Insights and learnings from 50 DAO token swaps
Blockchains enable trust and transparency without a central authority, forming the backbone of a new digital onchain economy. Onchain organizations, most notably Decentralized Autonomous Organizations (DAOs), utilize this infrastructure to manage resources and achieve their goals in a peer-to-peer setting.
Over the past five years, DAOs have grown significantly in size, capacity, and complexity. Over USD 3 million addresses actively vote and participate in onchain organizations, with nearly USD 20 billion in assets controlled by DAO treasuries (source DeepDAO).
One major challenge many DAOs face is that their treasuries primarily consist of native tokens. This often leads to funding activities through distributing and selling these tokens, which creates an existential risk given the nascent onchain economy's volatility. As spending leads to native tokens being sold, downward pressure on the token price ensues, reducing the organization's available resources.
Diversifying DAO treasuries is a common strategy, where a portion of native tokens is converted into less volatile yet value-aligned assets such as Bitcoin or Ethereum. In other cases, native tokens or revenue are converted into stablecoins, often used to cover operational expenses.
Another approach to treasury diversification is the token swap, where two or more DAOs engage in a direct exchange of tokens, often swapping their native tokens in a DAO-to-DAO swap (D2D). While the initial driver is treasury diversification, token swaps can also be powerful collaboration tools, providing upside potential in a third-party organization and benefits like governance rights.
This report draws lessons from over 50 DAO token swaps between 2021 and 2023 to identify patterns leading to successful DAO-to-DAO coordination. In this report's second half, the insights are used to assess the utility of DAO token swaps for Arbitrum, an Ethereum Layer 2 network and the largest DAO by token holders.
We are particularly grateful to ThankArbitrum for approving our Firestarter Grant, which made this research possible. We also extend our appreciation to everyone who provided input for this report through calls or written contributions and to the pioneers of DAO token swaps for pushing the boundaries of our industry.
● Token Swaps are ecosystem enablers allowing DAOs to form alliances, share upside and costs, align governance, and hedge exposure through treasury diversification.
● Every token swap consists of three acts: the pre-swap (exploration), the execution (ratification), and the post-swap (relationship management).
● Product integrations, high talent retention rates, healthy onchain treasuries on both sides, active utility of the tokens being swapped, and clearly defined milestones are the ingredients of successful token swaps. L2 blockchains swapping with dapps should have follow-on programs to make the most of token swap initiatives.
● After removing outliers, the value of executed token swaps considered for analysis was $89.2 million. 10 DAOs accounted for 81% of the value, with Olympus DAO executing the highest volume of swaps at 21.8%
● Arbitrum DAO has an opportunity to engage with select grantees from LTIPP and STIP (111 possible candidates) through a 10 million ARB pilot program to gain insights on integrating token swaps as ecosystem enablers.
Since the emergence of the DAO (Decentralized Autonomous Organization) space in 2019, DAOs have sought effective methods to coordinate their resources toward achieving their goals. Initially, most first-generation DAOs focused solely on distributing resources through votes to fund development. However, it soon became apparent that better resource management was essential for DAOs to become sustainable and prosperous. DAO treasury management emerged as a solution, enabling more conscious handling of resources. This often involved budgeting and converting some native assets into less volatile assets, such as stablecoins, to facilitate better resource planning.
In 2021, leading DAOs like OlympusDAO, PrimeDAO, and Frax popularized a new approach to DAO coordination: the DAO-to-DAO (D2D) token swap. This method allows DAOs to directly exchange tokens with one another, diversifying their treasuries, participating in each other's governance, and forming strategic alliances. These alliances could increase their collective influence within the broader DeFi ecosystem. A key aspect of D2D swaps is that the tokens remain outside the open market, ensuring the exchange is strictly between the DAOs involved.
However, DAO token swaps go beyond financial transactions. They also serve as governance alignments, where DAOs gain voting power in each other's ecosystems. This integration allows them to participate in significant decisions that impact both parties, fostering a shared interest in each other’s success. By exchanging tokens, DAOs effectively invest in one another, aligning their communities and long-term goals. This strengthens the individual DAOs and contributes to
the overall stability and interconnectedness of the DeFi ecosystem. Through strategic swaps, DAOs can establish a network of alliances, amplifying their collective influence and ensuring long-term viability.
