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GIP: 20 title: Karpatkey DAO Treasury Management author: @Karpatkey status: Phase 2 type: Meta created: 2021-11-22
# Simple Summary
Karpatkey is a DAO incubated through Gnosis Ltd. which has been tasked to use Gnosis Ltd.’s funds in DeFi transactions to grow Gnosis Ltd.’s treasury. Following the asset transfer from Gnosis Ltd. to the GnosisDAO, Karpatkey DAO offers to provide the GnosisDAO with similar services to maximize the growth of its new treasury by applying a management system which includes recurrent liquidity mining optimisation strategies.
GnosisDAO would partner with Karpatkey DAO, and entrust them with guiding the treasury management. Authorisation from other trusted GnosisDAO community members would still always be required each time transactions are executed, at all times. GnosisDAO Multisig Wallet Signers would together continue to be able to control the funds without Karpatkey DAO’s collaboration.
To get the most out of the boom of governance-tokens yield farming peak in June 2020, Gnosis Ltd. shifted its treasury management strategies, taking low risk liquidity mining positions in a controlled environment for most of its ETH and stablecoin holdings.
By May 2021, a team formed by Gnosis Ltd. and Karpatkey DAO current members had been tasked by Gnosis Ltd. to take responsibility for the research, execution and reporting of the treasury management activities. In November 2020 Gnosis Ltd. announced that it would transfer certain assets to the newly created GnosisDAO. Following legal legacy system corporate and DAO structuring, this asset transfer is taking place right now.
The transition of Gnosis from a traditional for profit organisation to a DAO has created all sorts of coordination issues from a treasury management perspective that we wish to address.
As we migrate to implementing autonomous open source tooling developed by the Gnosis Safe and Zodiac teams, GnosisDAO needs to find solutions to efficiently manage its assets. Karpatkey DAO would adopt best practices from world-class organisations and create tailored procedures in new areas.
The size and composition of the treasury (+150K ETH) puts it in a good spot to profit from controlled DeFi opportunities.
The treasury goals are to fund the development of GnosisDAO products, new ventures and boost GNO’s value proposition.
Karpatkey DAO will support the efficient achievement of these objectives by providing GnosisDAO with a selection of market opportunities which may be analysed and executed by GnosisDAO. The role sharing leads to a workload relief of the GnosisDAO because it does not have to extensively focus on the market dynamics.
Karpatkey DAO’s goals are the following:
- Design and implement an efficient and robust treasury management system
- Identify the best economic opportunities for the treasury tokens without modifying the GnosisDAO portfolio of investments (the GnosisDAO would have to define its portfolio and allocation to new ventures)
- Design mechanisms for GNO token economics
- Coordinate and negotiate cross-DAO efforts, joint ventures, mergers and acquisitions
To align with GnosisDAO’s vision and ethos, and increase transparency with GNO token holders, we propose that information about how investments are managed is made available to the GnosisDAO community. Treasury management would be handled in a completely transparent way, positively impacting GnosisDAO’s reputation and trustworthiness.
## Past Performance
The inception of Karpatkey DAO as Gnosis’ treasury management consultant has resulted in a consistent revenue stream for Gnosis, increasing its treasury size by circa $1.5 M a week (YTD tracked since May 2021 includes but is not limited to: 71K GNO, 350K BAL & 20K FLX).
Karpatkey DAO has continuously increased the treasury holdings and the amount and complexity of positions while significantly reducing their size and associated risk.
This is illustrated in the chart below:
The number of positions was increased more than 3X, significantly reducing their size and associated risk. The improvement in capital management efficiency has entailed a substantial workload increase.
History of transactions for the main DEFI multisig wallet for the last year where a substantial increase in transaction volume can be seen as of May 2021.
Karpatkey has produced weekly reports since May 2021. This is a sample from week 42 of 2021.
## GNO buybacks
On May 24th 2021, Gnosis Ltd. approved a decision to use a fraction of the non-strategic farming rewards to buy back GNO. 71115 GNO have been bought back since then. The fundamental reason behind this decision was that the valuation of GnosisDAO’s holdings and investments have made GNO a good fit for the treasury.
Some other previous actions include:
- Acting as GNO market makers in different DeFi protocols and networks
- Interacting with other protocols for partnerships and DAO swaps like Element and Balancer
- Acting as a delegee for the governance tokens in other DAO’s proposals, in the best interest of Gnosis Ltd.
- Pushing for bug-free integrations of Safe into DeFi protocols like Alchemix, Cream, Barnbridge and Instadapp; and laid the groundwork for future Safe users on DeFi Apps.
Karpatkey DAO has currently 8 full-time and 2 part-time contributors (and currently hiring 3 additional full-time) who have been dedicated to Gnosis Ltd. (and would hopefully with this proposal passing be dedicated to the GnosisDAO), organised in the following teams:
Research and Strategy: Software developers and finance professionals responsible for the technical and financial analysis of investment opportunities, their associated risk, and prospective new protocols on a regular basis. They are responsible for the development of infrastructure, the strategy proposal (updated at least once a week), Emergency Plan, Risk Analysis Report and a Treasury Vision Document.
Execution: Interdisciplinary team that supports the execution of the transactions to be implemented as a result of the weekly strategic proposals. That includes financial strategies, specific trading plans for buybacks and acquisitions, OTC deals, etc.
