[EP 6.1] [Executable] Convert 6,000 ETH to USDC for DAO Operating Expenses

Abstract

We propose to convert 6,000 ETH into USDC to replenish the USDC reserves in the DAO’s treasury.

Motivation

In February 2023, the DAO executed a swap of 10,000 ETH into USDC via EP 3.3, generating approximately $16.2M in USDC. The rationale at the time was to secure 18–24 months of operational runway.

Over the past 21 months, the USDC reserves have been effectively utilised to fund ENS DAO’s operations. However, these reserves have now been fully depleted. To ensure financial stability and effective liquidity management, it is prudent to secure a 12-month runway in the DAO’s wallet to cover operating expenses.

We propose ENS convert 6,000 ETH (~$20.4M at $3,200/ETH) to replenish the USDC reserves. These funds will be used to meet ongoing commitments, such as payments to ENS Labs, and Service Provider streams and DAO Working Groups.

Specification

karpatkey will deploy a new Safe dedicated solely for TWAPs, with karpatkey and ENS representatives as signers. This allows for segregation of funds between other ENS-related wallets (e.g. the Endowment Safe). This proposal sends 6,000 ETH to the newly created Safe.

Signers will swap ETH to USDC via Cow’s TWAP mechanism.

The rationale behind this framework is that Cow’s TWAP function is currently not supported by Tally or the Zodiac Roles Modifier (ZRM) permissions. Once TWAP permissions are integrated, ZRM can be onboarded to this Safe, allowing for the removal of the ENS signers.

The Safe will be deployed with a threshold of 3 signatures and the following signers:

  1. DAO Wallet (wallet.ensdao.eth)
  2. karpatkey’s Endowment manager Safe (0xb423e0f6E7430fa29500c5cC9bd83D28c8BD8978)
  3. ENS Labs’ cold wallet (coldwallet.ens.eth)
  4. Metagov Working Group Safe (main.mg.wg.ens.eth)

Safe keyholders will execute the following swaps:

  1. 1,000 ETH swap to meet immediate funding needs by the ENS DAO, executed as soon as funds become available.
  2. 5,000 ETH swap via a 3-month TWAP, conducted in 90 parts (~55.6 ETH sold per part), with wallet.ensdao.eth as recipient.
11 Likes

This makes sense. Few quick questions:

  • Have you guys considered spreading the 2nd tranche of the TWAP over a longer period of time like 6 or 9 months to normalize against the price of ETH?
  • Would it be possible to make the DAO the sole owner of the multisig executing the TWAP?

Thanks @gregskril, the 1k swap will get us to about $3.3M USDC, which gives us some breathing room. The challenge past that will be potential volatility and ensuring we swap fast enough to stay ahead of our monthly burn (~$1.46M).

I ran some numbers comparing 3, 6, and 9 month approaches. Looking at when each strategy’s lower uncertainty bound would cross our $2M minimum safe balance (using 45% annualized volatility):

  • The 3-month TWAP is most resilient - the lower bound doesn’t cross $2M until month 9.3 months
  • The 6-month TWAP crosses $2M around month 8.3 months
  • The 9-month TWAP is riskiest, crossing $2M at month 5.5 months
    (edited to use more accurate volatility calc)

These crossing points represent when we might hit our minimum safe balance in a downside scenario, based on historical volatility patterns and our current burn rate. You can adjust the volatility assumptions in the interactive graph to see how different market conditions would affect each strategy.

While the 6 or 9-month approach would give us better average prices in a flat/up market, I’m concerned about the longer exposure to volatility given our monthly obligations, and the fact that some will be burst needs that might not be linear drawdowns.

It comes down to tradeoffs between potential price improvement and operational safety margin. I’m of the opinion the 3-month TWAP gives us the safety we need while still spreading it out enough, as it keeps us furthest from the minimum safe balance even in high-volatility scenarios."

You can change the volatility assumptions in the graph to see how dangerous the longer periods could be.

The interactive graph is hosted here
(Feel free to change the values and test, the repo is open)

Static image for simplicity:
image
(sorry for all the edits, I kept wanting to improve the tool :stuck_out_tongue_winking_eye:)

7 Likes

It is definitely possible!
Proceeds could be automatically sent to a custom recipient address, ENS cold wallet as an example.
It means that orders need to be placed by ENS DAO through a governance vote (initially through the current proposal), but in the future any changes to the TWAP parameters will require a new proposal.

Thanks @middleway.eth! If you’ll notice in the temp check text above, the Karpatkey team has already configured the TWAP to output to the DAO’s wallet! :grinning: :tada: :point_down:

As for using the DAO’s time-lock as the owner of the safe: we did discuss it with Karpatkey and the Labs team, and that is still the medium term plan mentioned above, but there were a few factors that made us lean towards this ownership structure initially as we first get this process underway. I think one of the technical ones might have been the price protection settings that Karpatkey was putting on the TWAP.

