Empowered by their communities, DAO treasuries are exploring innovative ways to optimize returns while emphasizing their values. Clipper, part of AdmiralDAO’s ecosystem of DeFi projects, strongly advocates for sensible DAO treasury management through the tried-and-true tactic of a rebalancing portfolio. Put simply, an automatically rebalanced portfolio with zero transaction costs could transform the way DAOs safeguard and grow their funds. This article explains the advantages of deploying DAO funds in a rebalancing portfolio, lists clear reasons treasury managers should consider integrating it into their treasury management strategy, along with and using Clipper to do so.
DAO members interested in proposing updates to their DAO treasury management can use this proposal template to build case.
What is a Rebalancing Portfolio?
A rebalancing portfolio is diversified by holding low-correlation assets, such as more volatile and more stable assets. By systematically buying low and selling high, this strategy harnesses volatility to maximize investor returns. Asset levels adjust automatically to a predetermined ratio, capturing gains from more volatile assets and guarding against losses with more stable assets.
Modern portfolio theory posits that a portfolio of uncorrelated (i.e diversified) assets that is rebalanced regularly reduces risk while maximizing relative returns. Put another way, it generates beta from the market as well as alpha from the rebalancing process. This holds true compared to simply holding any one asset or even holding a diversified portfolio that is not rebalanced.
Clipper’s Daily Rebalancing Portfolio (DRP)
Clipper’s Core Pool rebalances daily with a 60/40 target of volatiles/stables. Since the volatiles - WBTC and ETH - are relatively mean-reverting, daily rebalancing transforms daily price movements into a source of returns for the portfolio. The stables are just that, stablecoins that anchor the value of the portfolio in times of market turmoil.
Clipper uses a novel hybrid Formula Market Maker architecture that incorporates real-time off-chain price oracles so that rebalancing happens at market prices. In contrast, traditional CFMMs rely on arbitrageurs who rebalance at off-market prices, which creates impermanent loss and removes the well-researched benefits of modern portfolio theory.
Clipper reports real-time performance against the DRP benchmark and is at or above the benchmark target more than 90% of the time. In other words, it has gains vs. rebalancing instead of the loss vs rebalancing borne by CFMMs.
How DAOs Benefit From Clipper’s DRP
DAOs have a duty to their communities to steward treasury funds responsibly. A crypto-native daily rebalancing portfolio ensures steady, above-market, de-risked returns with the benefits of a permissionless, non-custodial platform. Clipper, governed by AdmiralDAO, offers DAOs this DAO-native solution for effective treasury management.
1. Enhanced Stability in Volatile Markets:
The crypto market is notorious for its volatility. By diversifying their treasury holdings into a daily rebalancing portfolio, DAOs can better manage their risk exposure while benefiting from the space’s volatility. The DRP adjusts automatically to maintain an optimal risk profile, reducing the impact of sudden market swings and safeguarding the overall treasury value in any market conditions.
2. Simplified Asset Management:
Active investment strategies often require significant manual oversight, administrative expenses, and ongoing adjustments. These can be cumbersome for DAOs which are often strapped for internal resources. An automated daily rebalancing portfolio simplifies asset management and provides above-market returns without the administrative costs associated with typical active investing. This means the DAO can focus on its core mission and initiatives, confident its treasury is being expertly managed.
3. DeFi Transparency:
The blockchain's inherent transparency ensures that all members can scrutinize the portfolio's performance and verify the protocol’s integrity. This transparency builds trust among DAO participants and underscores their sense of community ownership.
Typical portfolio rebalancing is burdened by transaction costs to buy under-weighted assets and sell over-weighted ones. These costs blunt the benefits of rebalancing and force longer rebalancing cycles - typically quarterly or biannually - further reducing the impact of the rebalancing strategy in general. Clipper rebalances costlessly, enabling rebalancing on a daily basis, which maximizes the benefits of rebalancing.
As crypto evolves, DAOs that choose to deploy their treasury funds in sensible, low-cost solutions like Clipper’s DRP will undoubtedly stay ahead of the curve and thrive in the dynamic world of digital asset management.