Finance and Risk Pod: Pod Creation Proposal

# Proposal Structure - Finance and Risk Pod

  1. Goal of this proposal
  2. Merging the Treasury Working Group and Risk Pod
  3. Goal of the Business and Finance pod
  4. Focus areas
  5. Deliverables (per Focus area)
  6. Team set-up and skillsets
  7. Budget / Expectation
  8. Guiding principles

# (1) Goal of this proposal:

This proposal grew out of the work for a Treasury Working Group Proposal.

We (@exa256.eth, @Bernard) have intensively discussed two key questions with different stakeholders of Gro (@chriswong, @graadient):

  1. Which focus areas and deliverables should ideally be taken over by the Treasury Working Group to ensure a long-term sustainable continuation of the Gro DAO. These deliverables are mainly in the areas of Business Strategy, Treasury Strategy, and Financial Reporting.
  2. Which overlap exists between a Treasury Management Function and the Risk Pod. And in the same breath, what is the most effective organizational setup to realize the core outcomes of these functions to the best extent?

As a result of these discussions, we have decided to merge the Treasury Working Group mandate, as well as the Risk Pod mandate into one Finance and Risk Pod.

# (2) Merging the Treasury Working Group and Risk Pod:

To understand the extent to which it makes sense to incorporate Risk Pod tasks into the Treasury Working group, we first looked at which core functions are performed by the various groups. In doing so, we focused on concrete business outcomes as opposed to pure decision-making functions.

In its essence, the Risk Pod comprises three different risk areas:

  1. Finance-related risk - with a clear overlap with the Treasury Working Group
  2. Business-related risk - with a clear adjacency to finance-related topic
  3. Protocol and security-related risk - most independent, but still benefits from a strong collaboration with the finance and business-related team members and can be integrated with specific skill sets.

To ensure effectiveness and avoid hiring too many resources, we see it as the most sensible solution to bundle these skill sets under one pod and ensure close communication within this pod.

# (3) Goal of the Finance and Risk pod:

The goal of the Finance and Risk Pod is to ensure the long-term growth of the Gro DAO. To achieve this goal, we want to focus on sustainable growth and longevity through a sustainable business strategy, risk-mitigated treasury strategies, and prudent financial management and reporting, while ensuring transparent communication to its members.

While focusing on these areas, we aim to use the treasury’s long-term assets productively, while ensuring liquidity to cover short-term financial needs of operation. Hereby, we want to emphasize the importance of tracking and reporting. This applies both to the work of the treasury working group contributors and for the financial metric that will be shared with the community in a transparent manner to support decision-making.

For this endeavor, we will team up to offer the best mix of Financial Metrics and Treasury Yield Strategy (@exa256.eth + Exponent) with a structured approach in Business Strategy and Financial Reporting (@Bernard + web3 Studios). For prudent Risk Management, we will complement the team with a best-in-class risk management resource (tbd). We are confident that with this strong set-up we will be able to lead the Gro DAO through these adverse times in the market and strengthen its positioning within the wider DeFi ecosystem.

# (4) Focus areas:

1. Business Strategy: Analysing the long-term viability of Gro’s business model and evaluating strategic directions (i.e., is GRO a charity to make DeFi more accessible, or should it become break-even/ profitable?)
2. Treasury Research and Strategy: Researching yield strategies, allocating treasury into selected strategies and managing these allocations - to unlock the economic potential of the treasury holdings while ensuring operating expenses are covered with downside risk mitigated.
3. Financial Reporting and Tracking: Creating standards for financial reporting and delivering periodic financial reports, incl. forecasts - to establish transparency for the DAO members and act as decision-making support.
4. Risk Management: From holistic business and strategic risk to operations, working with internal stakeholders as a back office function to identify, evaluate, monitor, and manage risks exposures across the organization

# (5) Deliverables:

### I. Business Strategy:

1. Business objectives: Analysis of Gro protocol business strategy, high-level plan of the financial needs, educating focus areas deliverables
2. OKRs and Tracking: Objectives and key results per focus area and deliverable, transparent progress tracking for community
3. Execution structures: Outline responsibilities for contributors, decision-making structures, capacity, and resource planning. The Finance and Risk Pod will not have execution rights to the assets held by the DAO but can facilitate the efforts.

