Treasury Financial Review - 03/2024 Snapshot

New Strategy for Handling DOLA Bad Debt Repayment

The TWG previously operated a strategy focused on maintaining a stablecoin runway of approximately 12 months, with any excess revenue directed towards repaying DOLA bad debt. While this approach was sufficient during favorable market conditions, it proved vulnerable during downturns, as evidenced by the stablecoin runway dropping to 5.1 months by the end of January 2024 due to minimal stablecoin inflow since May 2023. To enhance operational resilience and prioritize the repayment of DOLA bad debt, the TWG recommends a revised strategy.

New Strategic Approach

The proposed strategy introduces two levels for the stablecoin runway: a “minimum runway” and a “target runway,” both measured in months. The objective is to ensure that the runway remains above the minimum threshold, with any surplus financial resources allocated between achieving the target runway and repaying DOLA bad debt.

Treasury Free Cash Flow Definition:
Treasury Free Cash Flow = Stablecoin inflow - Stablecoin Outflow

We recommend starting with the following levels:

  • Minimum runway: 12 months
  • Target runway: 18 months
  • Split repayment rate: 50%

At the end of each month, the Treasury’s financial position will be assessed and actions taken based on the stablecoin runway:

Stablecoin Runway < Minimum Runway (12 months):

  • 100% of all free cash flow (if available) is retained in the Treasury to build the runway back to the minimum level.

Minimum Runway (12 months) ≤ Stablecoin Runway < Target Runway (18 months):

  • Free cash flow is split evenly: 50% is used to repay DOLA bad debt, and 50% is retained within the Treasury’s stablecoin reserves.

Stablecoin Runway ≥ Target Runway (18 months):

  • 100% of free cash flow is allocated to repaying DOLA bad debt.

Note: In scenarios where DOLA bad debt repayment would reduce the stablecoin runway below the nearest target, the repayment will be limited to the amount that maintains the runway at or above this threshold, rather than using the full free cash flow.

Future Adjustments
This strategy is designed to be flexible and may be adjusted as market conditions and the Treasury’s financial position evolve. The TWG will continue to monitor and recommend changes as necessary to ensure the DAO’s ongoing financial health and stability.

By adopting this revised approach, we aim to build greater operational resilience during favorable market conditions while maintaining a strong focus on repaying DOLA bad debt.

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