[EP 6.2] [Executable] Endowment expansion (3rd tranche)

Summary

This proposal aims to expand the Endowment by funding a third tranche, comprising 5,000 ETH, from the ENS DAO to the ENS Endowment.

Alongside the third tranche transfer, an update to the Allowance Module on the ENS Endowment is proposed; resetTime for ETH allowance (for fee payment) is to be changed from the current parameter of 43,200 seconds (30 days) to 36,000 seconds (25 days). The motivation for this is that there has been an accumulation of payment delays, such that current fee payments are delayed.

Motivation

Since the establishment of the Endowment on March 7th, 2023, ENS has been setting the gold standard for DAO treasury management:

  • Asset allocation: ENS has the 6th-largest stablecoin holding and 5th-largest majors (BTC, ETH) holdings of any Protocols (source).
  • Income generation: Since its inception, the Endowment has generated $2.92M in DeFi results (net of fees) for ENS. In 2024, DeFi results represented 12% of total revenue for ENS according to ENS Revenue Report: Q3 2024. This is on track towards the core goal of self-sufficiency.
  • Asset location: As of October 31, 2024, 71% of the funds were held in the Endowment, while the remaining 25% were held idle across DAO wallet and Registrar Controllers (source).

The original Request for Proposal in [EP2.2.4] sets out that the Endowment should be established gradually over time, in response to changing conditions and needs, and to achieve the eventual goal of self-sufficiency. To deliver on this vision for self-sufficiency, a further increase in the Endowmentā€™s returns is needed. As the Endowment is fully utilised within the bounds of the existing mandate, it is clear that those additional returns must come from additional fundsā€¦ We think now is the right time to implement these increases, given the following developments:

  • Proven track record: the Endowment has been operating for 1 year and 7 months, with no funds lost. During that time, the ENS community has gained familiarity with the Endowment in terms of both operations and infrastructure.
  • Investment Policy Statement as guardrails: the newly-adopted IPS provides an additional layer of checks and balances, so that the DAO and its Metagov Working Group can hold the Endowment Manager accountable.
  • Vulnerability fix by @Blockful: risk of governance takeover by ā€œrisk-free value raidersā€, who could have taken over the control of the DAO and the Endowment, has been mitigated. The vulnerability has been fixed by the introduction of the Security Council and veto.ensdao.eth.

The proposed third tranche would be sized at 5,000 ETH, representing 42.4% of assets held in the Controller and the DAO Wallets (per the pie chart above) It would raise the capital utilisation rate by 10.5 percentage points from the current 70.8% to 81.3%.

Endowment Updates

Updates

Karpatkeyā€™s updates for the Endowment can be seen here: 2023 Review, 1H 2024 Review.

Monthly reports on the Endowment can be found on karpatkeyā€™s website (here).

Whatā€™s been done

  • Investment Policy Statement: karpatkey has created and formally introduced an Investment Policy Statement which defines the key roles, responsibilities and limitations of the Endowment and its Manager.
  • Risk Management Development: karpatkey has designed and implemented a robust risk management stack, leveraging on dedicated risk data service providers, including Hypernative and Redefine. Through weekly meetings with Hypernative, karpatkey is continuously fine-tuning risk alerts and management, especially to cover protocol risks. Automatic, real-time risk alerts help mitigate potential risks. Detailed plans for the Endowmentā€™s emergency protocol and war room are in place to assess and react to urgent situations.
  • Infrastructure Development: karpatkey has worked very closely with Gnosis Guild to develop and implement, Zodiac Roles Modifier v2. As a design partner, karpatkey provided feedback allowing Zodiac Roles Modifier to become more user-friendly and flexible. One notable improvement is permissions updates user interface, enhancing transparency and simplifying audits for the ENS community. A code review was also conducted for permissions update.
  • Permissions Updates: the Endowment has been undergoing continuous permissions updates, allowing it to stay up-to-date with changing market landscape and protocols ([EP 4.1], [EP 4.2], [EP 4.5], [EP 5.12], [EP 5.14]). Independent, thirdparty security review of our Permissions Updates has also been conducted by Third Guard, with the cost covered by karpatkey.
  • Dune Dashboards Development: a variety of different Dune dashboards have been created to give public visibility over the DAO and the Endowment, and their respective operations. These include: the DAO governance dashboard (by karpatkey), the fund flow dashboard (by karpatkey) and the financial reporting dashboard (by Steakhouse)
  • Reporting: weekly Endowment updates and monthly financial updates are provided during the DAOā€™s Metagov meetings. Monthly Endowment updates are also available on the karpatkey website. Biannual Endowment updates are provided on ENS forum.
  • Partnerships: karpatkey has negotiated and put in place a protocol fees rebate agreement with Stader Labs.

