DAO Treasury Management is a process of ensuring that funds present in a DAO is allocated well for its goals and enough to carry out its desired operational activities. DAOs may face liquidity problems at any point in time, especially during its early stages. This can be due to investor withdrawals and withdrawal requests from the members of the DAO itself.
It is therefore important that the members of a DAO have a clear understanding of how to manage their DAOs effectively by implementing certain best practices for treasury management. So, let’s talk about them!
Focus on the Mission of DAO
DAO asset management should be focused on building long-term value for shareholders. This means making decisions that will create sustainable growth and profitability, rather than simply getting the most immediate return on investment.
Finding the right balance between short-term and long-term thinking can be difficult, but ultimately, the best results come from a mix of both. A DAO should not be focused on generating large amounts of liquidity or treating the treasury like a hedge fund. In addition to this, DAOs should avoid farming and dumping as a means of generating assets rapidly.
Uphold Transparency and Accountability
As the DAO treasurer, it is important to maintain regular and professional accounting practices. This means being organized, keeping accurate records, and being able to answer questions from the DAO membership. A treasurer needs to be aware of three key components in order to do their job effectively: who, what, and when. They must know who is being paid, what they are being paid for, and when the payment is scheduled.
Without this knowledge, it would be difficult to manage finances correctly. As a treasurer, it is crucial to be clear about treasury operations with the core team and practice accountability with community members. This ensures that everyone is on the same page and that the community can trust that their money is being managed responsibly.
Use your Assets to Reach Your Goals
In the DAO context, this means using your assets to support both your protocol and key partners that share your values and play an important role in your ecosystem. For example, if you operate an asset bridge, put some of your own assets into the liquidity pool that allows the bridge to function. This not only shows faith in your own project but also helps to sustain the bridge so it can continue to facilitate activity and growth.
Diversify Your Treasury
A diversified treasury is a good idea for many reasons. It means that you are spreading your funds over several different asset classes, rather than just keeping them all in the same asset class.
It is risky to hold only your native tokens in a portfolio, because during a bear market if their value goes down by 40%, the value of the whole treasury will shrink by 40%. This is a big problem for any organization, and DAOs should always be able to meet their financial obligations. To reduce risk, it’s a good idea to keep some of the treasury in less volatile currencies, like stablecoins.
Empower Treasury Experts within Your DAO
DAOs are hyper-democratic by design, which is great for community involvement but can make processes slow if everything needs to be voted on. This is especially true for treasury management decisions that require timely actions. However, the community can delegate these types of decisions to a smaller group of people to help speed up the process.
To more effectively manage a DAO’s treasury, it is important to first source and empower members who have expertise in treasury management or are interested in market dynamics. This will allow the DAO to tap into a greater pool of knowledge and experience and help to make more informed decisions about treasury management.
Earn Your Community’s Trust with Financial Reporting
Trust is a fundamental element of any community and an essential precursor to success. Your DAO Treasury has to earn the trust of its community members and stakeholders, who expect you to be open and accountable with accurate financial information which can also be aided through personal financial software.
The first step in earning your community’s trust is to develop an excellent financial reporting process that includes regular reporting, transparency, and accountability — all of which are critical for building a sense of integrity within your organization Share Price Prediction
Author Bio: Akanksha Malik writes to share her knowledge on crypto trends, investments, and NFT opportunities with her readers so they can stay updated! She works as a digital strategist and content creator for Mesha — an online investing platform that serves as a club where investors from around the globe can meet new fellow investors, compete in money challenges, and invest in NFTs & crypto. Besides finance and fintech, Akanksha loves architecture and discovering cuisines of new places she travels to.
