Context

As of the publication date, the dYdX Community Treasury holds 80.5M vested DYDX and 19.4M vested stDYDX, while the Community Vester holds 129.7M unvested DYDX that vest to the Community Treasury at a rate of ~2.04 DYDX/second until August 3, 2026. Consequently, the dYdX Foundation is releasing this blog post to initiate a dialogue on the present and future trajectory of the dYdX DAO's treasury, for the dYdX community to consider the formation of a Treasury subDAO as a potential additional key step for the success of the dYdX DAO, and to potentially kick-off a request for proposals (RFP) process.

TL;DR

• As of the publication date, there are 80.5M vested DYDX and 19.4M vested stDYDX in the Community Treasury. Also, 129.7M  DYDX will vest in the Community Treasury from the Community Vester until August 2026. 
• The Community Treasury's assets are currently limited to DYDX and stDYDX tokens. If the community wanted to convert part of its assets or earn other assets, like USDC, the lack of a legal entity may cause uncertainty from a tax and regulatory perspective. Further, having a community treasury composed of a single asset type (DYDX and liquid-staked DYDX) introduces significant volatility and risk-concentration into the treasury's overall value, posing challenges for long-term financial planning to sustain DAO operations over extended periods. 
• To best position the dYdX DAO for future success, it is probably in the community’s best interest to expand the dYdX DAO to include a Treasury subDAO. 
• Among other potential competencies, a Treasury subDAO could be responsible for the following: (1) forming a Cayman Foundation and Treasury multisig account on dYdX Chain to achieve greater tax and legal certainty, (2) developing a staking program to stake a portion of the DYDX funding received from the Community Treasury to dYdX Chain validators, (3) overseeing the diversification of the DYDX received from the Community Treasury to assets other than DYDX (and stDYDX), like stablecoins, to mitigate volatility in the total value of the assets and to ensure adequate runway, (4) engaging in various types of financial transactions, both on-chain and off-chain, to generate yield and financial returns on its treasury assets, and (5) assisting the dYdX DAO with financial planning, funding, and operational support. 

Introduction

The dYdX Community Treasury is meant for the dYdX community to use on an ongoing basis for contributor grants, community initiatives, liquidity mining, and other programs, at the community’s sole discretion. Initially, 5.0% of the token supply (50,000,000 $ethDYDX) was allocated to the Community Treasury. Since the launch of the DYDX token, the dYdX community has voted on several governance proposals to reduce DYDX emissions and, as a result, the allocation of the dYdX Community Treasury has increased to 26.1% (261,133,225 DYDX). 

As of the publication date, there are 80.5M vested DYDX and 19.4M vested stDYDX in the Community Treasury. Additionally, 129.7M DYDX will vest in the Community Treasury from the Community Vester until August 2026. Consequently, we believe that the dYdX community should assess the present and future trajectory of the dYdX Community Treasury and consider the potential formation of a Treasury subDAO.

The dYdX DAO: Current State of the Community Treasury and Potential Next Steps

The dYdX DAO has incrementally expanded based on the needs of the dYdX community. In the future, the dYdX DAO will likely consist of several autonomous subDAOs that each work on core functional areas of the dYdX protocol and are ultimately accountable to the dYdX community.

Since inception of the dYdX DAO, the dYdX community has voted to form and fund two subDAOs: the dYdX Ecosystem Development Program (FKA: dYdX Grants Program) and the dYdX Operations subDAO.

So far, the dYdX community has voted to transfer 31.1M DYDX from the community treasury:

1. Safety Module Reimbursement & Compensation: 173,205 DYDX
2. dYdX Grants Program: 752,000 DYDX
3. dYdX Grants Program v1.5: 2,582,000 DYDX
4. dYdX Operations subDAO: 225,000 DYDX 
5. dYdX Operations subDAO v2: 4,314,000 DYDX
6. Seeding the Insurance Fund: 382,024.50 DYDX 
7. dYdX Foundation Fundraising: 10,915,674 DYDX
8. dYdX Ecosystem Development Program: 3,858,500 DYDX
9. Launch Incentives Program (4 Seasons): 7,912,227 DYDX 

To best position the dYdX DAO for future success, it is probably in the community’s best interest to expand the dYdX DAO to include a Treasury subDAO. 

