Hi Alisha!
This is our strategy:
There is no way to time the market. Nobody has any idea what the ETH price will do next, and thereâs no way to know when the price will rise or fall. DCAing is a good way to smooth out the price over a longer period, but trying to wait for âthe right timeâ is simply engaging in speculation - something the DAO should not be doing.
None of this proposal requires trusting any centralised institutions.
The first endowment vote was in September, and the winner was selected in November. Nothing about this is rushed.
Here are some additional comments that reflect the discussion during todayâs meta-gov call.
The decision to sell ETH in the immediate future is to comply with the original request stated in the Endowment RFP to keep earned income risk-neutral with regard to USDC.
The current exposure of the DAO to ETH is approximately 96%, which is a notably high amount and poses a risk to the long-term survival of the DAO in the event of adverse market conditions persisting for an extended period.
While it would be ideal to sell the ETH at the highest possible price, it is not possible to accurately time the market. Hence, our immediate objective is to reduce the current exposure and bring the DAOâs balances to more secure and sustainable levels. We donât engage in speculative trading nor do we attempt to time the market because that would be foolish.
If we sell ETH as proposed and the market improves, the potential downside would be selling too early, which is a risk that the DAO can live with. Additionally, it is expected that a bull market would bring additional activity and revenue to the DAO.
On the other hand, if we do not sell ETH quickly enough and the market deteriorates, the excessive exposure to ETH could jeopardize the DAOâs survival. Additionally, a bear market is likely to negatively impact the DAOâs revenue.
It is important to remember that the ultimate goal of the Endowment is to ensure that ENS remains operational for the next 10, 20, or 50 years, regardless of market conditions. While it is unrealistic to expect ENS to not be affected by market conditions, especially if they persist over time, the goal is to minimize the impact as much as possible. Given the choice between potentially missing out on upside by selling ETH too early and risking the survival of the DAO by not selling quickly enough, the decision to sell early is the preferred option.
Karpatkey is open to considering alternative strategies that align better with the communityâs general preference as there is no obligation to execute the proposed strategy in the quickest possible way. It should be noted that selling approximately 13k ETH over a period of 2 months is also a form of DCAing. DCAing is a strategy that softens the marketâs impact on the decision but does not change the final outcome.
We are retaining 100% of unearned ETH, which currently represents around 60% of the entire treasury. Despite the plan to swap earned and DAOâs ETH to USDC, the DAO will maintain a significant exposure to ETH.
The Harvester and Swapper roles, which automate rewards claiming and swapping tasks, are subsets of the Manager role. These roles will be managed by EOAs and will only be granted permissions that have been previously approved for the Manager role.
Any new permissions or roles that are deemed necessary will be formally requested and presented to the DAO via a forum post, which will include a rationale for the request. This will provide an opportunity for community members to ask questions or provide feedback. No actions will be taken without the approval of the DAO. In addition, a summary of any new roles and permissions that are approved and implemented will be shared in periodic reports to keep the community informed.
Questions:
The system mechanics were not clear w/ confusion. I think a majority of votes did not want this, but it is happening.
Questions:
I am quoting the answer from the post:
The DAO will retain 8,495 ETH according to market conditions at the time of submitting the post.
If the proposal to sell ETH moves forward, the ETH would need to come from the controller as stated in the table above, as all the remaining ETH is expected to be transferred to the Endowment.
I am also quoting the original post with the answer:
Only the unearned portion will be kept as ETH.
Hi, @garypalmerjr. Iâm Karpatkeyâs Tech Lead.
As of now we havenât released any videos, but you can check out this tutorial and this thread which provide a description of how the setup works.
From a technical standpoint, you can check out this.
Bear in mind that the use of the ânewâ SAFE provided by Karpatkey was agreed with the stewards only to facilitate a smoothier initiation of the Endowment by only having to transfer ETH as an action of the Tally executable proposal instead of the Roles Modifier deployment and its configuration through the assignment of the role and the application of the preset.
This system is already used in production by the Gnosis DAO, and has been adopted by the Balancer DAO as per BIP-103.
