Ethereum Name Service

I’ve been thinking a lot lately about how we can ensure the long-term sustainability of ENS, and I’d like to outline a possible proposal, which is this: the DAO should set aside a substantial proportion of the treasury, and of incoming revenue (perhaps 50% of each) towards building an endowment that can sustain ENS development indefinitely. These funds should be invested with a mind to the long-term, while minimising the risk of substantial short-term losses.

Ideally, the funds should be managed onchain via an approval mechanism, which allows the fund manager to make trades with approved DEXes, routes, and assets, without giving them direct control over the funds, but I appreciate that this may be impractical at least at first, as well as limiting the options available to a fund manager.

If we assume a desired annual operating budget of $2M USD, and a conservative drawdown rate of 4% of the endowment each year, we would need an endowment of $50M USD.

Today, ENS’s accounts stand as follows:

• ETH assets: 14,373 ($48,379,000)
• USDC (after pending proposals): $8,618,000
• Total assets: $56,997,000
• Unearned Income (ETH): -8,554 ($28,792,000)
• Net assets: $28,205,000

Additionally, extrapolating from the past 3 months, revenue is approximately $3.7M/mo and income is approximately $1.9M/mo.

Given that the principle in an endowment is not touched, I believe it’d be legitimate to use unearned income as a component of it, though doing so would require either retaining exposure to ETH or changing how we account for unearned income. Presently it’s accounted for in ETH, meaning that if it were invested in an asset which went down relative to ETH, the DAO could end up with more liabilities than assets.

If the endowment were built from 100% of unearned income and 50% of remaining assets, and funded from 50% of revenue, it’d start at approx. $42.9M and reach the target amount after only 2 months.

If it were built from 50% of net assets and funded from 50% of income, it’d start at approx. $14.1M and take approx 19 months to reach the target amount.

Once the endowment reached its target level, the DAO could redirect income to efforts not covered by the endowment (such as broader grants), continue to grow the endowment to support a larger long-term operating budget, or a combination of both.

All of these numbers are purely illustrative, to give an idea of the scale of the proposal. I believe the basic idea, of doing what we can to guarantee ENS’s long-term viability independent of market conditions, is a worthwhile one, however.

Thoughts?

Syndicate does this; not at all impractical. You can create an “investment club” DAO and usually one drops N number of tokens (say, 1,000,000 tokens) redeemable for, say, $1 in stake per token ($1,000,000 total). Currently, Syndicate ‘DAO Maker’ offers the possibility to stake ETH and USDC but I’d imagine that it wouldn’t be hard to fork the contract to work for ENS and initiate a 1:1 token bridge. Once the tokens are bridged, the delegates can vote directly with their 1:1 bridged tokens and sign multi-sig investment transactions by voting (multi-sig ↔ vote). Of course, this is not currently implemented by Syndicate at the moment. They only allow basic investment DAO creations and lack customisability. But if ENS DAO really wants, such a dev project can be funded for a small amount. I have an investment club on Syndicate that I created for testing but I cannot share the link for legal reasons (don’t want people to buy the tokens since they represent capital stake in my startup) but here is the contract. You should give it a shot while the fees are low. Or perhaps invite Syndicate for a round of talks?
This is to simply illustrate the possibilities on the smart-contract side of the endowment once you have the amount ready to be enDAOed.

I probably did not get this right. $50M at estimated 4% worst-case downrate will deplete at most by less than $2M (highest in the very first year); is this how the annual operating budget fits in this calculation? In other words, annual drawdown in any year should not exceed the annual budget which is ~ $2M?

I think an endowment is a great idea to ensure ENS’s long term viability. If we are going to go down this road, then we should retain an endowment expert to develop a plan.

Thanks for the writeup Nick! This idea has grown on me since @alisha.eth briefly brought the general idea to my attention a bit ago. The most convincing argument to me is the very real/likely possibility that CCIP-read and L2 resolvers will ultimately cause a massive reduction in premium domain revenue down the line, which represents the grand majority of ENS revenue today.

Here are my quick thoughts:

• I would actually go further than your target, in terms of the principal, @nick.eth. I’d say if we do this, we should aim for at least 80% of treasury + revenue into the endowment fund, maybe more. We should treat the withdrawal limit as the annual budget (as you’ve spec’d out here already). I would say if we go with this strategy, we’d need a good reason to justify why we wouldn’t put all of it into the endowment in determining the % not contributed to the fund from initial treasury + revenue, rather than the other way around
• Treating an endowment withdrawal percentage as the main faucet for a budget can make budgeting and grants discussions much easier, since the amount available is much more predictable than direct revenue to treasury. That would be a positive in this DAO I think.

I would say properly locking down the funds is a bare minimum requirement, actually. There’s no reason we can’t do this today. We don’t even need to make it as onerous as “every transaction is approved by the whole DAO.” We can setup a Gnosis with one or more of @keikreutler.eth 's fancy Zodiac modules to lock down (whitelist) what can be done with the funds, so they can only be used to stake/unstake/etc. in pre-approved operations by whatever fund management committee, for example. Importantly, I think it needs to basically be impossible for managers to steal funds.

Even if we chose people we all trust, I’ve seen too many super competent crypto operators have private key compromises at this point. ENS DAO has already done a great job of properly implementing smart contract autonomy in DAO formation, let’s not stop now