Tracking and Reporting: Finance professionals who track and report on loans, yields, buybacks, relative market price evolution, balance sheets, accounting, etc.
The way in which Karpatkey DAO works adheres to industry best practices at a competitive cost for Gnosis Ltd. and now hopefully for GnosisDAO, fostering a mutually beneficial long term growth and strengthening of GnosisDAO’s position in the market. This not only refers to the size of its treasury, but also to the GnosisDAO brand perception in the community.
On one hand, the increase of the GnosisDAO treasury size due to Karpatkey DAO’s treasury management guidance unlocks new investment opportunities, expanding the reach and breadth of GnosisDAO’s capabilities in a virtuous circle. On the other hand, the adherence to industry best practices in terms of transparency and reporting will convey to the market players that GnosisDAO is trustworthy and aligned with the DeFi ethos.
Karpatkey DAO revises its internal processes and performance every month, as part of its continuous improvement efforts, necessary to remain competitive and harness the fast-paced crypto markets.
# Terms of the Agreement
## 1. Karpatkey DAO’s Duties and Responsibilities
- Research, analysis, risk management and execution-support regarding yield optimised DeFi strategies on a daily basis
- Development of infrastructure
- Periodic reporting
- Recruitment of additional professionals
- Design of mechanisms for GNO token economics
- Networking with other DAOs to reach mutually beneficial agreements
- Karpatkey DAO shall at all times comply with the terms of the GnosisDAO Participation Agreement.
- Send funds to the GnosisDAO main wallet for any requirement whenever needed within 7 days of it being informed
## 2. GnosisDAO Duties and Responsibilities
- GnosisDAO invests $1MM at a $50MM valuation and a 20% early investor discount (2.5% ownership of Karpatkey DAO)
- The Zodiac team will dedicate resources to improve the infrastructure used by Karpatkey
## 3. Fees
Karpatkey DAO will charge GnosisDAO exclusively in GNO tokens and then hold them to align both parties’ financial interests and because Karpatkey believes in the long term sustainable growth of GnosisDAO
- A 3% fee (inclusive VAT or other fees payable by Karpatkey DAO) on the yield farming profits will be charged by Karpatkey DAO, calculated in the weekly balancer report, auditable by GnosisDAO. Each weekly report shows rewards in different tokens. We would measure the value of each token (LDO, CRV, COMP, etc or native tokens for interest and trading fees) converted to GNO, and collect a percentage fee of all the earnings acquired. Everything will be measured at the opening price of Mondays from Coingecko
- The fee will be sent to the Karpatkey DAO Multisig and locked up for a minimum of 6 months, used for GBC validators, added to a 80/20 GNO/WETH Balancer or similar pools and held there for a minimum of 6 months
- Once an accounting team delivers GnosisDAO reports, we’ll calculate the fee based on the monthly Balance sheets. Yield farming fee = (Weekly liquidity mining rewards + arbitrages - trades slippage - deposit/withdrawal fees - impermanent loss - gas fees) * percentage fee, converted to GNO
- Fees will be paid in GNO by the 5th day of each month to the Karpatkey DAO multisignature wallet
- Karpatkey DAO will be liable for their own tax obligations arising from or in connection with their services under this proposal to the GnosisDAO.
## 4. Rate Adjustments and Renegotiations
Both parties commit to negotiate the fees by way of the GnosisDAO governance mechanism in force at the time.
## 5. Termination
This agreement has a fixed duration since it is approved by the GnosisDAO governance mechanism.
Any GnosisDAO community member may terminate Karpatkey DAO’s engagement under this agreement for any reason by way of Governance Mechanism. Kapatkey DAO may terminate this agreement upon four week’s’ notice posted as a new discussion thread in the GnosisDAO forum. In case the termination is requested by GnosisDAO, Karpatkey DAO will be granted an exit fee equal to the fees collected during the last 2 months, which will be paid in DAI. Regular fees will be collected until the day of termination.
## 6. Reporting
Karpatkey DAO will provide the reports detailed below and support in identifying data elements upon request from the GnosisDAO’s community. Also, Karpatkey DAO would review data reported and assist in performing analytics and quality reviews to confirm the accuracy of the data.
Karpatkey DAO is not a custodian of funds. The funds will be in possession of the GnosisDAO at all times.
KarpatkeyDAO will sign transactions using the following addresses:
Likewise, Karpatkey DAO is not responsible for loss of funds caused by the existence, identification and/or exploitation of vulnerabilities through hacks, mining attacks (including double-spend attacks, majority mining power attacks and “selfish-mining” attacks), sophisticated cyber-attacks, distributed denials of service or other security breaches, attacks or deficiencies with smart contracts or protocols which are not owned by GnosisDAO or Karpatkey DAO.
The plans outlined in this Phase 1 proposal are subject to discussion by the GnosisDAO and may need to be (re)structured to take account of legal, regulatory, or technical developments as well as governance considerations. This document should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in any transactions.
Edits made on Phase 2: Added fee and $1MM investment on Karpatkey
Edits made on Phase 3: Modified 1 Karpatkey’s signing address
This proposal is in phase 3, please vote on Snapshot!