GSR Warns DAO Treasury Concentration Creates a Negative Feedback Loop

TLDR:

• GSR says native-token concentration exposes DAO treasuries when prices, revenue and activity fall.
• Projects often seek hedges after selloffs, when higher volatility makes protection more expensive.
• Collars can protect a token floor by funding the hedge through a sold call, not stablecoin reserves.
• Separating operating reserves from long-term holdings can help DAOs preserve runway during declines.

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DAOs face growing treasury risks because many projects keep most reserves in their own native tokens.

GSR found that native tokens account for roughly 70% of DAO treasury assets. That concentration can cause treasury value, protocol revenue, and market activity to decline together. 

The firm says projects often seek protection only after falling prices make hedging more expensive.

DAO Treasury Risks Grow With Native Token Exposure

GSR said the concentration creates a procyclical structure across crypto treasury management. When a native token falls, the treasury loses value while protocol activity can weaken simultaneously.

Lower activity can reduce fees and liquidity, leaving projects with fewer resources during market downturns. The treasury therefore becomes less effective when projects need it most.

Wu Blockchain reported GSR’s findings after sharing details from the firm’s treasury management report. The report noted that many DAOs allocate relatively little capital toward stable assets or diversified reserves.

The problem can also increase selling pressure. Projects still need dollars for payroll, infrastructure, audits, and grants, regardless of their token’s market performance.

A weaker token means projects must sell more units to cover the same expenses. Additional selling can place further pressure on the token and accelerate treasury depletion.

GSR said projects should ask whether their existing reserves could fund operations for another 12 months. That approach shifts treasury planning toward runway rather than short-term market timing.

GSR Recommends Earlier DAO Treasury Hedging

GSR said demand for downside protection often increases after crypto markets decline. By then, implied volatility has usually risen, making protection more expensive.

The firm recommends treating hedging as an ongoing treasury policy rather than an emergency response. Projects can establish protection before market conditions deteriorate.

GSR identified collars as one structure that can provide downside protection without requiring stablecoin reserves. A project sells a call and uses its premium to purchase a put.

The structure establishes a defined range for the token. The put provides protection below its strike, while the sold call limits gains above its strike.

GSR said properly structured collars can offset both option premiums. That allows projects to retain token exposure while establishing a defined downside floor.

The report also recommends separating operating reserves from longer-term crypto holdings. Stable assets can cover expenses, while strategic holdings remain invested with appropriate risk controls.

GSR works with foundations, DAOs, and protocols through OTC execution, block trading, collars, and customized derivatives. Its report argues that treasury structure should support operations across different market conditions.

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Source: https://blockonomi.com/gsr-warns-dao-treasury-concentration-creates-a-negative-feedback-loop/