The DAO Treasury Issue

Let’s talk about DAO treasuries for a moment.

A brief layman’s description of treasuries for the uninitiated: a DAO’s treasury is its capital – said another way, it is all of the resources (in the form of both fungible and non-fungible tokens) that a DAO has at its disposal to be used to both pay for and do stuff. When a DAO wants to pay contributors or issue grants to advisors or cement partnerships via a token swap, they dip into this treasury to do so. Because treasury balances are often used as currency for transactions, people discuss them as if they are simply cash-like assets. They usually aren’t. The purpose of this piece is to talk about why that is and, more importantly, why it matters.

On one hand, you can sort of forgive people for the aforementioned misconception. At first glance a DAO treasury really does resemble a balance sheet of cash-like assets. There are a bunch of tokens in the treasury, and you can, quite easily, go to any crypto exchange to ascertain the value of these tokens. On the other hand, a large chunk (often the majority) of almost any DAO treasury is made up of that particular DAO’s governance tokens. This creates a bit of a paradox and thus the confusion. How should we actually think about the size of DAO treasuries? How do treasuries play into the the aggregate value of a DAO’s equity? More specifically: how does the makeup and utilization of a DAO’s treasury impact the ultimate trading value of its governance token?

It’s been a little over two weeks since the Yuga / Larva bombshell dropped. A quick summary of what we know below:

• Yuga Labs is purchasing the IP of CryptoPunks and Meebits along with 400+ CryptoPunks and 1,700+ Meebits
• Contrary to many of the rumors floating around in the days beforehand, Larva Labs itself is not being acquired and will remain independent, presumably to focus on more early-stage, experimental projects and other “weird new stuff”
• Yuga Labs declined to share a ton about their future plans for the collections other than to say:
  1. They do not plan to “shoehorn” either collection into the same BAYC/MAYC model that they currently employ with their other collections (i.e., likely no plans to try to capture resale royalties in the near future)
  2. They will immediately release full commercial rights to CryptoPunks and Meebits holders, a meaningful departure from how Larva has run the collections to-date
• The financial terms of the acquisition were not disclosed

And… that’s about it. At least as far as the official communication goes. Some of our initial takeaways:

• At least for the moment, Yuga stands alone as the 800-pound gorilla in the NFT space.
• The Larva press release emanates relief… and if you’ve been following these guys’ journey at all that’s not terribly shocking – they have self-admittedly not been prepared to manage a collection of this magnitude or a community with this type of fervor… finding a home for this responsibility and cashing out on their creation is a pretty natural exit ramp
• Related – I’m not sure Larva could have hand-picked a better home for the collections’ IP. Yuga both has the wherewithal to pay for and monetize them and actually has a reputation in and understanding of the space. I can’t even begin to imagine the meltdown that would have ensued had Meta or Disney been the buyer…
• It’s become increasingly apparent in the days since the transaction announced that this is one of many strategic moves Yuga is executing on, seemingly all at the same time. ApeCoin dropped just five days later, only one day after a pitch deck leak [1] that detailed Yuga’s ambitious 2022 roadmap. Who knows where this journey ultimately takes them, but I would say they’ve made their intentions clear
• Probably a smart move by Yuga to nip the idea of resale royalties in the bud and simultaneously release full commercial rights to the individual NFT owners immediately upon announcement. I won’t pretend to be an NFT cultural expert, but I can imagine that there may be a bit of angst in the CryptoPunks community about the direction of the brand under new ownership. Shutting the door on what would have been an immediate value-depressant and righting a perceived long-time wrong is a decent way to start one’s tenure as de facto manager
• This is now the second Andreessen-backed Web3 company to be on the buyside of a landmark acquisition in the last 3 months, alongside Fei / Rari – not yet a trend, just an observation

Better Late Than Never.

We’re nearly four months late to the Fei|Rari acquisition recap party. We’ve been a bit busy the last few months between leaving our investment banking jobs and beginning our new lives as M&A freelancers. Crypto will very much be a part of this new venture, and maybe soon the entirety of it. In terms of content, a retrospective look at the first DAO-to-DAO acquisition of this magnitude felt as good a place to start as any.

Before we get started, congratulations to everyone involved in the deal. To state the obvious, this was a landmark transaction and an incredibly bold step for each of these teams to take. Doing something that has no real precedent, playbook, or roadmap takes an impressive amount of fortitude.