We’ll be able to get to the DAO owning this safe pretty quickly, but at launch it will be signed by [Karpatkey’s Multisig + ENS Labs Cold Wallet Multisig + ENS DAO Metagov Multisig + ENS DAO’s Time Lock/Governor] so that we’ll be able to be responsive as we learn on the first batch.

@gregskril - since it was your question initially, I’ll ask back at you, do you feel it’s an issue, or are you comfortable with the approach?

1 Like

Thank you @gregskril and @middleway.eth for raising very relevant questions/points and @5pence.eth for the comprehensive respones!

For duration of TWAP: 3-month TWAP order seems a good balance given high ETH historical volatility of ~60% while keeping a healthy cash buffer in the DAO wallet as @5pence.eth illustrated.

For owner of the multisig, it is indeed possible to make the DAO the sole owner of the multisig executing the TWAP. We explored multiple structures for both execution mechanism and parties involved, but came to a conclusion that the proposed structure best balances efficiency with security. The signers are multi-sigs themselves (Metagov, karpatkey, ENS Labs) that well-represent the ENS DAO. The proposed structure is also flexible and well-suited to react quickly. For exmaple, if TWAP transaction fails due to issues, such as hitting price protection, the multi-sig can re-initiate the TWAP without having to go through a redundant DAO vote. Another edge case is if the schedule of DAO expenses changes drastically and render initial assumption of cash flows (and thus TWAP) invalid. In that case, too, the multi-sig can be flexible, and lengthen/shorten the duration of the TWAP accordingly.

We will keep the community fully in loop of any executions conducted via both the forum and Metagov calls.

3 Likes

This proposal is live, please vote now at Agora or Tally.

We’re faced with a scenario where, to meet our existing obligations, we essentially have to pass this proposal, yet doing so might not be in our long-term best interest if there are continued emergency needs without plans for increased registrations KPI.

It feels like we’re cornered into making a decision that might solve an immediate problem, but could lead to more issues down the line. This isn’t just about semantics; it’s about recognizing that we might be in a bind, where our choices are limited, and none seem ideal…And does anyone wonder if will hard-funds eventually run dry?

My aim isn’t to hinder, but to encourage a broader discussion on our financial health and future planning, to increase .eth registrations and spending. Personally, I am a big fan of increasing both registrations and spending.

I voted NO on the proposal for several reasons to bring into discussion:

  1. Selling Majority of ENS ETH: I understand the need to manage our ETH, especially with the involvement of Karpatkey in our Endowment. However, I’m a bit cautious about selling off more of our assets right now. We’ve had discussions about this before, and I think we should consider a more balanced approach to our asset management, via Treasury, Endowment, and Funds.
  2. Timing and Suddenness: I appreciate the urgency sometimes, but this proposal seemed to come up a bit unexpectedly within the past week. It would be great if we had more lead time to discuss these significant decisions as a community. It’s not about the idea itself but more about ensuring everyone has time to understand the amounts and reasons we are asking, and at what cadences and regularities.
  3. ENS DAO and ENS Labs Financial Management: I see the funds being used, and I trust in the vision, but I think it would be helpful to have a clearer picture of what all of these expenditures are and how they benefit ENS line-by-line. With the recent adjustments in our spending, it’s important we’re all on the same page about our investments, and, their expected returns.
  4. Sustainability Concerns: At the current rate of spending, I’m curious about our financial runway. It’s crucial for us to know if we’re on a sustainable path or if we might need to adjust our plans; and if we’re just setting ourselves up for a future where we’ll have to resort to selling off governance tokens to keep operations going. (And now we have temp check to give Karpatkey more funds for a 3rd tranche, too.) I’m not against spending but ensuring we do so wisely for our future.
  5. Marketing and Growth Strategy: We’ve seen some cutbacks, and while I understand the need for efficiency, I’m concerned about our growth strategies. With sustained or increased spending, we should be looking at ways to boost .eth registrations through marketing and biz-dev, even if it’s on a smaller scale. It’s about ensuring our spending matches our current market activities and future goals.

I voted NO because I want to make sure we’re all moving forward with a clear, shared understanding of our direction, instead of everyone just charging full steam a head, selling all the ENS DAO ETH…without these concerns, how do we know a head of time if they are valid; and when do we talk about them if not in the past, and not in the present. (These concerns may-or-may not be entirely valid, and I may be the only person who doesn’t understand–But that is why we come together and DAO, together).

I know, the counter argument is that:
But none of it is relevant if the DAO can’t meet its immediate obligations
…I agree, immediate obligations are critical, but they shouldn’t overshadow the need for a sustainable future. This situation feels like a Catch-22; (we can’t ignore our current commitments, yet addressing only them might lead us into a cycle where we’re always playing catch-up).

