ENS DAO Treasury Management - Fixed Rates Using Element Finance

No offense taken at all. I have a problem with assuming others know my reasoning without actually explaining myself, and I’m working on that. So thank you.

Thanks for voicing your concerns! This is the kind of discussion that really helps bring the best solutions forward.

I can see that you have a really good understanding of how all these DeFi mechanisms work, but I’d still like to address those within the context of what was proposed, for other readers of this thread:

  • liquidity providing (LP): LP does carry the risk of “impermanent loss (IL)”, which happens specifically when there’s a change in the exchange rate between two assets. However, the assets in question for LP in this proposal would be ETH and stETH. stETH is an asset that represents ETH which is staked through Lido Finance, where 1 stETH = 1 ETH (in the same sense that ETH = aETH in your AAVE example). Their exchange rate wouldn’t change (barring an exploit/hack on Lido’s contracts), so there would be no IL.
  • Staking: stETH, which is staked ETH through Lido Finance, is part of the proposal. As stated before, since 1 stETH = 1 ETH, you don’t really get cross-currency risk.
  • decentralised lending: Element’s fixed rates are built on top of yield-generating positions, currently only from Yearn Finance vaults. These vaults use underlying strategies for yield, mostly based on decentralised lending on Compound, AAVE, etc. for the USDC portion of the proposal.

We’re not here to ask the DAO to blindly invest into Element’s vaults without reason, but rather because we believe it to be a risk-hedging solution that is especially aligned with the DAO’s interests in the long term.

I don’t think there’s necessarily a “rush” to invest these funds anywhere. This proposal was meant to help advance conversations within the DAO about how to manage its treasury, and to provide a safe, conservative starting point for it to lower its funds’ exposure to time decay, while giving concrete suggestions for the utility of these returns.

If the DAO sees value in having an internal plan for how to manage its treasury funds, then let’s have these conversations sooner rather than later so there’s a plan in place, whichever form it may take.

1 Like

Thank you for your comments, and thank you for keeping positive constructive approach towards discussion despite scepticism from our side :raised_hands:

I would really like to see consistent financial planning strategy before we dive into analysis of specific instruments.

Also I very much like that idea of “time decay”.

It certainly helps to keep conversation open.

1 Like

You still haven’t replied to my very simple, straight-forward blunt question.

Why Element Finance?

1 Like

Can you elaborate on why you think this?

1 Like

Request for documentation of Target Market Determination.

Before any voting on appropriateness occurs, I think it would be prudent for the community to request Element Finance produce evidence on who they believe their product/service is suitable for, and a statement to ENS.

This if for you too @CPSTL

1 Like

I could spend a lot of time waxing about my personal beliefs in regard to not-for-profit model, etc, but to summarize I guess the easiest way to explain why I don’t agree is… I just don’t think it’s necessary. The potential benefits presented to me don’t seem compelling enough to warrant adoption at a DAO level, in my opinion. Side note, but I feel a major problem the Eth ecosystem suffers from in general is overengineering. I don’t think DAO treasury needs to be hedged with what is offered here.

I am all for DAO to DAO collaborations that could even involve things like token swaps, or even diversifying parts of the treasury so it is more resilient than would be only holding ETH, but I think locking ENS for returns is just unnecessary.

1 Like

I’m fairly sure they’re discussing locking the ETH treasury funds.

But I understand what you mean and I completely agree.
Just 1 year ago YFI got hacked out of around 10million of their funds, YFI which is the oldest yield providing protocol.

From all the hacks and bugs and issues that occurred in the last 3 years, the risk/reward ratio from trying to generate revenue from the treasury funds doesn’t make sense to me.

So like daylon, I vote no on this, especially since the treasury isn’t passive, each year people renew their domains, and if we focus on increasing adoption that’s going to have a better ROI anyways.

Also diversifying is a good idea, maybe we could vote on an uneven split of ETH,BTC, and USD, and rebalance every year. The technicals for that could be tricky though, as we only have WBTC on mainnet, which is a token I’ve recently found to be centralized, and other alternatives with not so optimal liquidity.


In good DAO fashion, let’s not go here.

For one, if the treasury balance is managed like any off-chain fund, the underlying index used as a benchmark should be presented to the public.

Also, management expense ratios, indirect cost ratios, asset allocation etc should be understood and voted on.

The presented entity has only offered a communicated pitch. It’s early days, and the 7 signatories are probably miles ahead of this just now.

1 Like

Not @daylon.eth, but I share their opinion (with the exception of direct eth2 staking, which I don’t think they’re referring to in this context).

To be clear, I’m assuming that “passive income” as discussed in this thread is “portfolio income” from low risk capital investment. If the risk is small enough, this income can feel like “free money”, but rest assured, there’s always some level of risk involved (up to and including the loss of the entire investment). Successful investors will accurately assess both the risks and rewards of potential investments, and then consider those investments where the risk/reward balance is favorable.

Related to defi/“yield farming”, these are the risks I see:

  1. Security/Hacking Risk ENS is already exposed to hacking risk, but adding Element/Yearn/Curve/Aave/Compond/Lido stacks to the mix significantly increases those risks (every line of code in this chain increases the likelihood of a “game over” bug losing the entire investment).

  2. 3rd party Risk Purchasing yield tokens requires trust that the management teams of those tokens will always act in the best interests of token holders. The unregulated nature of crypto means there’s little or no legal accountability placed on these 3rd parties, which significantly increases risk (especially in comparison to tradfi investments).

  3. Systemic Risk Crypto is extremely volatile and subject to large shocks. Because the world of defi has countless interlocking parts, the entire system is subject to contagion should any single part fail. I don’t believe anyone can come close to accounting for these risks, let alone mitigate against them. Further, most defi products are very new and have never been tested by a bear market.

  4. Regulatory Risk Decentralized lending is a negative-sum investment vehicle which fuels highly speculative bets made by unsophisticated investors. This is illegal in most jurisdictions, and we have no idea what type of legal risk this could expose to the ENS DAO. Even if we accept that defi is largely exempt from securities law, some may find it distasteful that our gains come from other crypto users’ losses (against the “public good” mission of ENS).

Many defi products (Element included) advertise themselves as low/no risk, but in reality, they carry an obscene amount of risk and confer only average returns. That said, I applaud teams like Element for pioneering new types of financial products, and am sure their products will only get better with time.

As @Premm.eth and @Jstar mentioned, if we’re ever looking for passive portfolio income from the ENS treasury, I think eth2 staking is a much more conservative investment.


:+1: :smiling_face_with_tear: where have you been hiding all this time?!!?!? :slight_smile:

1 Like

this is really insightful! :slight_smile: amazing, I never thought about it like this

I always thought about decentralised lending as one of the most “ecological” applications out there

thank you for being with us! :+1: