Jack Kubinec

Nouns DAO executed a so-called fork last month following disgruntlement with the DAO’s freewheeling spending habits. After a proposal went live which would force Nouns to keep spending its treasury, the DAO forked a second time.



Nouns DAO, which mints one NFT every day and uses the funds to advertise the project, instituted forking in May as a form of minority protection. So far, 62 Nouns, or about 20% of treasury’s holdings, have joined the fork, which finalizes Wednesday morning. The early outflows totaled 2035.49 ether, worth around $3.2 million at the time of writing, and will add to the more than $27 million lost in the first fork.&nbsp;



The Noun fork mechanism technically allows erstwhile holders to use the project’s code for a spinoff project, but participants in September&#8217;s fork don’t seem to be interested in a Nouns rebrand. The fork <a href="https://etherscan.io/txsInternal?a=0x55dd565c6f94b3bad1f4a35398af4a526fcd465f&amp;p=5">contract</a> shows 224 separate transactions of users claiming their share of ether (<a href="https://blockworks.co/price/eth">ETH</a>), leaving under 1,000 of the original 16,000 ETH remaining in the fork’s wallet.&nbsp;



At the time, <a href="https://blockworks.co/news/nouns-dao-treasury-fork-governance">Nouns contributors told Blockworks some of the Nouns holders who left</a> were interested in an arbitrage opportunity where Nouns could be bought for below their book value, or proportional share of the DAO’s treasury.



After the fork, a Nouns proposal went live that would burn, or liquidate, part of the Nouns treasury at given intervals if a sufficient amount of ETH was not spent, in essence forcing the DAO to regularly spend its treasury. Part of the rationale for the proposal outlined in a blog <a href="https://w.mirror.xyz/AmHOzH-FQZVO3IhGXHSvCRxRSf2MO6VCZdmMwNEIyKE">post</a> was to eliminate the arbitrage opportunity by spending down the Nouns treasury and thus lowering the book value of each Noun.&nbsp;



The proposal led to Nouns’ second fork, which curiously was executed days before the offending proposal finished its governance <a href="https://nouns.wtf/vote/394">vote</a>. The proposal currently lacks the votes needed to pass.&nbsp;



The fork will allow some holders to profit via arbitrage. The Nouns price floor <a href="https://nftpricefloor.com/nouns">fell</a> to as low as 25 ETH in recent weeks, per NFT Price Floor, and the current Noun book value is around 27 ETH, or roughly $42,500, according to a Dune <a href="https://dune.com/beetle/nouns-dao-book-vs-auction-value">dashboard</a>.



But the fork isn’t all arbitrage, with at least one former holder fully exiting the project. 22 of the 62 Nouns joining the fork came from Patricio Worthalter, a longtime Nouns holder who fully closed his position after claiming 24 Nouns worth of treasury funds in the last fork. One of Worthalter’s soon-to-be-forked Nouns cost 113.33 ETH to acquire, worth around $357,000 at the time it was minted.



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Nouns DAO is forking again 

Bessie Liu

Maple Finance, an on-chain lending and borrowing network, has announced the introduction of a treasury management solution designed specifically for DAO treasuries. 



Short-term Treasury yields have steadily increased over the past few years, currently sitting at roughly 5%. By contrast, DeFi yields have stayed relatively low, Maple Finance CEO Sid Powell told Blockworks in an interview.



The latest pool launched by Maple intends to ensure that deposited funds are sent to a special-purpose vehicle (SPV) which is only permitted to buy US Treasurys. 



“Funds are off-ramped through Coinbase Prime, it will purchase treasuries from a regulated broker and then pledge them as collateral,” Powell said.&nbsp;



To certify that lender funds are secure, the platform places a tri-party agreement between the Maple Foundation, the borrower and the broker into effect.&nbsp;



Should a borrower refuse to repay their loan, the Maple Foundation will contact the broker and declare the loan in default. By doing this, they gain access to the brokerage account and its T-bills so that it can send the money on-chain to repay the loan.&nbsp;



“So if you’re depositor in the pool, you’ve got a loan paying you about 4% and if that borrower of the loan defaults, Maple can sell and repossess these treasuries from the broker, sell them and pay back your loan…so overall it makes for a relatively low-risk proposition,” Powell said.



Maple Finance said it will open the pool treasury to all non-US accredited investors. Those who wish to deposit loans must pass a 15-minute know-your-customer and anti-money laundering onboarding process. 



“We’re going to check: Are you a foundation, do you have articles of incorporation as a foundation, can you disclose your members or board or directors?” he confirmed.



