Why DAOs Need to Diversify Their Treasury into Stable Coins

Posted by  Fintra , updated 2023-02-28

Why DAOs Need to Diversify Their Treasury into Stable Coins

As the saying goes, "Concentrating your assets can make you rich, but diversifying your assets can keep you rich." This is especially true when it comes to managing a DAO's treasury. By ensuring that there are stable coins available to cover at least 2-3 years of operating expenses, DAOs can avoid painful budget cuts during bear markets.

Reasons Why DAOs Should Diversify their Treasury 

1. De-risk the Treasury

Since native tokens are highly volatile, it is not unusual to see prices falling over 70-80% during a bear market. Diversifying into stable coins enables the DAO to maintain its spending power during a market downturn. This can include internal developments, LP subsidies or token buybacks. 

2. Manage a Predictable Budget 

Diversifying into stable coins is a great way to manage your budget. Stable coins can provide the same level of liquidity and price stability as traditional fiat currencies, but with the added benefit that they can be used across multiple blockchains and exchanges.

By diversifying into stable coins, you can manage your own budgets and make sure any spending or savings don’t get lost in translation across different blockchains. You no longer need to worry about price volatility or losing money on exchanges because there will always be another stable coin available at any given time.

3. Pay Contributors

Governance contributors, grant recipients, and other people who manage the DAO and it's security can have the option to be remunerated partly in stable coins along with vested native tokens. This can be extremely useful for full-time contributors who need to take care of their personal fiat-denominated expenses. Using stable coins can help reduce volatility and provide a more stable form of compensation for these individuals.

4. Higher Credit Rating

When DAO treasuries incorporate stable coins, they get a higher credit rating and can borrow money more cheaply when they are using their native tokens as collateral. 

How DAOs can Diversify into Stable Coins

1. Earn Revenue in Stable Coins

Stable coins are the next frontier for cryptocurrency. They're designed to be a more reliable store of value, so they're not subject to wild price fluctuations. The most stable way to earn stable coins is through revenue; you don't have to sell your native tokens, making it non-dilutive. 

2. Sell Native Tokens for Stable Coins

A DAO can sell native tokens for stable coins. The native token will be pegged to a stable coin, and the DAO will receive the stable coin in exchange for its native token. This requires no maintenance and no additional costs.

This is a great way to diversify your portfolio because you are not locked in to one cryptocurrency. You can own the best coins and have access to the best features of each coin, but also have access to their main competitor's features as well.

3. Form Strategic Partnerships

DAOs can diversify into stable coins through strategic partnerships. In order to diversify into stable coins, DAOs must first establish relationships with other organizations that share similar interests and goals. These partnerships allow DAO to utilize the resources and services provided by these organizations without having to develop their own internal systems or procedures. 

For example, a decentralized autonomous organization may want to integrate its existing governance system with another platform that provides voting tools for its members. In this case, it would make sense for DAO one to partner with DAO two in order for both parties to benefit from each other’s efforts.

4. Borrow Against Native Tokens

If you're a DAO, the ability to borrow against native tokens is one of the most powerful features of your platform.

The general idea is that you create a smart contract that can borrow tokens from other accounts in exchange for a collateralized token. If the borrower defaults on their loan, then they lose their tokens, and if they default on their reserve requirement, then they lose all of their tokens.

This means that it's possible for DAOs to diversify into stable coins without relying on centralized exchanges.