DAO token swaps can be compared to strategic partnerships or equity swaps in traditional finance, where companies exchange shares or assets to align their interests more closely. In DAOs, these swaps are financial transactions and strategic moves that align governance, community objectives, and long-term goals.
1. Risk Sharing and Diversification: Token swaps allow DAOs to hedge their exposure to specific sectors or organizations, diversifying their treasuries and reducing dependency on a single market (e.g., a particular blockchain network). This increases resilience across the organization.
2. Governance Representation: Through token swaps, DAOs can gain decision-making power in another organization, enabling them to influence its direction and strategy. 3. Cost Sharing: DAOs can use token swaps to share the costs and benefits of capital-intensive projects. For example, two DAOs working on complementary technologies might use a token swap to balance their financial exposure, align their incentives, and reduce the financial burden on each organization.
4. Strategic Alliances: Token swaps can be part of a broader strategic alliance, where two or more entities agree to share profits, risks, market intelligence, or strategic direction.
While this report does not cover the full scope of potential joint ventures or mergers, token swaps can also serve as a testing ground for such collaborations. Before fully merging, two DAOs might use token swaps to align their financial interests and test the feasibility of deeper
cooperation. This can serve as a precursor to a complete merger or acquisition, allowing DAOs to work together financially while maintaining independence.
DAO token swaps have multiple stages, each involving varying degrees of DAO voter participation. This report divides token swaps into three main stages: the Pre-swap Stage, the Swap Execution Stage, and the Post-swap Stage, following the typical flow observed in DAO governance processes.
The first phase is the Pre-swap Stage, which is exploratory in nature. During this stage, potential DAOs for a token swap are identified, and initial high-level reasoning and draft terms are outlined.
DAO delegates or active contributors often take the lead in identifying potential partners. Typically, the evaluation begins with DAOs that already share some alignment, whether through joint missions, values, or product integrations. However, there are instances where a DAO may seek access to a third party's native token without an existing relationship, either for the benefits provided by the token (e.g., stability) or to gain exposure to the solutions being developed by that DAO.
After identification, the potential swap is discussed with stakeholders from both DAOs. This may occur through existing team structures, such as Working Groups or service provider networks, or public channels like DAO forums and chat groups.
If both sides express sufficient interest, negotiations move forward. At this point, dealmakers or representatives are often selected to lead the next phase of the token swap. For example,
Karpatkey might represent the GnosisDAO Treasury in negotiations. In other cases, the entire token swap may occur publicly, with no specific dealmakers appointed.
The representatives from each DAO then define and negotiate the terms of the token swap. The following elements are typically discussed:
● The specific tokens involved (e.g., the native tokens of each DAO)
● The network on which the swap will settle (e.g., Arbitrum Mainnet)
● The valuation method used for the swap (e.g., a 30-day moving average price) ● Token management guidelines, including how the tokens should be used, potential lock-ups, limitations on usage, and processes for selling the tokens
● Collaboration or additional swaps, such as product or marketing integrations, follow-up swaps based on certain conditions, or shared resources (e.g., the Cow AMM between BalancerDAO and CowSwap)
Once a high-level consensus on the terms is reached, each DAO must ratify the token swap through its internal governance process.
A governance vote is submitted in most cases, allowing all token holders to approve or reject the token swap. Sometimes, multiple options are presented, offering different quantities of tokens to be swapped, and token holders are asked to choose the option that best serves the DAO. Alternatively, a third-party service provider or an elected group may approve the token swap without requiring a full DAO vote.
Once both DAOs approve the swap, the respective treasury teams execute it. Currently, the timing of the approval vote and the execution of the swap often differ, which can cause friction and increase risks.
The most common method for completing a token swap is a direct transfer from treasury to treasury. However, early solutions like Hedgey and Prime Deals offer escrow services, where tokens are only swapped after both parties have provided the agreed-upon quantity of tokens by a specific date.
After the token swap is executed, the process enters the Post-swap Stage, which focuses on monitoring and reporting on the collaboration.
If the swap includes specific deliverables or follow-ups, DAO representatives track progress and ensure the agreed-upon terms are met. This stage may sometimes include additional commitments or a second token swap triggered by certain milestones. For example, CowSwap and BalancerDAO have a prospective agreement involving resources to a shared solution, with direct token swaps tied to collaborative milestones.
This stage also allows the respective DAOs to use the swapped tokens to participate in the governance and operations of the partner DAO. Sometimes, a DAO may appoint a representative to use the received tokens to engage in the partner DAO's governance. An example of a DAO appointing representatives is Arana Digital, representing Uniswap's interests within the Arbitrum DAO after Uniswap received ARB from the initial Arbitrum airdrop.
In many cases, DAOs do not clearly define how the agreement will be managed or how it can be ended or revoked. As a result, most token swaps that have concluded so far ended without significant decisions or announcements. However, in some instances, DAOs have agreed that
the original intent of the partnership and token swap is unlikely to materialize and have mutually decided to revoke elements of the agreement. For example, PrimeDAO and Aragon unwound their agreement by executing a reverse swap.
Analyzing DAO Token Swaps
Our team analyzed 50 Token Swaps between 2021 and 2023 to understand DAO Token Swaps better and draw lessons for the next wave of DAO agreements.
A total of 46 different DAOs were involved in these swaps. Most DAOs in our dataset (25) only swapped with another DAO once.
The majority of swaps, 38 in total, were executed on Ethereum Mainnet. Arbitrum Mainnet is the second most used network for Token swaps, with 7.
When using the token value and quantity of tokens transferred on the day of execution to value these swaps, the total value swapped is USD 560,8M. However, BitDAO and FTX created a significant outlier, making the largest token swap with a paper value of USD 496M on the day of execution. When removing the swaps executed by these two organizations, the remaining value of executed DAO token swaps is USD 89,2M.
The top five DAOs by total value swap account for nearly 63% of the dataset, while the top ten DAOs account for almost 81%, showcasing that the majority of value was coordinated between a handful of DAOs.
The total number of swaps executed per DAO does not directly follow the value swapped. PrimeDAO, which swapped around USD 1,5M, has completed the most swaps (10), followed by OlympusDAO and GMX DAO with 7 swaps each. Overall, only eleven DAOs completed three or more swaps.
To get a deeper insight into the partnerships and collaborations often surrounding token swaps, each swap has been labeled with a status based on the remaining activity between the two DAOs in Q2 2024.
The following statuses have been defined:
Revoked: The token swap was partially or fully canceled or withdrawn.
Dormant: No significant activity or indications of intent to revoke or terminate the partnership. Soft Ended: The partnership quietly concluded, with one or more parties selling or gradually disengaging.
Ended: The partnership has officially concluded, with complete disengagement or sale by one or more parties.
Active: Ongoing meaningful activity and coordination between the parties. Optimal: The collaboration is thriving, with increasing engagement and solid results.
After labeling the status of each of the 50 swaps, the following distribution, which interestingly closely resembles a normal distribution, becomes visible.
Diving deeper into each of these swaps, we can identify patterns that influence the success and failure of DAO Token Swaps.
When digging deeper into the revoked or ended partnerships, patterns emerge. - About 25% of the partnerships ended because one entity ceased operating. Interestingly, two entities that stopped operating were stablecoin-related initiatives: FEI and FIAT. A takeaway can be that specific verticals are more volatile and, as such, more risky to swap with.
● Between early 2022 and late 2023, the overall cryptocurrency market was in a tough spot. This led to a treasury decision to sell the partner tokens around mid-2023 when market conditions had not picked up yet, and treasuries started to run low. This shows the importance of ensuring swap partners have a sufficient runway and the reality that market conditions have an outsized impact on Web3 startups. An example is PerpDAO, which diversified its treasury from being primarily PERP and partner tokens to mainly WETH and USDC in 2023.
