Opportunities & concerns

Opportunities and concerns for Web3 treasuries

Web3 opportunities for improving treasury systems

Blockchain and distributed ledger technology can help enable a number of opportunities for improving how treasuries function and how they are operated. Some examples include:

  • Transparency & accountability - Using blockchain and distributed ledger technology the transactions and assets owned by a community can be stored on a transparent public ledger system. This makes it easier to see how funds are being stored and disbursed, helping to increase the amount of transparency and accountability. Community members can track and verify how funds are spent which helps to increase stakeholder trust in these treasury processes and systems.

  • Removing intermediaries - Blockchain and distributed ledger technology can help with eliminating the need for intermediaries to manage and distribute treasury assets, this helps reduce costs and custody risks and can also help with increasing process efficiencies.

  • Reducing fraud and corruption - The immutability of blockchain and distributed ledger technology means that once a transaction is recorded, it can't be altered. This becomes a deterrent to actors who are considering committing acts of fraud and corruption due to this ability to more easily track how funds have been used.

  • Reducing transaction costs - For treasuries involved in international transactions, blockchains and smart contracts deployed on top of these networks can help with providing faster and cheaper cross-border transfers compared to traditional banking systems.

  • Easier auditing - Having treasury transactions stored on a public ledger means that auditing oversight can happen as soon as funds are disbursed, which helps with spotting any irregularities sooner which can then be investigated and resolved.

  • Automated smart contracts - Treasury operations such as payments or contractual agreements can have the funds disbursed automatically through the use of smart contracts. Conditions for distribution can be built in to the contracts. Payments can also become more timely and require less manual oversight for disbursement. Automated liquidity management could also help with increasing the effectiveness of applying risk management strategies for protecting treasury assets.

  • Improved data access & management - Making all treasury transactions available on a public ledger will make it easier to access the data about the treasury, such as current available assets and any trends in how those assets are being used. This data can then be used to create better financial reports and forecasts to guide future decisions.

  • Decentralized decision making - For communities that want to increase the amount of participation in treasury decision making, a blockchain can help with providing a scalable and tamper proof solution for facilitating and storing any votes on chain to execute any governance decisions.

  • Inclusive decision making - Enabling an entire community to participate in treasury decisions will help with making a more representative process for capturing the preferences and opinions of a community. Open and transparent voting systems can also help with making it easier for anyone in a community to verify the outcomes for any treasury decisions.

  • Improved identity management - Self sovereign identity (SSI) can help with providing evidence on who has received funding from the treasury, which helps with reducing any duplication or fraud. SSI can also help with enabling people to take ownership of their data and have control over who is able to access that data. Zero knowledge (ZK) proofs can also help with improving treasury management by enabling private voting mechanisms for governance decisions.

  • Increased system robustness - Centralised systems are a single point of failure for many existing treasury systems. A decentralized blockchain system means that the data and transactions are stored and distributed between multiple nodes that help to run the network. This creates a system that is more resilient than centralised systems that could have localised failures or disasters.

  • Improved security - Security around treasury management can be improved through the adoption of cryptographic techniques to handle how assets get disbursed. Effective security will still mean that contributors involved in a treasuries operation will need to follow best practices when developing and improving any treasury systems and whilst securing their own private keys.

Current concerns for emerging Web3 treasuries

  • Volatility - Cryptocurrencies and their value is currently very volatile, the value of the total assets under management for different Web3 treasuries can often change quickly. This factor makes it more difficult to execute effective financial planning and risk management. As these ecosystems continue to mature and grow this problem should reduce over the long term.

  • Governance complexity - Increasing the amount of participation in treasury decisions can help to make these systems more representative of a communities preferences and opinions. There is however an increased complexity in handling governance when more stakeholders are involved. Treasury systems will need to find suitable solutions such as delegated representatives and using simple governance processes for these treasury solutions to scale to handle a much larger audience.

  • Voter apathy - Decentralized ecosystems can be effective for inviting a larger amount of voter participation in key treasury decisions, however this participation relies on the interest and willingness of the community to engage in governance. Creating solutions that are effective for decision making but that do not over burden the voter will be an essential part of enabling decentralized decision making to effectively scale.

  • Lack of historical data - As Web3 treasuries are still a new trend there is a lack of data on how they perform and behave in different environments. This lack of data and history makes it more complex over the short term to identify trends and effectively manage Web3 assets.

  • Security concerns - Which stakeholders have the ability to disburse treasury assets and how private keys are handled create an ongoing concern for how treasury assets are securely handled. As these emerging treasuries grow in value these risks and any potential vulnerabilities will need to be resolved to prevent any significant loss from occurring.

  • Centralisation concerns - There is an ongoing risk that influential stakeholders with large amounts of coins / tokens could have an excessive amount of influence on emerging Web3 networks and the decisions which get made. Democratic decentralised networks are currently difficult to implement at scale due to the threat of sybil attacks.

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