Powell noted that there will also be stipulations on what SPVs can do with borrowed loans.



“We’re not going to buy 10-year T-bills because nobody wants a repeat of Silicon Valley Bank. Instead, we’re just going to buy one or two-month T-bills,” he said.&nbsp;



Lenders will also be able to monitor any treasury holdings that are secured with a custodian in real time. The company acknowledged that next-day withdrawals will also be possible.



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Maple Finance Brings TradFi to DeFi With Treasury Management Pool

DAO treasuries are collectively valued at <a href="https://deepdao.io/organizations" target="_blank" rel="noreferrer noopener">billions</a> of dollars. A large chunk of that money sits unused, generating no yield.



Yep, DAOs are keeping their eggs in one basket, and the basket in a safe.



DAOs commonly compose treasuries of their native governance tokens. The Uniswap Foundation, for instance, has a treasury worth over $2 billion at current prices, denominated entirely in UNI. 



It’s clear that DAO treasuries would be worth far less if liquidated all at once, especially considering how shallow markets for their respective tokens can be.



Still, these monolithic treasuries often result from the tokenomics of fundraising — printing and selling governance tokens — of which the DAOs themselves retain valuable amounts.



“A lot of DAOs amass a treasury first and then decide what to do with it second,” Dan Kelleher, vice president of engineering at Civic Technologies, said.



Treasuries are <a href="https://twitter.com/OlympusDAO/status/1587529678599888898?s=20&amp;t=BwaTBzWWcr_sqFzI9NkFpA" target="_blank" rel="noreferrer noopener">sometimes understood</a> to be a DAO’s backstop, a kind of failsafe source of liquidity. When governance tokens are growing in value, this system works pretty well. In mid-2021, the <a href="https://twitter.com/messaricrypto/status/1392856678601826306?lang=en" target="_blank" rel="noreferrer noopener">38 largest DAOs</a> had treasuries worth over $15 billion.



But in a slumping market, DAOs are learning the danger of getting high on their own supply. Total DAO treasury funds dipped as low as <a href="https://www.theblock.co/post/182151/aera-creates-vaults-for-daos-on-polygon-to-manage-their-treasuries" target="_blank" rel="noreferrer noopener">$8 billion</a> during this summer’s crypto crash. 



DeFi is developing new treasury management methods, though. <a href="https://www.aera.finance/" target="_blank" rel="noreferrer noopener">Aera</a>, which launched on Polygon this week, uses a treasury management algorithm to move DAO funds into stablecoins and “top tier” lending protocols like Aave and Compound. 



“If market prices fall pretty quickly, protocols are at risk of having some amount of insolvent debt [if their treasuries are not diversified],” Rei Chiang, a developer behind Aera, said.



Even for DAOs that don’t have large single-token treasuries, like MakerDAO, a lot of assets tend to sit around instead of accruing value.



“Maker has billions of non-productive assets (other stablecoins) on its balance sheet that it can and should refinance into productive assets (like bank loans or loans to Coinbase),” Gregory di Prisco, MakerDAO’s former head of business development, said in a Telegram message.



Trading with DAO treasuries would be risky and could result in actually losing funds. Some flagship DAOs are instead opting for much safer bets.



MakerDAO recently approved a proposal <a href="https://cms.blockworks.co/coinbase-looking-to-acquire-1-6b-of-makerdaos-usdc/" target="_blank" rel="noreferrer noopener">lending $1.6 billion</a> of its USDC to Coinbase, and <a href="https://cms.blockworks.co/makerdao-votes-to-allocate-500m-dai-into-us-treasuries-bonds/" target="_blank" rel="noreferrer noopener">invested $500 million dai</a> in US Treasurys. Uniswap, on the other hand, is spending <a href="https://www.axios.com/2022/08/05/uniswap-looks-to-spend-some-of-its-giant-treasury" target="_blank" rel="noreferrer noopener">some of its treasury</a> hoping to grow its ecosystem. 



Hamzah Khan, the head of DeFi at Polygon, believes other DAOs should follow suit.



“Most of DeFi was built by pure engineers, and not so much by finance people,” Khan said. An engineer-heavy space is great for technological soundness, but with <a href="https://cms.blockworks.co/jpmorgan-trade-on-public-blockchain-monumental-step-for-defi/" target="_blank" rel="noreferrer noopener">major financial institutions</a> venturing into DeFi, Khan believes DAOs need to start being more capital efficient, too.



“Institutions are going to come. More sophisticated participants are going to come, and we have to be ready,” Khan said.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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