● None of the ended and revoked partnerships included a product integration that is still actively used. This showcases the relevancy of aligning product integrations with token swaps.
● The size of the swap amount and the market caps of the involved DAOs do not significantly affect the current status. A high market cap at a given point does not directly translate into being a better partner, but it does influence the size of the token swap, where DAOs with a higher market cap often swap a higher amount of tokens.
When analyzing the dormant and soft-ended partnerships, the following patterns emerge that influence the liveliness of a token swap:
● Most stagnating partnerships do not operate in the same vertical, showcasing that projects resembling one another are more likely to continue an active partnership, either because it is easier to integrate or because they operate in the same market.
● L2 networks (Gnosis or Celo) that completed a token swap with a project that launched a dApp on their chain but haven’t actively built programs around this collaboration afterward, showcasing the importance of integrating token swap partners into other grant or funding programs on blockchain networks.
● When projects complete a relaunch or other significant re-org (such as a merger or team change), previous partnerships are often abandoned or remain unutilized; we saw this with BarnBridge, Sushi, and BitDAO.
Highlight the patterns of active and optimal collaborations.
- Organizations with high talent retention rates and healthy onchain treasuries are likelier to remain active partners. An organization's market cap and overall team size do not significantly impact the likelihood of a successful partnership.
- Direct integration of solutions significantly improves the relevancy of collaboration, as intertwined products and services create value for both DAOs and the best partnerships. A good example is the AaveDAO and BalancerDAO token swap, where AAVE utilizes Balancer technology to create deep liquidity for some of its pairs, including its main AAVE / ETH liquidity pool, and Balancer utilizes AAVE’s lending markets in its products to enhance user returns. A full case study of this partnership is available in Appendix A.
- The active utility of tokens for governance and other forms of value generation, such as staking, have contributed positively to the livelihood of partnerships. A good example is the GnosisDAO and BalancerDAO token swap, where Balancer is deployed on Gnosis, and Gnosis actively participates in the veBAL markets. An entire case study of this
partnership is available in Appendix B.
- Clearly defined, milestone-based partnerships provide clarity to both parties and improve the level of conversation. A good swap offers complete clarity on the mechanism used to value each token, the process for completing the swap, and potential additional agreements and processes aligned by both sides.
This year, new standards for token swaps are being explored by, for example, GMX, which conducted swaps in esGMX tokens intended to be staked to generate revenue. The generated revenue is used within the partner DAO's ecosystem to fund grants, pools, or competitions. These deals provide an upside for GMX because the DAO received advantageous valuations for early-stage projects, particularly those that intend to or are already building on top of the GMX infrastructure, contributing to platform fee generation. These token swaps show a deeper level of alignment and could have a higher success rate, although it's still too early to conclude.
Most early token swaps did not have an outsized positive impact on the involved DAOs. They were more of a marketing / PR gimmick, leaving many elements, from the method of swapping to the process for managing the token swap, open.
Over time, the various elements associated with token swapping became more apparent. For example, the mechanism to properly value tokens involved in a swap, such as the 90-day moving average, improved.
The maturity of a DAO’s organization, products, and associated native tokens significantly impacts the success of a Token Swap. Clear roles, proper accounting, product revenue, and token utility are the primary factors influencing the likelihood of an active collaboration.
The size of the deal and market cap of the associated project are not leading. The right token swap size should represent the size of the collaborative opportunity and depth of integration based on shared KPIs, such as TVL, in a mutually beneficial protocol.
While some early tools have been created to facilitate the token swap, most activity still happens between the involved teams and DAOs before and after the swap.
When appropriately executed, a DAO token swap can accelerate a DAO collaboration by further aligning the roadmap and incentives, resulting in more value for both parties.
Arbitrum is a technology suite designed to scale Ethereum and is managed by the Arbitrum DAO, a decentralized autonomous organization (DAO) built on the Ethereum blockchain. At its core, Arbitrum DAO is a community-driven governance mechanism allowing $ARB token holders to propose and vote on changes to the organization and its technologies.
