An ENS enDAOment

[royalfork]

As much as I like the “enDAOment” pun, I’m a bit skeptical that the target returns are actually achievable in a crypto-only portfolio. From what I’ve seen, crypto is too new and too volatile to allow for any objective investment framework that provides safe, consistent, conservative, and reliable year-over-year returns (see my thoughts on stablecoin yield farming). Crypto investing is like venture capital: most investments in a fund will lose everything, but a couple will give 500x returns. Given these dynamics, it’s almost impossibe to target a consistent 4% yield, and I think the crypto market is ill-suited for endowment-like funds (although I’m open to hearing counter-arguments).

Additionally, moving the treasury into an actively invested fund also puts ENS into an almost “no-win” scenario:

• If the fund underperforms eth, we should’ve just kept it in eth
• If the fund outperforms eth, maybe we’re taking on too much risk

The fund manager, stewards, and DAO will open itself to endless criticism unless this fund operates in the very narrow band where it outperforms eth, but only a little, and still enough to cover DAO expenses. That’s a pretty hard target to hit.

@nick.eth

The wisdom in traditional fiance circles is that you can draw down on 4% of an an investment each year without reducing the principle over the long term, because returns will on average exceed 4%.

The 4% number is based on 50+ years of historical market trends for a well-diversified portfolio. There’s no evidence that this number also applies to crypto.

@carlosdp

The most convincing argument to me is the very real/likely possibility that CCIP-read and L2 resolvers will ultimately cause a massive reduction in premium domain revenue down the line, which represents the grand majority of ENS revenue today.

While this is certainly possible, it’s equally likely that domain revenue increases into the future with greater ENS adoption. As long as ENS keeps a close eye on revenue trends, we can always change investment strategy if business conditions change. For now, I don’t think CCIP/L2 is an urgent threat to the ENS revenue model.

I believe the basic idea, of doing what we can to guarantee ENS’s long-term viability independent of market conditions, is a worthwhile one, however.

I agree, but I think long-term viability can be achieved with 2 simple rules:

• Strict and conservative limits on yearly treasury withdrawals (say, 5% per year)
• Hedge against market-downside risk with stablecoins (ie: always maintain 5 years of runway in stables)

Even if ENS doesn’t receive another wei, this strategy could keep ENS operational for decades, while forgoing the immense complexity required to securely administer an active endowment fund.