Earlier this week, ShapeShift DAO approved a proposal requesting a loan of $1 million in USDC from the Fox Foundation. The additional capital injection is expected to extend the DAO’s current stablecoin runway by roughly six months.
The proposal, which was co-authored by various members of the DAO’s Treasury Management and Diversification Committee (TMDC) alongside the Fox Foundation, argues that ShapeShift DAO’s ability to achieve sustainable autonomy and maximal decentralization is at risk. This is largely due to the bearish market conditions in the wider crypto market.
Despite extensive budget cuts in 2022, the DAO has not yet been able to generate enough revenues to offset its expenses […] If current market conditions don’t change (or even worsen), and the DAO continues to lack sufficient revenue to meaningfully offset expenses, it’s on a path to potentially be unable to sustain operations in less than a year […] It may potentially be well-positioned to thrive when bullish market conditions return to the crypto space.
According to the proposal, the loan will be 100% collateralized by a transfer of FOX tokens from the DAO treasury to the FOX Foundation. It will carry a 0% interest rate and be repaid within 15 months.
Interestingly, the Foundation has decided to tie the loan to the revenue of the DAO. An initial amount of 250K USDC will be given to the DAO. Subsequently, the amount of available loan capital will be 5x the amount of revenue the DAO earned in that month. The reason for this is to “motivate the DAO to meaningfully improve its performance, rather than use the infusion of funds to simply sustain the status quo.”
Treasury diversification is proving to be a major issue for many decentralized communities. A quick look at the treasury assets in major DAOs reveals that a significant percentage of these assets are stored in the native token of these DAOs. This can quickly become a problem in bear markets when the prices of cryptocurrencies plunge to low levels. That said, DAOs need to reinforce treasury diversification efforts, as well as hedge some of their assets in stablecoins during bull markets.