Evolution of karpatkey

By 2019, the core primitives necessary for decentralised financial markets, including lending protocols, decentralised exchanges, and stablecoins, were already in place on Ethereum. Five years later, with a brutal bear market behind us, the DAOs that created DeFi have improved their cost discipline, have greater insights into security and risk management, and streamlined their governance processes. They have secured their dominant market positions through proven performance and are mature enough to maintain that dominance.

Earlier this year, Aave’s market size surpassed 20 billion USD, more significant than most blockchains. Uniswap’s annual revenue from UI fees is 135 million USD. Balancer hosts over half a billion USD in Liquid Staked Token pools. ENS Protocol has registered over 2 million .eth domains, representing 800,000 owners. GnosisDAO, CowSwap, Safe, and other blue-chip DeFi protocols continue to see sustainable growth and innovation. In short, blue-chip DAOs are going from strength to strength, their moats are increasing.

We created karpatkey in 2020 to manage the Gnosis DAO treasury. Our initial focus was on asset management, growing treasury assets. Over time, we expanded the scope of our work to include:

• financial services like strategic advisory, OTC deals and M&A to raise capital and debt

• business development to grow our DAOs’ revenues, e.g. proposing and executing technical integrations, and deploying liquidity across our partner network for maximum effect

• product development focused on risk management to ensure we kept our growing portfolio of partner funds safe in the highly turbulent and unpredictable world of onchain finance

Helping DAOs achieve long-term sustainability became our core focus. We taught our financial engineers to focus on the strategic goals and vision of our DAOs. Traditional asset management metrics like AUM were important, but only as an enabler of long-term sustainability. karpatkey is not a hedge fund, we are treasury managers, and our role is to help our DAOs succeed long-term, using all means at our disposal, and always considering the DAO’s total treasury when making strategic decisions.

We discovered that our ability to help our partners increased as we worked with more DAOs. Emergent markets for additional financial services like funding, debt and M&A became evident. So we began tracking the total value of treasury assets within our partner network, labelling it “Our DAO treasuries.”  As that number grew, so did the value we could bring to our partners.

Four years later, we’ve grown our business to become an industry leader in onchain financial solutions. As of September 2024, the assets within our partner network have grown to over $2.1 billion. Through our governance teams, we have become active investors across DeFi, giving us a significant competitive edge when managing partner funds. We’ve generated consistent alpha within treasury management through our rigorous approach to risk management. And most importantly, we have executed over 10,000 DeFi transactions with zero funds lost.

We consider each project treasuries we manage as part of a greater whole, a DeFi Treasury Network of leading DAOs. Managing this network has become a crucial part of our strategy, a major way karpatkey can maximise the value we create for all of our DAOs.

DeFi Treasury Network

We can grow DeFi more effectively when leading DAOs better align their strategic initiatives, share resources, actively manage and share liquidity, and increase integrations. The impact is better capital efficiency, reduced costs, increased revenue, and lower systematic risk within DeFi.

To drive greater integration, we began developing informal alliances across all of the partners we support, creating a DeFi Treasury Network of complementary DAOs. While this network is informal, our vision is to provide more structure over time. Greater coordination among leading DAOs will support all of DeFi.

For example, an alliance of leading DAOs can help facilitate a robust mergers and acquisitions market within DeFi. A treasury composed primarily of native tokens is seriously limited in its scope of operations. However, when a DAO holds tokens of complementary projects, its treasury becomes more strategic. The DAO is more flexible and resilient in deploying liquidity, dramatically increasing its range of manoeuvrability. Strategic token swaps incentivise all parties to help each other survive and thrive long-term.

Mergers and acquisitions were the driving force behind the emergence of investment banks in traditional finance. It was a means to build a resilient industry that transcended individual stakeholders. There is a lack of meaningful M&A activity in crypto. Our DeFi Treasury Network aims to foster collaboration across projects and drive growth through partnerships and joint ventures sealed through token swaps.

In addition to M&A, a network of leading DAOs strategically aligned can better:

• compose treasury liquidity within members to support long-term protocol growth;

• share voting power to maximise member incentives;

• coordinate systematic risk management for a more resilient ecosystem;

• raise capital for selected DAOs using a more comprehensive range of investment products;

• create a debt market between members; and

• secure value from DeFi protocols outside the DeFi Treasury Network.

Value Creation through our Partner Network

Over the past four years, karpatkey has facilitated several alliances and joint initiatives to support our partners and strengthen our growing network. Some of  these include:

As we expand our network, we increase the options available to all our partners.

Leading DAOs in Each Category

A key goal of our DeFi Treasury Network is to connect the top complementary protocols from each major DeFi category. Working closely with DAOs across multiple sectors gives our partners more options and flexibility. Limiting this to a small number of leading DAOs within each category reduces friction and ensures we maintain focus.

We have structured our internal teams to support this vision, which we call karpatkey 2.0.

This structure ensures DAOs within our treasury network have unmatched resources and capabilities in all areas of DeFi. Even if our initial focus for a partner engagement is on asset management, we can bring expertise from several additional functional areas to the DAO. This structure helps create a solid and efficient network that covers every DeFi primitive and ensures maximum value creation across participating DAOs.

Conclusion

karpatkey’s four-year track record of delivering onchain financial solutions puts us in an ideal strategic position to facilitate greater cooperation across leading DAOs. Our vision is to grow and consolidate our existing partner network to include market-leading projects from each major DeFi category. We can then promote greater cooperation across participating partners, creating a powerful DAO network with unparalleled expertise, resources, and capabilities managed for the benefit of our members. And ultimately benefiting all of DeFi.