Why a Treasury subDAO?

The Community Treasury's assets are currently limited to DYDX and stDYDX tokens. Also, these assets are held in module accounts in the dYdX Chain, accessible through dYdX Chain governance. In the event that the dYdX community wanted to convert part of the DAO assets into other assets or use them to earn new assets, like USDC, the legal and tax uncertainty surrounding DAOs may cause risks for the DAO itself or its participants, including token holders. Further, having a community treasury composed of a single asset type (DYDX and liquid-staked DYDX) introduces significant volatility and risk concentration into the treasury's overall value, posing challenges for long-term financial planning to sustain DAO operations over extended periods. To address the challenges above, the dYdX community may consider the potential formation of a Treasury subDAO.

Among other potential competencies, a Treasury subDAO could be responsible for the following: 

1. Forming a Cayman Foundation and Treasury multisig account on dYdX Chain to achieve greater tax and legal certainty. We recommend the Treasury subDAO be formed as a Cayman Foundation because a Cayman Foundation provides separate legal personality, increased certainty around liability, a balance between DAO oversight and empowering members of the subDAO to execute on their objectives, and the ability to hold various assets and engage in financial transactions both on-chain and off-chain. Additionally, Cayman Foundations have a predictable tax regime and can operate without members. Wrapping a Treasury subDAO as a Cayman Foundation would significantly reduce the tax uncertainty associated with treasury operations with DAO assets.  
2. Developing a staking program to stake a portion of the DYDX funding received from the Community Treasury to dYdX Chain validators, 
3. Overseeing the diversification of the DYDX received from the Community Treasury to assets other than DYDX (and stDYDX), like stablecoins, to mitigate volatility in the total value of the assets and to ensure adequate runway, 
4. Engaging in various types of financial transactions, both on-chain and off-chain, to generate yield and financial returns on its treasury assets, and  
5. Assisting the dYdX DAO with financial planning, funding, and operational support. 

Potential Next Steps

If the dYdX community decided to form one, a Treasury subDAO would need resources to fund its operations and expenses, including costs related to the formation of a Cayman Foundation, the costs associated with vendors or service providers to be retained and managed by the Treasury subDAO, and/or the costs associated with the directors, employees and/or other contributors to be hired by the Treasury subDAO.

Note, the formation of any subDAOs or working groups and any relevant execution timelines are entirely at the discretion of the dYdX community. This post only contains suggestions and potential scenarios for the community to consider and iterate on.

If the dYdX community decided to form and fund a Treasury subDAO, the creation process could include the following steps:

1. Initiate Discussion: A community member who is interested in spearheading the creation of a Treasury SubDAO should post their proposal on the dYdX community forums. 
   The proposal may include the following information to facilitate effective discussion among dYdX community members to decide who would be best suited to become members of the Treasury SubDAO:

• a short introduction to the entity or individual who is interested in becoming a member of the subDAO,
• key information regarding previous experience in overseeing financial assets (especially in DeFi) and/or managing other DAOs’ treasury, 
• a detailed paragraph on proposed key results, performance reporting, and its cadence, 
• proposed compensation, &
• any other information and documents that will help dYdX community members make an informed decision.

2. On-Chain Text Proposal: An on-chain text proposal should be used to confirm the members of the subDAO, key legal persons, and enable the proposer to spin up the Cayman Foundation. 

3. On-Chain Community Spend Proposal: Upon community approval of the subDAO formation via the text proposal, the community could approve the transfer of funding from the Community Treasury to the new subDAO through a community spend proposal.

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