My push for discussion is to ensure we’re not just meeting today’s bills, but also setting up the DAO for increased .eth registrations and optimized spending…For this to become part of the greater conversation. We need both immediate action and long-term strategy to truly thrive, but I just one person with limited knowledge. ENS = Strong Together.

3 Likes

Saying it’s a majority of the DAO’s ETH is misleading. The DAO currently holds roughly 75 million in ETH investments not including this 5k ETH, or the other 5k ETH proposed to be moved into the Endowment via 6.2.

Please see the excellent monthly Steakhouse reporting thread here in the forum and the excellent Karpatkey monthly DAO overviews.

The DAO’s revenue is in ETH.
The DAO’s expenses are in USDC.

Because the DAO’s expenses are in USDC (Labs Streams, Service Provider Streams, working group expenses, etc.), we have to swap ETH to USDC to pay the expenses.

This swap is actually a responsibly-designed swap that limits important variables like market volatility and swap per day (approximately 55k ETH per day for 3 months) and tries to track closely with needs of the DAO’s USDC based OpEx.

Your comments show an interest in frugality or better reporting. Those are excellent initiatives, and delegates like yourself are empowered to open Temp Checks and Proposals for those or other processes improvements at any time.

Remember, it’s each of us as voters who are responsible for the expenses in the DAO.

It looks like you voted in favor of all the large USDC streams that require this proposal to be funded:

3 Likes

Thanks for your detailed response and for clarifying our ETH holdings and the conversion process. I appreciate the insights from the Steakhouse reports and Karpatkey’s overviews, though my concerns extend beyond these reports to the broader context of our financial strategy.

My mention of “majority of the DAO’s ETH” might have been overstated when considering our full investment portfolio, but my core concern is about our approach to selling ETH for USDC, particularly with regards to market timing and long-term asset management. While I understand the necessity of this conversion for operational expenses, my caution is about ensuring we also plan for future growth and stability. It often feels like these strategic discussions are prematurely shut down, and I’ve experienced some rather rude pushback in private communications.

Yes, I voted in favor of those funding streams, believing in the work they were meant to support, but this doesn’t eliminate the need for us to continuously reassess our financial strategy, especially when we’re facing emergency funding proposals, and at what frequently will they occure. My advocacy for frugality and better reporting is to ensure every dollar contributes to our long-term sustainability and growth in .eth registrations.

My vote against this proposal wasn’t intended to halt operations, but to initiate this critical dialogue and communication. We need to align on our objectives and financial health for both present and future scenarios. I agree, delegates should actively propose improvements, and I’ll look into initiating Temp Checks for enhanced reporting or cost management if I meet the necessary criteria.

Thank you for underscoring our collective responsibility in managing the DAO’s finances. However, I’m still unclear on where accountability for registrations and revenue growth lies. This dialogue is vital for us to strengthen as a community. ENS = Strong Together.

1 Like

Again, this isn’t about stalling; it’s about ensuring we’re growing sustainably, and there is a strategy for such.

  1. Emergency Funding: Emerging emergency proposals are in part due to a lack a proactive strategy for financial management and registration growth. My vote was to highlight this issue, not to halt operations.
  2. Registrations & Growth: I’m deeply invested in increasing .eth registrations to grow ENS DAO, not just squeezing existing resources. Without a clear marketing & growth strategy, we’re not just missing opportunities; we’re setting ourselves up for more emergencies.
  3. Long-term Vision: My concerns are not about opposing the endowment, but about ensuring our financial decisions today don’t compromise our ability to expand .eth registrations into the future.

I would hope we could focus on creating a strategy that balances our immediate needs for funds, but addresses the growth objectives, rather than reacting to one crisis after another. This shouldn’t be about about political games or name calling via the DMs…This is about the health & expansion of ENS, but I am getting a lot of hate in the DMs for bringing this up.

1 Like

The simulation and tests of EP 6.1 can be found here. Calldata matched the proposal description as expected. The proposal was simulated by proposing, passing, executing, and asserting the difference between states after the ENS transfer operations.

This can be checked by cloning the repo and running:
forge test --match-path src/ens/proposals/ep-6-1/* -vvvv

1 Like

Gary, thanks for the excellent participation.
We often lack good discussions that openly share opposing views, so I thank you for your contribution here. :pray:

I’m not clear what this means. There’s no such thing as a “symbolic vote”. If your intention isn’t to stop this process you shouldn’t vote against it. (i.e., If you held enough voting power to swing the outcome, would you vote “For” or “Against”?)

Conversations can be initiated on these topics at any time via germane Temp Check or open forum discussions. You don’t need to wait for moments like this.

Accountability lies with the ENS DAO’s active participants and voters.

I don’t see this as an emergency. I also haven’t heard anyone else evaluate this and use the word “Emergency”. I worry that is misrepresenting this proposal.

