[EP2.2.4] [Social] RFP: ENS Endowment

Status Active
Votes Snapshot

Description

RFP for an endowment fund manager

Overview

The DAO is seeking a fund manager to manage an endowment fund. This fund will be established from some combination of current treasury and ongoing revenue, and will exist to insulate the DAO from economic fluctuations, ensuring it can continue its core operations regardless of the wider economic outlook.

Funds will be drawn from the DAO’s general funds, currently held in ETH and USDC, as well as from ongoing DAO revenue until the fund reaches its target size. Proposals should outline how much of the DAO’s current funds the intend to appropriate, as well as what proportion of ongoing revenue will be required, and for how long.

The DAO’s accounting basis divides assets into earned and unearned income. Unearned income corresponds to funds paid for registrations and renewals that are future-dated; for example, if a user spends $100 to register a name for 20 years, after a year $5 of that will be counted as earned income and the remainder as unearned income.

Unearned income may be incorporated into the fund, but must be risk-neutral with regard to ETH. Earned income should be risk-netural with regard to USDC.

The DAO’s current balances can be viewed here; as of this writing they are:

  • 13,069 ETH (~$20M) in earned income
  • $3,817,067 USDC
  • 18,184 ETH (~$20M) in unearned income

Scope of Work

  1. Expand the endowment structure specified in the accepted proposal into an executable form.
  2. Work with the ENS Meta-Governance stewards to refine the proposal.
  3. Implement the proposal onchain.
  4. Administer and adjust the endowment as necessary on an ongoing basis.

Selection Criteria

The endowment will need to be able to sustain annual withdrawals of at least $4M USDC without a long-term reduction in principal.

Proposals should include, at a minimum:

  1. Intended high-level fund allocation of the endowment.
  2. Initial and target size for the endowment fund, including the proportion of funds sourced from earned and unearned income.
  3. How incoming revenues and income will be assigned to the fund.
  4. Specific information on how the fund will be managed, and what steps will be taken to minimise custodial risk.
  5. A fee schedule for the fund manager.
  6. A detailed description of the reporting structures that will be put in place.

Priority will be given to proposals that:

  • Minimise custodial risk by using onchain mechanisms that allow administration of the funds without the fund administrator having custody of the funds.
  • Lay out a coherent strategy for how investment returns can be maintained in the short/medium/long term.
  • Minimise capital risks relative to the expected returns.
  • Define clear mechanisms for assessment and adjustment to changing external and internal conditions in order to continue to meet the endowment’s objectives.
  • Offer a high rate of return proportional to risk.
  • Define a clear reporting structure for frequent and comprehensive reporting of the fund’s status to the DAO.

Timeline

| Submission Period | September 12 - October 10 2022 |
| Approval Period | October 10 - November 7 2022 |

RFP Manager

The Meta-Governance WG stewards are the RFP managers for this RFP.

Proposals can be submitted via forum DM to the stewards. They will be held in confidence until the end of the submission period, at which point they will be posted publicly for feedback on the forum.

Budget

The endowment is expected to be self-funded, out of a combination of capital and performance fees as proposed by the fund manager.

10 Likes

Feedback appreciated on this draft of an endowment RFP.

The intention is to put this to a social vote (expressing the DAO’s desire to fund a fund manager to build an endowment). If passed, the Meta-Gov working group stewards (myself, @simona_pop and @Coltron.eth) will be entitled to take applications and approve a winning endowment manager.

Any future actions required to give the endowment manager the ability to invest the DAO’s funds will require a subsequent executable proposal to be passed.

3 Likes

Hey @nick.eth
Great starting post. I’d like to add some feedback for things we should consider when selecting, as well as giving some guidance to the overall intent and goals of the endaoment. I think you have laid out several of these at a high level, but it may be good to get some more concrete answers from the DAO itself before opening up the RFP so that potential managers can craft and articulate their responses.

Things we should absolutely include (or can be included in the proposal):

