Proposal - Diversify Tornado Cash Treasury
Author: Jamshed Cooper (Tg: @JC212 // Discord: @JC212#7101) - Index Coop (DAO Treasury Relations team)
Rationale - Why diversify the Tornado Cash Treasury
The Treasury performs a critical function for any DAO. One of the primary purposes of a treasury is to protect the DAO from unforeseen events via diversification.
The downside of Treasuries only holding their native token is that they may not be able to withstand prolonged bear market events. This is because any negative event (Protocol Hacks, Bear markets, Controversy, Regulatory, Reputational) is amplified given that the native token will sink in value .….when the treasury needs it the most to stay afloat impacting its health and viability
The benefits of a diversified Treasury are:
- Winning through a bear cycle will enable the protocols to grow & hire when competitors are shrinking
- Better Prepared for withstanding longer duration downturns
- Growing Yield by getting exposure to an uncorrelated sector during a downturn
Why diversify with Index Coop Products
Index products are a great fit for Treasuries. Some of the key features that make them attractive for Treasuries are:
Operational simplicity - Instead of diversification with a self-managed portfolio of tokens - Transact & manage a single Index token position. All of the complexities of portfolio rebalancing are done by the Index Product
Transparent - Fees per product are transparent and upfront. In addition, the index inclusion, exclusion and rebalancing rules are defined upfront for us to focus on highest value protocols and achieve highest yield for the risk profile
Meta-Governance - Provides governance rights to the underlying token protocols. For example, right now the index coop can vote on Compound, Aave and Uniswap which are all held within the DPI index.
The BED and DPI products - Diversification with a single token
The BED and DPI tokens achieve diversification with a single token. They also are very liquid & typically have low correlation with the native tokens (we can provide a correlation analysis of your token as this conversation progresses).
DPI is the most popular DeFi index product with, at the time of writing, ~$200M of market cap. The methodologist behind DPI is Pulse, Inc, creators of DeFi Pulse and the criteria for token selection can be found here.
DPI is an efficient way to get exposure to the DeFi sector. The index gives exposure to all the component tokens while only having to hold one single token. The top 7 tokens of DPI represent ~90% of the Index portfolio (Uniswap, Aave, Maker, Compound, Sushi, Yearn and Synthetix).
BED is an equal-weighted index tracking the top three crypto themes: BTC, ETH, and DPI.
Index Coop - Treasury Relations Team
Our team has been partnering with DAO’s in helping them diversify their Treasuries.
Some notable achievements & adoption of our products across multiple protocols.
- Perp Protocol :$50,000 DPI
- UMA $1 million BED
- Visor $100k BED
- FEI $60M DPI
- Pickle Finance $300k BED
We welcome feedback from the community on this proposal. Would be great if we can go through this in more detail, provide you with analysis, discuss any further questions and next steps