That is exactly what this is. It is the beginning of a long term plan to establish safe and time-weighted swaps of our revenue ETH into the needed USDC to fund operations.

But, if you have a better one, we’d love your participation and support to help define it. We’d love to have you on metagov calls or here in the forum sharing alternatives you’d prefer.

For 100% clarity to everyone - I have not DM’ed Gary.
@garypalmerjr - perhaps be specific in these types of references, otherwise participants might form incorrect assumptions.

2 Likes

To be clear, this is NOT a symbolic vote…At this time, I am voting No.

To me,
this proposal came out of the blue.
We had a four-day notice.
Four (4) Days.

Somewhere, something happened, and now we want to SWAP ANOTHER 6,000 ETH OUT of the Treasury address…which only has ~8,100 ETH:
https://etherscan.io/address/0xfe89cc7abb2c4183683ab71653c4cdc9b02d44b7

From my perspective, this seemed crass.

And guess what, if this is NOT an emergency…then it CAN wait a week or two.

Why wait a week or two?

Everything I voted on, I thought was funded and already accounted for. With just a four-day notice, this proposal came across my desk out of nowhere, the ENS DAO apparently needs 6,000 ETH due to an unexpected loss of runway…because we are suddenly short on cash?? (And hey, it’s not an emergency, right?) To me, it feels like media whiplash, reminiscent of “American Media tactics” to distract from the broader issues we should be addressing.

And what should we be addressing?

What is no one talking about…Funding the ENS DAO; Doing the work; Getting the Real Integrations & The Users, (like we had so much success in 2024). Now this is 2025…With all the development happening and the crypto news in this bull market, (e.g., X+Visa Payments), what’s the plan to increase retail & commercial adoption and growth for ENS, in Q1 2025, let alone Q2-Q4 2025. What is the:

  1. “Registrations & Growth Strategy” (from ENS Labs)

  2. “Registrations & Growth Strategy” (from ENS DAO)

  3. Plan to Increasing .eth registrations (to grow ENS DAO Treasury)

I know many are working on “Namechain”…
But we must be able to do both at the same time.
Walk & Chew Bubble Gum…Development AND Growth.

Via DM,
Nick.eth was clear,
we are voting for an:
emergency proposal that’s required to keep the DAO functioning”.

Yes, correct, 5pence.eth has not DM’ed me.
(I am sorry if there could have been an impression otherwise <3)

2 Likes

Initially I was inclined to vote NO on both
[EP 6.1] [Executable] Convert 6,000 ETH to USDC for DAO Operating Expenses
and
[EP 6.2] [Executable] Endowment expansion (3rd tranche)

However as @5pence.eth puts it

which I agree with. So I’m going to vote YES on 6.1 and NO on 6.2.

My rationale is aligned with @garypalmerjr I think his logic is intuitively correct, it’s just that he is not explaining it in professional finance terms, let me elaborate here.

In theory what should be happening is that before any “asset management” begins, analysis of DAO should be conducted with a holistic approach in mind. What that means is that asset managers should analyze DAO’s income, expenses, provide sensitivity analysis covering various scenarios, demonstrate range of risk / return options and how they would fit into the broad picture, etc etc. The end result of such analysis would be a clear understanding of cash inflows and outflows, and how to best utilize treasury in order to achieve the best scenario for the DAO.

In the case of ENS DAO such holistic analysis was never conducted, and this is the reason why we have 6.1 right now on the agenda. I would think that the people responsible for that kind of analysis would be Karpatkey and / or the DAO secretary. The only reason I’m going to vote YES on 6.1 is because it’s an emergency action needed to cover the existing burn rate now.

I’m voting NO on 6.2 because increasing even more ENS’ assets under Karpatkey management without holistic analysis doesn’t make sense. It’s been close to 2 years now and Karpatkey lead DAO to vote on 6.1.

The only reason 6.1 and 6.2 can exist is because ENS is such a cashcow, in other words such a cash generating machine - consisting of initial cash inflow during token generation and ongoing business daily activities. If it was any other cash-strapped project it wouldn’t be possible to throw such chunks of money around. From my point of view, it doesn’t matter if the project is cash-strapped or not, it is always a good idea to be as prudent as possible.

As for the next steps, in order to improve this situation, I propose that we hire third party independent consultants to conduct a thorough audit, build a comprehensive report of the past financial performance and conduct holistic analysis of the situation. This way we would avoid having 6.1s in the future and any subsequent increase of assets under management would be happening within a structured framework.

Execution Update
The ENS TWAP Multisig Safe has executed the following:

  • 1,000 ETH → USDC swap @ average price of $2,787.66 via 2 transactions (1/ 0.1 ETH Test Swap, and 2/ 999.9 ETH Swap)
  • Initiated 3-month TWAP for 5,000 ETH
1 Like