The Arbitrum DAO has a built-in treasury system (implemented as a smart contract). The DAO's treasury funds the ecosystem's ongoing development and maintenance of its technologies. Token holders can propose and vote on how to use treasury funds.
Arbitrum DAO funds programs and initiatives to accelerate the Arbitrum ecosystem. Since its inception, Arbitrum has spent 433M ARB, roughly 12.3% of its initial treasury allocation.
Some of the most notable funded programs include:
- Short Term Incentive Program (STIP) and Backfund: Distributed 50M ARB + 21M ARB on DAO-funded incentives targeting active Arbitrum protocols. Passed in Q4 2024, Ended in Q1 2024.
- Short Term Incentive Program Bridge (STIP-Bridge): Distributed 37.5M ARB - Stable Treasury Endowment Program (STEP): Distributed 35M ARB into assets that are stable in value with minimal volatility, liquid in conversion, and provide yield uncorrelated to crypto markets
- Long Term Term Incentive Program Pilot (LTIPP): The LTIPP is an Arbitrum that works towards a long-term incentive program. The program targets protocols not part of the original STIP program, allocating 30.7M ARB across 86 protocols.
- Arbitrum Research & Development Collective: 1.75M ARB budget to aid in turning Arbitrum DAO members’ ideas into reality for six months across Security, Research, Risk, and DAOAdvocacy. Passed in Q1 2024, Ends in Q3 2024
- Gaming Catalyze Program—The GCP, approved in Q3 2024, has a budget of 225M ARB over the next three years.
- Request for Continuation of the Arbitrum DDA Program Request: Received 3.3M ARB to fund Grants (sold for USDC) across four different priority categories in the Arbitrum ecosystem. Started in Q2 2024.
- Pilot Phase: M&A for Arbitrum DAO: The 8-week M&A pilot phase proposal is the next step toward the Arbitrum M&A proposal, which outlines the opportunity for Arbitrum DAO to form an M&A Unit focused on identifying and executing acquisition opportunities.
The Arbitrum DAO Budget overview, published as part of ARDC, provides a complete breakdown of budget spending. It is in addition to the Arbitrum DAO Token Flow Report - July 2024—produced by r3gen finance.
The initial Arbitrum Ecosystem Airdrop and subsequent incentive programs have formed a lively ecosystem of users, builders, and applications, making Arbitrum the largest L2 by TVL.
However, this growth came at a cost, as the current distribution rate of 12.3% of ARB in under a year is significant, especially considering that the revenue generated by the Arbitrum Orbit chain, the primary chain that received rewards, is approximately USD 8M yearly.
In addition, the Arbitrum Treasury primarily holds and distributes ARB. Due to market forces, the value of the ARB token has decreased by approximately 60-70% from the start of the year, directly reducing the Arbitrum Treasury size by the same percentage.
As a result, new incentive programs either have to distribute a larger relative share of ARB tokens or a lower USD equivalent value. In addition, incentive programs often result in additional token circulation into the market, leading to additional market forces that could further pressure the ARB token value.
While the early programs did manage to attract users and applications, the budgetary dynamic was already noted at the start of 2024. It resulted in the progression toward LTIPP, a long-term incentive program pilot to gain insights for creating a long-term incentive framework to continue
to advance the Arbitrum ecosystem sustainably. At the same time, new conversations around establishing strategic and treasury working have started in the forum. Entropy has started hosting Treasury management calls to gather stakeholders and discuss treasury management-related topics.
With the STIP and LTIPP programs ending, Arbitrum is entering a three-month reflection period to identify the long-term incentive strategy. Critical for this next stage of the Arbitrum ecosystem is identifying the means to attract, curate, and accelerate the teams that drive sustainable value and outsized growth for the Arbitrum Ecosystem and efficiently reward their actions.
One of the primary limitations of the initial incentive programs is that they were all one-directional, with Arbitrum treasury allocating ARB to projects and only receiving network transaction revenue in return. While project growth resulting in additional network activity does provide some upside for Arbitrum treasury, the effects will likely take years to accrue to a point where the net resources flow of the Treasury is positive, only once Arbitrum and the applications on top reach maturity. Because of this dynamic, it’s essential to leverage mechanisms for better resource allocation during Arbitrum’s growth stage.
