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FollowingGSR pointed out that DAO vaults are at risk when concentration of native tokens causes prices, revenue and activity to decline.
Project parties usually seek hedging after selling, when volatility is higher and protection costs are more expensive.
Neckline strategies can protect the token price floor by selling call options rather than using stablecoin reserves to fund hedging.
Separating operating reserves from long-term holdings of assets helps the DAO maintain cash flow when markets fall.
DAO faces growing treasury risk as many projects keep most of their reserves in their own native tokens.
GSR found that native tokens account for approximately 70% of DAO treasury assets. This concentration can lead to a simultaneous decline in treasury value, negotiated revenue and market activity. The company said project parties often seek protection only when falling prices make hedging more costly.
DAO vault risk increases with increased exposure to native tokens
GSR stated that this concentration creates a procyclical structure in crypto vault management. When native tokens fall, the value of the vault shrinks, and agreement activity may also weaken.
Reduced activity reduces fees and liquidity, making projects less resources available during market downturns. As a result, the treasury is less efficient when it is most needed to play its role.
The report notes that many DAOs allocate relatively small amounts of money to stable assets or diversified reserves. The issue could also exacerbate selling pressure. Regardless of how the token market performs, projects still have to pay for dollar expenses such as wages, infrastructure, audits and funding.
The lower the token price, the more tokens the project must sell to cover the same expenses. Additional selling will further pressure on token prices and accelerate the depletion of coffers.
GSR recommends that project parties assess whether existing reserves are sufficient to support operations over the next 12 months. This approach shifts treasury planning to focus on the capital turnover period rather than short-term market timing.
GSR: Most DAOs hold approximately 70% of their vault assets as native tokens, forming a negative feedback loop
According to the GSR report, there are significant structural flaws in crypto vault management. Most DAOs hold about 70% of their treasury assets as their native tokens, leading to...
The GSR recommends that DAOs conduct treasury hedging as early as possible
The GSR states that the need for downside protection will typically increase after the crypto market declines. But implied volatility has often increased by then, making protection more costly.
The company recommends treating hedging as an ongoing treasury policy rather than a contingency measure. The project party should establish a protection mechanism before market conditions deteriorate.
GSR points out that the neckline strategy is a structure that provides downside protection without using stablecoin reserves. The project party sells call options and uses the proceeds to buy put options.
This structure sets a clear range for the token price. Put options provide protection below their strike price, while calls sold limit gains above the strike price.
GSR said a reasonably constructed neckline strategy could offset option royalties on both sides. This allows the project party to establish a clear downward price bottom line while retaining token exposure.
The report also recommends separating operating reserves from long-term crypto positions. Stable assets can be used to pay for expenses, while strategic positions remain invested under appropriate risk control.
GSR works with foundations, DAOs and agreements through over-the-counter trading, block trading, neckline strategies and customized derivatives. Its report believes that the treasury structure should support operations under different market conditions.
