In my response below, I propose a two-tier benchmark rate before performance fees fully kick in; clarify how profit should be calculated for the purpose of measuring performance; and discuss the kind of investments the DAO ought to and ought not to undertake.
1. 10% Fee. I won’t quibble about what percentage of fees is owed, but instead I echo many of the voices in the discussion so far when I say that beyond a high-water mark which is a basic standard, there must be a benchmark that should be beat before any fee kicks in.
1.1 I think we can follow two basic tiers. Once the annualized profit of the entire treasury (measured by increase in backing) is at 10% APY, a 5% fee can be charged on any yield over that. Once 15% APY is hit, 10% can be charged on any yield above that. I think many will see these percentages as low goals when they compare to the yields found on anchor or elsewhere, but earning a high yield on hundreds of millions within months of onboarding, while maintaining security and juggling other matters is not simple.
1.2. At the same time, with stable yields from frax, curve, degenbox, stargate, platypus all remaining relatively high and accessible even for large treasuries, as well as even higher yields available on farming volatile assets or options vaults like dopex, there’s no reason to expect any less than 15% before the full 10% fee kicks in. Keep in mind, these are merely benchmarks and the incentive is always there to attain higher overall yields.
2. How “profit” is calculated. Profit should be calculated by reference to the increase in the liquid component of the treasury.
2.1. Whenever any seed investments or SAFTs are entered into in illiquid projects, such funds must not be counted as part of the treasury until profits from such projects are actually realised.
2.2. On a side note, the reason why I avoid calculating profit on the basis of increase in backing per token is that backing per token can effortlessly be increased through buybacks. Such profit is something that we could achieve on our own and as such, does not reflect the skill and expertise of a treasury manager – no fees should be allowed to be charged on profits derived from buybacks. The principle here is the same as the benchmark rate. For anyone that thinks this disincentivises TM from carrying out buybacks, that is simply not true. Any TM is well placed to personally benefit from buybacks themselves, there is no need to pay a fee on top of such benefit.
3. Directional Exposure. While my above two points are more objective, this point is more subjective.
3.1. In my view, I dislike Skyhopper’s mention of “DeFi 2.0 themed tokens” as well as “metaverse themed tokens”. Investments in projects with poor fundamentals should be avoided (at least on the secondary market, as opposed to seed investments which have a better R/R). This includes node projects, most of ‘Defi 2.0’ projects, or TOMB forks, among others. There will always be exceptions – for instance, Tomb itself is better backed since Harry Yeh backstops the TOMB peg, and so its not unreasonable to consider it as a potential investment.
3.2. DeFi projects that generate fees that can be termed ‘sustainable’ due to the creation of actual utility (GMX, GNS, Dopex, Platypus, Curve, Abra, etc) are the kinds of projects that I would consider rational and reasonable.
3.3. Any investments in GameFi or metaverse projects should only be carried out provided there is an understanding of the ponzi elements involved in any such project – ponzis are not bad, but where they exist they must be acknowledged in order to avoid being burned by them (even UST is a ponzi but its just a much more successful and potentially less overtly fragile one).
There will be many who disagree with the third paragraph since I’m sure many people believe in various metaverse/game-fi/tomb-fork/rebase projects. However, the third paragraph is slightly more subjective than my first two paragraphs which are also more important, so please prioritize discussion on those.