Token swaps provide a strong mechanism for value alignment and bidirectional upside between organizations. In addition to potential financial benefits, they come with governance and utility perks associated with tokens.
By embedding Token Swaps as a vital element of the next Long-Term Incentive Program, Arbitrum can distribute rewards proactively while receiving additional upside in the most promising projects building in its ecosystem.
An initial ARB Treasury Token Swap program could be part of a future LTIP program. Not all LTIP projects may have a native token or fall within the scope of a potential Token Swap. As such, we recommend that the Token Swap element be a complement (optional) element of LTIP, primarily aimed at providing additional resources and support to the most ecosystem-aligned and promising application.
To optimize for ecosystem alignment, we propose to look at past engagement with Arbitrum, including the initial ecosystem airdrop and incentive programs and value generated by projects, measured through onchain gas consumption and protocol fees. These insights would be paired with project data to group projects into a specific Token Swap track that fits best.
Airdrop Size:
Airdrop % Sold:
STIP Rewards:
Backfund Rewards:
LTIPP Rewards:
Market Cap:
FDV:
Lifetime Fees Generated
6 months Fees Generated
Lifetime GAS consumed
6 months GAS consumed
Treasury Size: Total value of treasury and diversity of assets
Treasury Size start of year: To anticipate burn rate
Token Utility:
ARB utility plan:
Based on these parameters, we propose segregating the projects into three categories:
ARB Blue Chips: Frontrunners and leaders of the Arbitrum Ecosystem that received and held at least 50% of the ARB airdrop and received both STIP and STIP Backfund rewards.
We identified 11 ARB Blue Chips, of which 6 have a Market Cap of 50M or higher.
Early Growers: Projects that received STIP and STIP Backfund rewards, showcasing their impact, but did not receive an initial ARB airdrop.
We identified 28 early growers that received STIP + Backfund but no ARB airdrop.
Emerging Growers: Projects that received LTIP rewards but did not receive an initial ARB airdrop.
We identified 72 emerging growers who received LTIP rewards but have yet to receive an initial ARB airdrop.
Any project that does not fall within the above categories will automatically not be eligible for the first cycle of Arbitrum Token Swaps.
Combining these three categories, there are 111 potential projects to swap tokens. Any project outside this initial group will not be considered for a Token swap in the first period.
A Token Swap program should complement a future LTIP program and comprise 10-50% of the budget. In nominal terms, we imagine a range between 10M ARB - 50M ARB, but this depends on the size of the upcoming Arbitrum LTIP programs. Due to the three-month reflection period before additional programs, starting with a smaller program (~10M ARB) to gain insights is likely the most productive path forward.
During the initial Token Swap discussion, it became clear that stakeholders and delegates value the ecosystemic alignment and contribution nearly as much as the financial upside. As such, we propose the following strategy for the initial Token Swap program.
1. Align interest further with the ARB Blue Chips, swapping up to 50% of the Token Swap budget with a handful of ARB Blue Chips.
2. Optimizing for early movers that have proven to deliver, swapping up to 25% of the Token Swap budget with Early Growers based on the swap parameters with moderate cut-off requirements (imagine a 20-30% pass rate).
3. Nurturing the best Emerging Growers, swapping up to 25% with the best-performing Emerging Growers based on the swap parameters with aggressive cut-off requirements (imagine a 10-20% pass rate).
A specialized council of four should facilitate the research and preparation of prospective token swaps. The council should consist of analysts and LTIP team members and will be supervised by one facilitating member who will vote only in case of a tiebreak.
The elected dealmakers are not allowed to be involved in a token swap if they have direct or indirect exposure to the counterparty; this includes holding over 0,001% of the total supply of the token personally or through the affiliated company and having a direct, active working relationship with this protocol.
The ARB DAO Token Swap Council should create an Arbitrum Token Swap sheet to track any
DAO agreements (comparable to the STIP sheet) and a Dune Dashboard to track its and third-party holdings of swapped tokens.