The ânoveltyâ is the Manager Role preset designed to grant the (minimum) number of permissions regarding target addresses, function signatures and their arguments needed for the execution of the outlined allocation strategy in a manner that by no means could jeopardize the ENS DAOâs custody of the funds.
Gary, many/most of your questions have already been answered in previous EPs, or in discussions that are publicly available here in the forum. Please take the time to read existing material before imposing on othersâ time.
What does this mean? How much runway is âenoughâ?
Saying that you donât time the market doesnât change the fact that you are choosing the strategy and you are choosing the time to sell. If the price of ETH doesnât perform well in the immediate term, as sales are executed, I expect the endowment will be judged rather harshly. Claiming price blindness isnât going to change that.
If this strategy goes ahead, the performance of the endowment will always be compared to the relative performance of ETH.
One of the benefits of getting ETH out of the treasury is that decisions can be made quickly, without having to wait for an executable proposal to pass. These benefits are being squandered.
If Karpatkey is uncomfortable making trading decisions, one solution might be to create a new polling environment on Snapshot and run a 24 hour poll each time Karpatkey plans to execute a sale. Delegates then have the opportunity to decide. If the poll is approved, Karpatkey would execute a sell.
I struggle to see how selling most of the ETH that has been generated by the protocol since 2019 on three random days at the start of 2023, with no consideration of price, lines up with the long term goals of the endowment.
The fact that ENS generates revenue in ETH is a blessing, not a burden.
The DAO doesnât have any fixed costs that couldnât be pared back if needed, apart from a stream to ENS Labs.
The proposal to sell 10,000 ETH addresses any immediate operational cost concerns.
I do not understand the alarmist rhetoric here. We want to create something that will last 100+ years, but need to act like there is an imminent threat of a cataclysmic event in the next few months?
We are in a bear market and have been for some time.
ETH revenue in dollar terms is still significantly greater than the DAOâs expenses.
The Ethereum Foundation conducts large sells of ETH on a regular basis and they seem to have been able to time the market quite well. I wonder if we could reach out to the Ethereum Foundation to get an insight into their selling strategy?
Three sells at three prices over three months is not effective DCAing.
Past performance is not indicative of future performance
However just to add a bit of colour to the discussion
Previous and very aggressive growth of price of ethereum was most likely influenced by two factors:
1 - âhelicopterâ money - when governments were giving away a lot of money trying to âadd some oilâ to the system, a bit more liquidity = not so rough landing. More money in circulation, more people spend it on stuff which is not exactly essential for them, like cryptocurrencies. Average Joe may never buy any crypto in his life, but with some âfree moneyâ - Why not?
2 - The fact that tons of people stayed at home. To deal with cryptocurrencies you need to invest some time and effort - figure out how wallets work, how to handle exchanges and so on. Typically a lot of people donât know how to do any of that, or canât be bothered to find out even if they were interested a tiny bit in the past. Now you have all this time in the world, to sit around your flat and do various stuff, why not âdo some cryptocurrenciesâ? Especially if your free time is financed with âfree government moneyâ (1)
Similarly during pandemic stock prices of companies engaged in video games production skyrocketed. A lot of people just had nothing else to do, but to play games, among other things of course.
On top of that
3 - My hypothesis is that transition from PoW to PoS on Ethereum added additional pressure to price of Ethereum. Mining of Eth was a perfect marketing tool, every single person out of there was home mining one way or the other. They were talking to each other, exchanging tips and hot news. This factor is gone now, so many retail investors just âturned offâ from Eth ecosystem.
Iâm perfectly on board with KK in a sense that not engaging in âmarket predictionsâ is one of the best practices out there, along with not engaging in other risky strategies. However there are plenty of factors to suggest that previous price cycle was hardly sustainable. It is certainly a conventional wisdom that cryptocurrency markets have huge growth potential due to // technology growth // increased adoption // argument that market is very small compared to gold and derivatives - and other similar logic. All that logic generally applies to what economists call âlong termâ performance, and while it may be true, economists also satirically assert that in the long run we are all dead.
UPDATE:
To put things in perspective, central banks assets
In very simple terms, this is how much money theyâve created to tackle the pandemic. Whatâs going to happen next is that they will slowly syphon out this excess liquidity from the system, trying to keep inflation in check and not slow the economy. The question everyone should be asking - where is the money going to come from to fuel sudden growth of Eth price.
