposition. DAO treasury managers can deal with all this uncertainty. They’re not like other guys. So don’t be surprised if you find one howling when the moon is full.

When Michael’s date asked him “Can we get out of here?”, he smiled and answered “No, I’m enjoying this.”

Hahahahahaha.