## II. Treasury Research and Strategy

1. DeFi methodology for treasury assets: Given a sufficient body of research into DeFi yield strategies, the Treasury team will be in a position to submit allocation suggestions for the DAO treasury to meet its financial objectives
2. DeFi strategy recommendations: Current and future DeFi position analysis and active market monitoring. The pod will conduct regular holistic portfolio analysis and perform rebalancing suggestions through the governance process

### III. Financial Reporting and Tracking:

Status Report:

1. Portfolio summary: Holdings
2. Protocol revenues: Average APR, Farming Funds, Monthly Revenue
3. Token rewards and vesting contracts: Vested $GRO token rewards, emissions management, liquidity pool incentives, $GRO token holder distribution
4. Liquidity mining positions in detail: Position, Protocol, Assets, Funds, Last month APR, Current APR, Monthly Revenues, Yearly Revenues
5. Holdings portfolio detailed: Coins, Price, #Tokens, Holdings, % of Portfolio, price movements (24h, 7d, 30d))

Treasury Monitoring:

1. Financial dashboard: Dune analytics and custom DeFi position monitoring
2. Quarterly report incl. commentary and advisory: Focused on the Treasury working group, and state of the Gro protocol, incl. Financial reporting and forecasts

Communication:

1. Maintain a channel in Gro’s Discord: Platform for community members to ask questions, lead discussions, and receive regular financial reporting updates

### IV. Risk Management:

1. Operations Risk Management: Define procedures and guidelines for team operations. Assist the team across functional departments in modeling risk matrices based on degrees of threat severity and probability. Establish and formalize individual processes such as a launch readiness checklist
2. Capital risk management in collaboration with risk pod: DeFi positions are held within the risk guideline at all times so that treasury assets are not pushed down the risk curve in pursuit of unhealthy returns. Once the risk pod is established- we expect to collaborate closely to develop and follow the pod’s treasury risk framework and establish the DAO’s risk profile.

### V. Ad-hoc analysis and recommendations:

1. Liquidity provision analysis: Check effectiveness of LP pool on Univ2 against USDC. Analyze if there is a better way to have a much higher market depth and reduce downside pressure. Define whether current token emissions receive positive ROI.
2. Token holders analysis for decentralization: Holder distribution, Number of token holders voting, Voting quorum, Amount of $ needed for governance take-over before the DAO is migrated from Snapshot to Governor Bravo contracts.
3. Listing on DeepDAO
4. Mixed deliverables will be discovered throughout work

# (6) Team set-up and skillsets:

  • The current team will consist of 3 full-time contributors and 1 part-time contributor, with the flexibility of hiring a second contributor after the first month of operations, if the need arises. Two of the full-time contributors (exa256.eth and Bernard) are part of larger teams (exponent and w3s) that will be tapped for the dedicated support and contributions that make up the full-time positions.
  • The facilitator role is shared by two full-time contributors with complementary skill and accountability functions. They hold the overarching responsibility for core topics of the Treasury working group, steering it, and „putting the pieces together“.

### Working group set up

  • exa256.eth (@exa256.eth), full-time – Contributor & Facilitator
  • Bernard (@Bernard , full-time – Contributor & Facilitator
  • Risk Management Contributor, full-time - Contributor
  • TBD, half-time - Contributor

### Backgrounds of full-time contributors

Exa256.eth - Focus: Treasury Research and Strategy

  • in full-stack dApp development since early 2017
  • part of Exponent - a treasury and financial risk sub DAO, providing managed products and services- a corporate treasury desk for Web3. a team consists of data analysts, software engineers and treasury managers.
  • manage Exponent’s own Treasury vault as a Safe Multisig signer
  • supports on-chain financial operations within the team, from budget allocation to approving on-chain payment transactions
  • multisig signer and member of Enzyme Technical Council and a Safe DAO delegate

Bernard - Focus: Business Strategy & Financial Reporting and Tracking

  • prior working for McKinsey’s Digital Practice
  • part of w3s - a team of DeFi/TradFi contributors (ex-Blackstone, JP Morgan, DeFi) to support crypto companies and DAOs in strategic finance topics (M&A, Fundraising, Strategy and Finance Management)
  • supports strategic advisory (growth, monetization, operations) and financial reporting topics within w3s
  • steering committee at McKinsey-DAO (global community of former McKinsey employees incl. several top web3 founders).