It was established when the original endowment proposal was passed that we would be exchanging earned out income into ETH. Karpatkey are simply executing on our instructions; this wasnât their decision to make, and this is very late in the process to be challenging the decision in any case.
The goal of the endowment is to guarantee the long term security of ENS, not to get the maximum return on investment. Weâve been lax in retaining such a large exposure to ETH; the goal of the DAO is not to speculate on ETH price, and itâs an irresponsible use of our funds to do so.
As long as we remain primarily exposed to ETH, there is the unavoidable risk that a large and sustained drawdown in price will affect the viability of ENS and the DAO. We have the power to prevent that, and so we should.
The way I think about it is by looking at the outcomes of each decision based on what the ETH price does:
| ETH đ | ETH đ | |
|---|---|---|
| Sell most ETH | $ | $ |
| Retain ETH | 0 | $$$ |
By reducing our ETH exposure, we reduce our upside - but we also reduce our downside. Since a halving in our funds would be far more harmful to the DAO than a doubling would be beneficial, it makes sense to limit our risk here. Further, if the ETH price goes up, we can reasonably expect ENSâs revenue to increase as well - meaning that although the upside is smaller than it could be, we can still expect to do very well in that scenario.
Thatâs a very, very big âexceptâ. Even if we assume the DAO could survive on minimal revenue, ENS labsâ would be hugely impacted by a lack of funds, would have to lay off many talented individuals, and would take years to recover from such an event.
I canât emphasise enough that there is no guaranteed strategy here. The EF has been fortunate - and perhaps their sells have triggered tops in some cases. We cannot rely on the same luck.
Hey Karpatkey team,
As previously discussed across other endowment topics & twitter spaces FireEyes (and other delegates) are of the opinion that jumping in with close to 100% of the DAOs treasury right off the bat isnât the right move here.
Plus considering how contentious the vote was and a (in our opinion) misuse of ranked choice weâre proposing one key change to the above proposal.
Conducting an initial test case for Karpatkey & the endowment makes significantly more sense; In practice what this would look like is having the first balance of 10,766 ETH sent to the endowment / Karpatkey for a 6 or 12 month initial test period. Where the DAO, community and other fund managers can then review the processes and data from these 6 / 12 months before deploying the remaining 20k ETH.
To us this doesnât seem like an unreasonable request, considering this is the first endowment a DAO has ever tried to launch. Why not collect some detailed data on the endowment before apeing almost all of the DAOs treasury - Although we understand the mission behind the endowment, ensuring this is exactly how the DAO wants to achieve itâs longterm sustainability through this type of endowment should be the highest priority rather than rushing to deploy a huge amount of the DAOs treasury.
Thank you @karpatkey for this thorough introduction to the Endowment fund technical details and deployment flow.
I think that from the point of view of ENS DAO it is crucial to minimize the risks in the management of the endowment. Particularly, that the attack surface is minimized and transparency is maximized.
The current proposal seems to achieve this to a large extent.
With respect to minimizing the attack surface, the usage of the Zodiac Roles Modifier permissions for the Endowment Manager Role (the latter I believe controlled by three accounts managed by Karpatkey) limits the freedom of Karpatkey in executing investment strategies (i.e. only those strategies that have been whitelisted can be used). Additionally, the ENS-metagov pod has the power to add and remove members at any time from the manager role.
With respect to providing transparency, by construction only the investment strategies approved by a DAO vote can be executed by Karpatkey. This still leaves some freedom to the fund managers, as the when and how (e.g. parameters) these investment strategies are executed is left at the discretion of Karpatkey.
IMO in future iterations it would be desirable to add, in addition to risk management, two further business level requirements to the consideration of an âidealâ solution: efficiency and reputation.
First, I suggest ENS explore how to increase the off-chain decentralization of the solution to further ENSâ reputation as a leader in DAO operations.
Second, through increasing the autonomy of the solution, operational efficiency can be increased and richer strategies be implemented.
