Endowment initiation

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 others’ time.

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What does this mean? How much runway is “enough”?

Saying that you don’t time the market doesn’t change the fact that you are choosing the strategy and you are choosing the time to sell. If the price of ETH doesn’t perform well in the immediate term, as sales are executed, I expect the endowment will be judged rather harshly. Claiming price blindness isn’t 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 doesn’t have any fixed costs that couldn’t 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 DAO’s 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 - “helicopter” money - when governments were giving away a lot of money trying to “add some oil” 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 “free money” - 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 don’t know how to do any of that, or can’t 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 “do some cryptocurrencies”? Especially if your free time is financed with “free government money” (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 “turned off” from Eth ecosystem.

I’m perfectly on board with KK in a sense that not engaging in “market predictions” 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 “long term” performance, and while it may be true, economists also satirically assert that in the long run we are all dead.


To put things in perspective, central banks assets

cb assets

In very simple terms, this is how much money they’ve created to tackle the pandemic. What’s 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.

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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 wasn’t 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. We’ve been lax in retaining such a large exposure to ETH; the goal of the DAO is not to speculate on ETH price, and it’s 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:

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 ENS’s 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.

That’s a very, very big “except”. Even if we assume the DAO could survive on minimal revenue, ENS labs’ 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 can’t 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 isn’t the right move here.

Plus considering how contentious the vote was and a (in our opinion) misuse of ranked choice we’re 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 doesn’t 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 it’s 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 “ideal” solution: efficiency and reputation.

First, I suggest ENS explore how to increase the off-chain decentralization of the solution to further ENS’ 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). I’d love to provide more detail if desirable to the community.

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The endowment will eventually comprise roughly 75% of the DAO’s 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.

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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 DAO’s survival is not at risk. Even if all income completely stopped tomorrow, the DAO can function just fine. That’s what autonomous is supposed to mean, right?

Now, if we’re talking about the survival of ENS Labs, and “surviving” 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 “catastrophe” or existential crisis.

Here are just a few I can think of off the top of my head…

  • solicit/run on donations and/or grants
  • implement royalties for secondary market sales
  • accept stablecoins and/or fiat for new registrations
  • liquidate some $ENS from the treasury
  • raise registration prices

This isn’t 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 you’re 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 doesn’t ‘like what it sees’.

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.

What’s 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 I’m 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 it’s 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 “ETH might be underpriced” is just bonkers, specially with current macro environment. There is no way of knowing what it’s going to happen.

Let’s say you had luck and made an overall 10% more, in the long run I don’t see the reward being worth the risk of having a nice runway, or even profiting by shorting (again, it’s impossible to know).

Last (and I don’t know how to make it not a shameless plug, but swear it isn’t) 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, I’d 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, I’m 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 didn’t 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.


I did. Please don’t discourage people from posting.
It feels exclusionary enough here, without additional sway to “question to post” from Nick.eth.
Not all the questions & concerns were adequately answered or addressed.

Given the discussion and upvotes on posts: @karpatkey what is your perspective on the first tranche of funding being a test case for 6/12 months? Seems like a very clear net positive for the DAO and the endowment.

Also, taking a weekly performance fee should be removed, 1 month minimum, ideally a quarter.

CC: @katherinewu’s comments in metagov agenda

EDIT: To be clear, i’m a proponent of a endowment and thing this is a good idea - It just needs to be laid out in a way that makes sense to the DAO and the DAO treasury.

Also note: The previous vote explicitly outlined:
“Following the conclusion of the vote, the Meta-Governance Stewards will work with the winning team to develop an initial treasury allocation strategy, resulting in a separate executable proposal to enact the initial setup of the endowment.”

The worlds ‘Develop’ and ‘enact the initial setup of the endowment’ to me very clearly state that the previous vote didn’t lock this proposal in stone.

The previous vote was the DAO agreeing to a proposal put forward by Karpatkey; “develop” refers to any details left unspecified in that proposal. It’s not a free hand to unilaterally alter the deal.

Where is this defined? the wording of what i quoted implies to me (and other voters) that there’s still movement room in the proposal. And if there’s not then why are we discussing it here? Put it up for a vote.

EDIT: certainly based on above discussion from delegates, working group members and ENS labs core team, it seems like the proposal is still up for discussion/edits.

Did you expect Karpatkey to sign a blank cheque? It seems like a straightforward principle to me that we can’t unilaterally alter the terms of the arrangement after agreeing to it; we’re not Darth Vader.

I’ve now audited the Gnosis Safe that will hold the endowment (at 0x4F2083f5fBede34C2714aFfb3105539775f7FE64), and I can confirm the following:

  • The set of permissions granted on the safe matches those described in this doc from Karpatkey.
  • The set of permissions granted in the above doc meets the requirements for Karpatkey to operate the endowment, and no more.
  • The set of allowances granted to the safe (per revoke.cash) matches the doc and what is required to operate the endowment.
  • Subject to the correct operation of the Zodiac Roles Modifier, and the transfer of ownership of the Endowment Safe to the ENS DAO, neither Karpatkey nor anyone else can take actions outside the scope of the endowment.

I’m happy for Karpatkey to transfer ownership of the safe to the DAO and put this proposal up for a vote.