  1. Investment Mandate:
  • Fund Size: The ENS DAO will allocate [x] funds denominated in [a,b,c] cryptocurenncies to the Endaoment.
  • Management: The funds should be managed in the acceptable management form (see below for style we should choose - my suggestion is the co-managed and not full custody).
  • Investment Guardrails: The funds will be allocated with in an acceptable framework, defined by the Investment Mandate and the Risk Policy, and deployed in strategies with ENS DAO’s best interests above all others
  • Base Currency: The fund itself will be risk neutral to [ETH] or [USDC], and all reporting will be done in this Base Currency.
  • Reporting: The team will report on the fund on a weekly basis, presenting in a professional format the weekly / monthly / quarterly / annual -
    a. performance (pre and net of fees)
    b. fees
    c. assets balances
    d. cash flows
    e. investment transactions
    f. Crypto Exposures & Risk reporting (VaR & volatility & exposure analysis)
    g. Derivatives & hedges in place (as part of Risk management)
    h. Budget of endaoment
    i. Current Strategies Deployed & Overview of each
  1. Mechanics of management
    There are two styles of management - either the endoament manager takes custody of funds and has discretion (within a given set of guidelines), or it is co-managed whereby the managers initiate transactions and the DAO selected representatives approve each transaction (so that funds still remain held by the DAO from a legal and custodial perspective). The advantages of custody are that it can be managed more actively without DAO delegate input, but comes with potential legal and fiduciary constraints. The (my preferred) co-managed fund has more DAO oversight and involvement, but can be sometimes cumbersome and less agile, however this can be mitigated.

  2. Risk Policy
    The Risk Policy defines what level of risk the endaoment can undertake in its efforts to produce yield. As is typical, higher risk yields higher yield, but that is likely counter to the goals of the DAO. The Risk Policy therefore needs to address exposure risks (ie how much can the investments deviate from the Base Currency), smart contract risk, key-man risk, and other risks as it relates to ensuring the endoament is managed in a responsible way in line with the Investment Mandate and goals and requirements of the DAO.

1 Like

I had envisaged that this would be part of a proposal; the funds required would depend on the risk profile and strategy selected by the applicant in order to meet the goals of $4M capital growth PA.

I think this is outlined in the proposal - ideally we want funds to be entirely non-custodial, with fund managers only able to approve an allowlisted set of operations, and there are (nascent) systems that can facilitate this.

I would view a “co-managed” approach as strictly inferior to this.

I assumed this would be a core component of any well-formed proposal. Is there a way you suggest I should clarify that?

Good point, I’ll clarify that.

Good idea.

2 Likes

I have updated the draft with proposed dates for submissions and review. I’ll be moving this to a DAO-wide vote on Snapshot on Friday (24h from this post).

1 Like

We support the creation of the endowment fund, since holding idle funds implies a significant cost of opportunity. At Karpatkey DAO we have been doing this since May 2021, and we will put together a proposal to suit your needs, but given the fact that it will be a non-custodial solution using a Safe Zodiac module, having a maximum size wouldn’t be necessary, since all the funds will be under ENS DAO’s control at all times.
A variable amount of liquid funds could be made available to face any emergent expenditure needs, and the OPEX and any other recurrent funding needs would be taken into consideration to present you with a low risk token allocation approach that would allow you to optimise the yield of your idle funds by applying tailored low-risk strategies, which would be completely onchain, transparent and auditable at all times. The goal would be to allow ENS to fund its operation entirely from the yield generated by the token allocation strategy that we’d revise twice a week.
We’ll post a comprehensive self-funded proposal as soon as this RFP is approved.

5 Likes

This is now live for voting on Snapshot

5 Likes

Llama and Alastor are supportive of this initiative and we have been preparing a proposal to manage ENS’s endowment along with providing the reporting and analytics needed for the community to properly assess its results.

We bring deep expertise in treasury management, DeFi, and traditional finance. Our goal is to eventually generate a real return that can help ENS fund its operations in perpetuity. We have worked with Aave, Uniswap, dYdX, Nouns, Lido, and others. Our team consists of investment managers and smart contract engineers; additionally, we have two members who have led crypto investment efforts at one of the world’s largest endowment institutions.

4 Likes

Hi there! Daniel from the Mimic team here. We’re happy to join the ENS DAO governance forum and to greet everyone!

Mimic is a platform that allows you to deploy tailored infrastructure to automate (and/or delegate) access to DeFi, in a secure and 100% non-custodial way. Mimic is specially suitable for treasury management, where you can simplify and speed up complex tasks while standing on top of every detail. This is achieved through our innovative Smart Vaults concept: an automated and trustless solution that can be customized to suit your operation needs.

Deploying a Smart Vault is simple. We only need to figure out what’s the best management and/or investment strategy that better suits your needs, and configure one for you. Moreover, Mimic provides you with lots of multi-layer flexibility, it can be easily scaled up by deploying and connecting additional Smart Vaults.

Our team members have large experience in blockchain and specially in DeFi protocols. We don’t offer financial advice. However, in case you need that too, Mimic supports built-in delegation to third-party managers. We would love to work with you and soon we will be sharing a proposal that best suits your treasury needs.

3 Likes

@dmf7z, If you have any questions, be sure to join our ENS Endaoment Q&A session at 5pm EST, Wednesday 09/28. The meeting will be held on Google Meet at https://meet.google.com/oig-yngd-uiq.