Third, further steps should be taken to maximize transparency, by codifying as much as possible the conditions under which the whitelisted strategies are executed (thereby separating the execution of strategies from their definition). We have tools today that enable progress on all three dimensions (e.g. check https://autonolas.network where I am a contributor) whilst maintaining the status of the existing contributors (primarily, Karpatkey and Zodiac). Iâd love to provide more detail if desirable to the community.
The endowment will eventually comprise roughly 75% of the DAOâs treasury, not 100%. The first tranche is roughly 25% of the total, and if the DAO does not like what it sees, they can vote against the subsequent two tranches.
This feels unnecessarily hyperbolic to me, and it makes me uncomfortable when it is used as justification to move quickly.
It is worth noting that ENS DAOâs survival is not at risk. Even if all income completely stopped tomorrow, the DAO can function just fine. Thatâs what autonomous is supposed to mean, right?
Now, if weâre talking about the survival of ENS Labs, and âsurvivingâ means continuing to operate on a ~$4 million a year budget, even conceding that amount of revenue is actually 100% necessary, there are plenty of options that could be explored before experiencing a âcatastropheâ or existential crisis.
Here are just a few I can think of off the top of my headâŚ
This isnât even getting into the most obvious mitigation, which would be to eliminate unnecessary operating costs. Nor is this touching on any more creative options like selling one and two letter .eth domains, for example.
But I digress. My point is, it makes me uncomfortable when FUD is used as justification for financial decisions. There is no rush, and there are always options.
I am in favor of a less aggressive deployment, like @James said, perhaps across six or twelve months. The endowment fund should not be a higher priority than funding the next 24 months, which would be covered under the proposed Sell ETH into USDC if it is passed.
All of that said, I greatly appreciate what youâre doing, and I appreciate your transparency and patience as we collectively explore DAO governance. Just wanted to offer my commentary, for the record.
Thank you.
+1 at everything from @daylon.eth above.
re your reply @nick.eth
The DAO will have absolutely no information after 1 month to decide if it doesnât âlike what it seesâ.
Thus the updated proposal to deploy the initial 10k ETH to @karpatkey then wait 6 (Or imo 12) months, gather data on processes, how capital is being deployed and ROI.
Whatâs the goal of spreading it out like this? What would constitute criteria for success or failure over a 6-12 month period?
This is a red herring; the two initiatives can be pursued independently.
What information will it have after 6-12 months?
I love seeing @karpatkey in action, and although Iâm not [yet] deep into ENS DAO discussions, this seems like a sensible proposal overall with what I read on previous posts.
A friend sent me this proposal because DCA itâs being talked and discussed a lot here, and I wanted to say I completely agree with @nick.eth here
I think brainlessly DCAing is the BEST way of de-risking ETH funds. Stopping a strategy that mostly aims to be as neutral as possible because âETH might be underpricedâ is just bonkers, specially with current macro environment. There is no way of knowing what itâs going to happen.
Letâs say you had luck and made an overall 10% more, in the long run I donât see the reward being worth the risk of having a nice runway, or even profiting by shorting (again, itâs impossible to know).
Last (and I donât know how to make it not a shameless plug, but swear it isnât) I have such a strong conviction in DCAing that some friends and I created a solution for decentralized DCAing in/out of positions while being able to earn yield on the idle funds for maximizing capital efficency, without having to pay gas costs on the daily trades. So, Iâd urge @karpatkey or the DAO to look into using it. DMs are always open.
Primarily to provide time buffer against unknown unknowns. A beta test, so to speak, with less to undo if something goes wrong, and less capital at stake. By capital at stake, Iâm referring to capital already in the treasury, not hypothetical loss/yield from the endowment.
Secondarily to provide for more granular analysis and refinement of what is working or not.
Profit/loss would be the obvious one, but of course not a complete representation of success. Nothing broken or exploited. No lack of accountability for funds or designated responsibilities. How effective was the communication and coordination.
I didnât mean to imply that efforts should be one or the other, just that if time sensitivity is what is being used as justification, funding the immediate future is objectively more important. Maybe that comment was misplaced. Disregard.
Update on Audits:
The ongoing audits by Ackee and Sub7 on the Zodiac Roles Modifier have now been completed and reports have been published. No critical issues were found during the audits.