Future plans

  • Risk Management: to further protect the Endowment against potential hacks and exploits in protocols that the Endowment deploys funds in, karpatkey has been developing Guardians and ā€˜Agile Execution Appā€™, which automatically detect potential exploit events and exit at-risk positions.
  • Permissions Updates: The Endowment will undergo continuous permissions updates. Immediate priorities include introducing other stablecoins and RWAs, onboarding new liquid staking protocols and keeping the permissions updated with protocol/contract upgrades.
  • Partnerships: reinforce yields without taking additional risk by formulating partnership deals leveraging karpatkeyā€™s DeFi network.
  • Analysis on Governance Attack: karpatkey, together with the ENS community, will conduct further research into potential governance attack vectors that could put the Endowment at risk, and present potential solutions to the DAO.

Specification

  1. Fund Transfer
    Executed by the ENS DAO Multisig.
    Transfer 5,000 ETH to the Endowment (0x4F2083f5fBede34C2714aFfb3105539775f7FE64)
    Value: 5000000000000000000000

  2. Update the Allowance Module
    Executed by the ENS Endowment.
    Currently, the parameters of Allowance Module are as follows: allowance = 30 ETH, resetTimeMin = 43200 seconds (30 days). Due to payment delays in the past, we would like to propose a change in resetTimeMin parameter, i.e. Change the resetTimeMin for main.mg.wg.ens.eth in the Allowance Module from 30 days to 25 days (i.e. 43200 minutes to 36000).

     "delegate": "0x91c32893216dE3eA0a55ABb9851f581d4503d39b",
     "token": "0x0000000000000000000000000000000000000000",
     "allowanceAmount": "30000000000000000000",
     "resetTimeMin": "43200" ā†’  "36000",
     "resetBaseMin": "28825613"

Payload available here.
(Can be downloaded, unzipped, and dropped into Safeā€™s transaction builder).

Tenderly simulation available here.

8 Likes

karpatkey would like to put this proposal to vote in the next voting cycle given the post has been on the forum for ~2 months, and the expansion has been discussed in multiple MetaGov meetings.

We would like to invite the ENS community to ask any pending questions/clarifications in this post or in the next weekly MetaGov meeting. Thank you!

5 Likes

This proposal is live and available for voting at Tally or Agora.

1 Like

The simulation and tests of EP 6.2 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-6-2/* -vvvv

1 Like

Does this proposal change the fee structure at all? How are we still operating the endowment with such extortionate fees let alone increasing it?

2 Likes

Looking forward to seeing the expansion of the endowment. Karpatkey is a tremendous service provider inside and outside this program. Just over the past two weeks, Karpatkey made themselves available at all hours of the day to help Metagov brainstorm on [EP 6.1].

To @James 's point above. I was happy to learn 2 weeks ago that fee conversations are already cooperatively taking place with Karpatkey. Weā€™re looking forward to bringing it to delegates for feedback and vote in the near future.

3 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 Iā€™m going to vote YES on 6.1 and NO on 6.2. This is same rationale as for 6.1.

My rationale is aligned with @garypalmerjr I think his logic is intuitively correct, itā€™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 ā€œasset managementā€ begins, analysis of DAO should be conducted with a holistic approach in mind. What that means is that asset managers should analyze DAOā€™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 Iā€™m going to vote YES on 6.1 is because itā€™s an emergency action needed to cover the existing burn rate now.

Iā€™m voting NO on 6.2 because increasing even more ENSā€™ assets under Karpatkey management without holistic analysis doesnā€™t make sense. Itā€™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 wouldnā€™t be possible to throw such chunks of money around. From my point of view, it doesnā€™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.

2 Likes