DAO-to-DAO Token Swaps
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June 13th, 2022

Introducing another pillar of the Hedgey protocol, DAO-to-DAO (D2D) token swaps — a huge step toward DAO-DAO interoperability.

The DAO challenge

One of the major challenges that many DAOs face is the fact that their treasuries mostly consist of their own native token. If not done correctly, asset diversification can lead to dumping of the native token on the open market, resulting in a negative price impact.

D2D token swap is a common endeavor of DAOs trying to diversify some of their treasury by holding other DAO tokens.

What is a token swap?

A DAO-to-DAO (D2D) token swap is exactly what it sounds like, a token swap between two DAOs. By trading native tokens with each other DAOs can: diversify their treasury, participate in each other’s governance and form strategic alliances thus, potentially yielding more powerful influence on the entire DeFi ecosystem. A key component of a D2D swap is that each DAOs tokens avoid the open market.

Hedgey D2D swap

The Hedgey protocol provides a range of products that assist DAO with the challenges of treasury diversification. Hedgey D2D token swaps is one of these products.

The Hedgey OTC protocol now allows DAOs to create OTC offerings for any token with any token as the payment currency. While a prominent feature of the Hedgey OTC protocol is the time-lock functionality, users can create OTC deals with no time-lock. While an NFT will not be generated (since there is no time-lock), the user/DAO can create a private offering with another DAO in order to directly swap tokens, using a permissionless & trustless protocol.

How to execute a DAO-to-DAO token swap

Here’s a high-level summary of the key step in a DAO-to-DAO token swap.

We recommend when setting up token swaps that the OTC deal be set for private — so that only the intended counterparty can swap the tokens (you don’t want unintended participants participating in the deal).

To do a token swap, the two DAOs should first agree on the parameters, primarily the amount of tokens to be swapped each — which then creates the ratio for which they would be swapped. Once this is established the DAO swapping less tokens overall, should create a deal.

For example: ABC and XYZ DAOs are swapping tokens, and they agree that they will swap 1,000 ABC tokens for 5,000 XYZ tokens. ABC should initiate the swap by calling the ‘create’ function (which can be done through the UI as seen above).
For example: ABC and XYZ DAOs are swapping tokens, and they agree that they will swap 1,000 ABC tokens for 5,000 XYZ tokens. ABC should initiate the swap by calling the ‘create’ function (which can be done through the UI as seen above).

Use-Case: Agave — GnosisDAO Token Swap

The first D2D token swap on the Hedgey protocol was executed between Gnosis DAO & Agave, executed by third-party Karpatkey. Combined $2.4 million in $GNO & $AGVE was exchanged and executed through a Snapshot proposal, which you can check out below, along with the on-chain event.

Why execute a D2D swap?

DAOs can now address their growing pains by exchanging and trading with each other, eliminating the need to use the open-market to diversify their treasuries. As previously mentioned, a major pain-point amongst DAOs, especially in a bearish market, is that a large percentage of their treasuries consist of their native token, making it difficult to diversify their treasury and increase their stable coin liquidity. Now, DAOs can collaborate, find synergies, and diversify their treasuries without having to worry about the price impact on their token.

The Hedgey protocol provides an array of unique tools that alleviate this problem amongst DAOs, and DAO-to-DAO token swaps is just the latest tool under the Hedgey umbrella. Hedgey helps DAOs prosper.

Want to get in-touch with our team, or just learn more about Hedgey? Hop into our Discord! https://discord.gg/hedgey

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