Financial literacy is evolving, expanding and quickly becoming more complicated, especially in the world of crypto and decentralized finance (De-Fi).
And the more popularity it continues to gather, the more important it becomes to form good habits around the security, continuity and legitimacy-building facilities of the treasuries, DAOs, communities and protocols.
As you continue to assess your own DAO’s financial literacy, it becomes more than essential to follow crucial elements for maintaining a sustainable and professional approach to treasury management.
6 Ways To Manage DAO Treasury Efficiently
Whether it is about personal finances, traditional financial portfolio or DAO treasury in the De-Fi industry, treasury asset management should be followed with proper practices.
Read further to explore the key themes for approaching a systematic and sustainable procedure for treasury management.
1. Focus on DAO’s Mission
DAO treasury management is incomplete without keeping its core mission and goals in mind. The entire purpose of creating a treasury is to support the community and its future projects. Therefore, it is important not to get driven away or wrapped up in generating massive liquidity.
DAO treasury should focus more on assets that provide runway and survive the market cycles. For stable asset liquidity, focus more on Ethereum and stable coins. You can even get your hands on mix tokens to further ensure stability and maintenance of your operations.
Moreover, try to steer clear of farming and dumping as a method for quick asset generation. Instead, a simple and systematic approach to authentic treasury management is through collaboration and education in the DeFi world.
2. Support Accountability and Transparency
As someone who oversees the treasury management of the entire DAO, it is your job to keep the communication flowing and always have a hold of tracking. Regular and professional accounting practices must be maintained to achieve discipline.
The treasurer should have knowledge of who is getting paid what, when and why. It can be hard to achieve with the anonymous nature of the DeFi communities and industry.
A treasurer must be clear about the treasury with the core team and also must practice accountability with all its community members. This step is crucial as it minimizes the financial wrongdoings of the members. Fear, uncertainty and lack of trust bring fragility to your DAO working and can result in a collapse.
3. Use Assets to Reach the Goals
For DAO, using assets for reaching goals can ultimately mean mobilizing them for supporting protocols while also supporting your partners. If you are working the asset bridge, use your own assets to sustain the liquidity pool. This will allow your asset bridge to function properly.
Functioning in a DeFi is not an isolated process. Therefore, you must be able to manage collaboratively and work in a decentralized environment. It means that your vision and ideal goals must be flexible to manage your assets more accurately.
4. Diversify Your Treasury
Keeping a huge chunk of the treasury in native tokens for a DAO might seem like a good idea at first. But it is a high risk to take.
Holding a native token in your portfolio can be risky because if its value goes down by 30%, the entire value of the treasury will reduce by 30%. This is something that needs to be avoided by every organization, does not matter whether it is decentralized or not.
We recommend keeping a significant percentage of the treasury in less volatile tokens like stablecoins. If you set aside your stablecoins, you are in for effectively protecting yourself from offsetting your operational expenses.
5. Set up Treasury Experts in Your DAO
Everything works democratically in a DAO. No matter how great the democratic working model is for a DAO, it is sometimes unrealistic.
It has an excellent work mechanism; however, it makes every operation and function in the system slower than usual. This is because everything in the community works on the voting system, especially the treasury management system.
That’s why it is ideal to appoint a committee of elected members to handle all the ideal aspects related to the treasury. This committee can be chosen on the terms of their contributions to the community and the value they have added to the DAO.
Sourcing treasury members who are experts in treasury management or are interested in unfolding the market dynamics will lead to effective treasury management.
6. Earning Your Community’s Trust
Earning your community’s trust as a treasurer is the most important aspect of DAO treasury management. And financial reporting is the tool to effectively follow the best practices for managing treasury.
Going ahead and following the above practices will obviously get you the result by sharpening your treasury management processes. Still, they are of no use if you don’t combine proper financial reporting alongside.
Sending regular monthly or quarterly reports to the community will make the community members feel included in the work of the DAO. Moreover, you will earn their trust while having the same visibility and control over your other DAO finances.
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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.