In Token Swaps above 750K ARB in value with projects with mature tokens and/or governance, the dealmakers will source a Delegate to represent Arbitrum's interest in the third-party DAO.
If and when Arbitrum DAO selects one or multiple Treasury Teams, part of their mandate should include managing the swapped tokens and utilizing them to gain additional yield and influence while respecting the non-sales clause below.
The following responsibilities would have to sit with the Treasury Teams, either through a separate unit or elected roles:
- Tracking the existing Token Swaps through dashboards.
- Nominating, tracking, and supporting Delegates in third-party DAOs
- Providing recommendations to the Treasury Unit on how to use the third-party DAO tokens, including staking and liquidation.
The Working Group lead and committee members will carry these responsibilities in the initial period. Suppose no treasury management teams are operational by the end of the initial program. In that case, the initial working group will extend their responsibilities for another period, or a new working group team should be elected.
Arbitrum DAO commits to a 1-year non-sales clause on all received tokens. The third-party DAO receives 100% of the ARB tokens locked for one year. After one year, DAOs can sell up to 10% of the received tokens monthly into the open market. If a party wants more than 10% liquidity in a given month, it should offer an OTC swap to the other DAO valued at the current market price for at least three weeks to the respective DAO treasury teams.
Leveraging token swaps as a tool for ecosystem development offers Arbitrum DAO a more sustainable and synergistic approach to incentivizing projects within its ecosystem. By embedding token swaps into the Long Term Incentive Programs, Arbitrum can foster bidirectional value creation, aligning its interests with the most promising projects. This approach provides financial upside and governance influence, promoting a deeper ecosystemic alignment.
The proposed structure, which includes careful project selection and a Token Swap Council, ensures that the swaps are strategically managed, enhancing resource allocation and long-term ecosystem growth.
The partnership between BalancerDAO and AaveDAO is designed to align their interests and enhance collaboration between the two organizations. This token swap builds on a long-standing relationship, which has seen several joint initiatives. Notable examples of their collaboration include the integration of Balancer Pool Tokens (BPT) in Aave’s risk module, allowing for more complex and secure collateral options, and the use of Balancer's Boosted Pools that incorporate Aave's aTokens (like aUSDC, aDAI, and aUSDT). (BalancerDAO)
Aave's Perspective
Aave sought to acquire BAL tokens to enhance its liquidity strategy and governance influence within the Balancer ecosystem. By obtaining BAL tokens, Aave intended to: ● Enhance Liquidity: Aave planned to deposit BAL into the 80/20 BAL/ETH pool on Balancer, thereby increasing its liquidity position. This move was expected to help Aave earn yield and direct incentives to new aToken Boosted Pools, which would support Aave's token pairs and increase the protocol's total value locked (TVL).
● Governance Influence: By acquiring BAL tokens, Aave aimed to gain veBAL voting power, allowing it to vote for additional rewards for pools supporting AAVE token pairs. This strategy was designed to attract liquidity and increase revenue through higher yields.
● Strategic Partnership: The swap was seen to solidify the long-standing relationship between Aave and Balancer, aligning both protocols through shared governance and token holdings. (Aave DAO)
Balancer's Perspective
For Balancer, the swap provided an opportunity to strengthen its relationship with Aave and gain influence within Aave's governance structure. The key reasons included: ● Governance Participation: By acquiring AAVE tokens, Balancer could participate in Aave's governance, thereby aligning interests and fostering collaboration on future projects.
● Strategic Alignment: The swap was part of Balancer's strategy to engage in treasury swaps with key long-term partners, ensuring that only solid partnerships were formed, which would enhance the protocol's ecosystem.
● Liquidity and Yield Opportunities: Balancer could utilize AAVE tokens to potentially increase its liquidity and yield opportunities, further integrating the two ecosystems. (Balancer DAO)
The execution of the swap involved several steps:
1. Proposal and Voting: The swap proposal involved a community vote within Aave and Balancer. It involved swapping 200,000 BAL tokens for 16,908 AAVE tokens using the 90-day smooth-moving average.