To be determined - Focus: Risk Management

  • TBD

# (7) Budget / Expectation:

Total budget over 6 months: 212,000 USDC + 20,000 USDC Contingency buffer

  • 3 full-time contributors: 180,000 USDC over 6 months

    • This covers the contributors named above (exa256.eth, Bernard), and includes the use of internal resources of our teams (Exponent, web3 Studios) that will be plugged in for specific tasks on demand (e.g., Dune SQL queries, Yield Research capabilities, etc.), as well as the compensation for the facilitator role that we will take on with shared responsibility.
  • 1 part-time contributor: 24,000 USDC over 6 months

    • This covers an additional half-time contributor.
  • Contingency buffer for another part-time contributor: 20,000 USDC over 5 months

    • This covers the contingency for an additional part-time contributor. The need of such will be determined after the first month of operation. If the resource will not be needed, the contingency buffer will be returned in full to the DAO treasury.
  • Buffer for software costs: 8,000 USDC over 6 months

    • This covers operational costs of managed services and SaaS related to Such as: Dune Analytics pro, Nansen, Cryptoquant, Crypto accounting software and market feeds, Risk analysis tools

# (8) Guiding principles:

The Finance and Risk Pod will work in a fully transparent manner to the rest of the DAO, contributing to Gro’s collaborative and trustworthy forms of interaction.

The focus areas and deliverables presented in this proposal are subject to discussion by the Gro DAO and may need to be adjusted to account for developments in the areas of governance, legal, or regulation. This proposal should not be used for making investment decisions.

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Could you elaborate on this? Because it’s kinda the key question.

what do you mean? how could Gro be a charity?

Basically do I get it right: for the Risk Pod vote you’re proposing to merge Risk Pod and Treasury Working Group, but who and how will be doing risk management, specifically market risk management, relevant to Gro’s solvency, which proved to be superimportant in the aftermath of the UST crash, is an open question?

Hi @pavel, thanks for pointing out these things! Answers in slightly revised order to facilitate understanding.

(1) On merging Finance and Risk Pod activities and specific Role of Risk Manager: We 100% agree and could not overstate the importance of a well-structured risk function. Precisely because (a) it is such an important component contributing to the longevity of the Gro DAO, (b) opinions within the DAO vary on where the biggest gaps currently are, and (c) due to the interconnectedness of risk with core strategy and financial operations, we are convinced it is best to start from the point of looking at it holistically. The first exercise for that was matching risk-related activities to specific business outcomes. When elected we will run exactly the exercise of bringing clarity into where the gaps are (tried to make this come across in the community call).

(2) On complementing the team with a Risk Management contributor: After understanding what risk areas will be the key gaps to fill, we will staff a full-time contributor for the risk role. Quite frankly, making the decision on which area to double down on and staffing someone on it right now (i.e., market vs. operational risk), feels premature and might not be the best use of resources at this point. If, after analysis, we are under the impression that we cannot source the ideal fit for the role, we will get this role for people to apply to via proposals.

(3) On how could Gro be a charity: Right now, Gro is not break-even/profitable, i.e., the equivalent of an organization that makes DeFi more accessible/funds DeFi - „charity“ is just a term we used for that circumstance, which was perhaps a bit misleading, I admit. Part of our analysis would be to explore a potential path to profitability. We currently see pathways with various levels of feasibility, ranging from product innovation to treasury yield (less feasible). This is always a question of growth or leveraging existing activities and is limited by staffing constraints.

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See here a link to a condensed version of the proposal for the wider DAO community :slight_smile:

Happy to answer any questions here or on Discord!

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Hey, Renna from Messari here! Great to see more projects thinking though more professionalized DAO reporting.

We wanted to chime in as this has been something we’ve been focusing on quite a bit. We’d love to collaborate here as we’ve been doing financial reporting for 30+ DAOs (ex: dYdX) and have built a lot of in-house expertise and economies of scale on both the data science and research side.

In short, we build an open-source data layer using subgraphs and piece that together into a “protocol-level income statement” to provide recurring quarterly reports. We have distribution on Bloomberg, S&P, and Refinitiv, 3 of the largest tradfi research platforms in the world. If tapping into the more institutional audience is a focus for Gro!

Happy to provide more details if the community thinks this would be of value.

Thanks for reaching out, @renna.ba! I have worked with several external research providers in the past and know you do great work!

Ofc, we would like to make an objective decision on whether we need an additional party for the financial reporting part. We’d be happy to have a quick call to get to know each other and see if there’s an angle that makes sense for this setup or what other value-add there might be for the DAO. We’d be then carrying our view back to the DAO.

Couldn’t find you on Discord, but sent you a pm :slight_smile:

PS: Of course, this should be a community decision in the first place, I’m just the one who submitted the Finance and Risk Pod proposal.

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