Aera for Treasury Management
The Treasury Management Trilemma
With the success of DeFi, protocol treasuries continue to grow and now hold billions in value. As decision making moves to DAOs capital allocation becomes less efficient. Most treasuries today are not able to use this capital effectively. They have had to use one of three suboptimal approaches.
One-time treasury diversification
A one-off approach to treasury management that covers immediate needs of the DAO but doesn’t address long-term treasury sustainability. This is a principled approach, but one that cannot adapt to evolving needs. Another problem with this approach is direct diversification from a DAO tends to be expensive due to slippage costs.
Centralized treasury management
DAO elects a treasury manager which has a broad remit on what asset class choices and investment strategies they can employ. This breaks a lot of the properties that DAOs seek to achieve like credible neutrality, limiting single points of failure and others.
Inaction by democracy
DAOs who care about trustlessness may elect to make large reallocation decisions through votes. Unfortunately this is hindered by misaligned incentives from DAO members and apathetic/uninterested voters.
Faced with three choices that are fundamentally unappealing, DAOs choose to keep their capital largely unallocated.
Breaking the Treasury Management Trilemma
Aera is a treasury management platform that achieves all three desirable properties: trustless, principled & responsive treasury management.
Here’s how it works.
Aera achieves responsiveness and efficacy by using off-chain guardians
Guardians are able to build complicated data pipelines and strategies to ensure that treasuries are managed using best available market instruments, are risk-aware, liquidity-aware and otherwise responsive to market conditions. Allowing for off chain logic means that the strategy space is much wider and not limited to strategies that can only be computed onchain (which is often very small due to computational constraints).
Aera achieves trustlessness by limiting what guardians can do at the protocol level
Comprehensive onchain protections are used in each vault that limit the types of actions that a guardian can take and how they can impact the vault. Every action a guardian takes has to be whitelisted. Unlike other solutions for treasury management, Aera strikes a balance on trust and responsiveness by constraining the actions a guardian can take while still allowing them to effectively pursue and achieve treasury objectives.
Aera achieves principled strategies through the use of a custom objective function for each treasury
The stated objective function serves as a point of alignment between the DAOs objectives and the guardians’ actions. Guardians are incentivized to act only in ways that improve the objective function of the vault and not limited to simple strategies like seeking yield without consideration of insolvency or other risk vectors. Complex objectives necessitate using multiple strategies together, and Aera can decompose this into a set of strategies that work in tandem (see the Case Study below for an example of this in practice).
How Treasuries Use Aera today
Over $100M of treasury capital has been allocated in Aera vaults and used to achieve DAO objectives. Aera is able to solve a wide variety of treasury needs in production:
Portfolio Management including Yield, Execution and Diversification
Protocol Owned Liquidity and Incentives
Treasury Operations such as making contributor payments.
For more details and case studies of Aera, see the Aera blog.
Read on if you want to learn how Aera supports a wide variety of use cases and strategies in a safe and principled way.
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