2. Smart Contract Execution: The swap was executed via a smart contract, which used a fixed exchange rate of AAVE for BAL tokens. This rate accounted for the difference in market value between the tokens.
3. Liquidity and Locking: After the swap, Aave deposited the acquired BAL tokens into the 80/20 BAL/ETH pool and locked them for one year to receive veBAL tokens. These tokens would influence governance and direct rewards within the Balancer ecosystem. Balancer staked the acquired AAVE tokens to participate in AaveDAO Governance. (Aave DAO) (Balancer DAO)
The treasury swap between BalancerDAO and AAVEDAO had impacts for both protocols. Aave gained a large holding of BAL tokens, while Balancer acquired a substantial amount of AAVE tokens, enabling each to influence the other's governance. This swap reinforced their partnership and set the stage for future collaborations in DeFi. Additionally, Aave's control over veBAL votes was expected to boost liquidity and yield for both protocols. Overall, the swap aligned their interests, enhanced governance influence, and strengthened their collaboration in the DeFi ecosystem.
The partnership between GnosisDAO and BalancerDAO aims to increase collaboration by both teams. The technical teams of both DAOs would carry out developments in the best interest of both organizations, such as completing Stage 3 of the Balancer-Gnosis-Protocol integration so
that Balancer users can place trades in GPv2 via their UI. The organizations conducted a token swap to align governance interests to tie the partnership together. (BalancerDAO)
GnosisDAO aimed to leverage the treasury swap to strengthen its partnership with Balancer and enhance liquidity for its token, GNO. The key motivations included:
● Financial Incentive Alignment: By participating in a treasury swap, GnosisDAO sought to align financial incentives with Balancer, promoting the success of the
Balancer-Gnosis-Protocol (BGP) and ensuring mutual benefits.
● Liquidity Concentration: GnosisDAO aimed to concentrate liquidity in the existing GNO/BAL/ETH/DAI pool on Balancer V2, enhancing GNO's trading efficiency and liquidity depth.
● Strategic Partnership: The swap was intended to solidify the partnership with Balancer, ensuring that both DAOs could collaborate on future projects and initiatives. (GnosisDAO)
BalancerDAO's Perspective
For BalancerDAO, the treasury swap was an opportunity to deepen its relationship with GnosisDAO and gain exposure to GNO tokens. The primary reasons were: ● Liquidity Enhancement: By acquiring GNO tokens, BalancerDAO could enhance the liquidity of its pools, particularly the GNO/BAL/ETH/DAI pool, thereby increasing trading activity and liquidity on its platform.
● Governance and Influence: Holding GNO tokens allowed BalancerDAO to participate in GnosisDAO's governance processes, aligning interests and fostering collaboration. ● Long-term Partnership: The swap was part of BalancerDAO's strategy to engage in treasury swaps with key long-term partners, ensuring that both DAOs could benefit from shared governance and financial alignment. (BalancerDAO)
The execution of the swap involved several steps:
● Proposal and Voting: After extensive discussion, the token swap was proposed to both the GnosisDAO and BalancerDAO communities. The swap involved exchanging 200,000 BAL for 9051 GNO using the 90-day smooth moving average price when voting ended.
● Direct Send Execution: The swap was executed by both DAO multisigs, who sent the appropriate tokens to each other. Both organizations committed to holding the received assets for at least one year.
● Post Token Alignment: After the swap, Both DAOs actively used the acquired tokens to influence governance decisions within each other’s ecosystems, ensuring that the swap's benefits extended beyond diversification
The swap solidified the partnership between GnosisDAO and BalancerDAO, aligning their governance interests and enhancing collaboration on technical and marketing fronts. The technical cooperation aimed at completing the Balancer-Gnosis-Protocol integration was expected to enhance trading conditions on Balancer, providing users with better prices and improved user experience. Overall, the treasury swap between GnosisDAO and BalancerDAO was a strategic move to enhance collaboration, improve technical integration, and align governance interests, benefiting both organizations and their communities.
