What Is the Primary Risk Associated with a DAO Treasury Holding a Highly Concentrated Native Token Portfolio?
The primary risk is extreme exposure to market volatility and price fluctuation of a single asset. A concentrated portfolio means the DAO's financial health is directly tied to its token's performance, leading to a shrinking runway during bear markets.
Furthermore, attempting to sell a large portion of the native token to fund operations can trigger significant market slippage and panic selling, destabilizing the token's price and the DAO's governance. Diversification is key to mitigating this systemic risk.
Glossar
Impermanent Loss
Exposure ⎊ Impermanent loss, a risk inherent in automated market maker (AMM) protocols and liquidity provision, arises from price divergence between assets deposited and their subsequent value upon withdrawal.
Market Volatility
Dispersion ⎊ Market volatility within cryptocurrency, options, and derivatives contexts represents the magnitude of price fluctuations over a defined period, quantified typically by standard deviation or variance of logarithmic returns.
Native Token
Collateral ⎊ Native Token refers to the primary, fungible cryptographic asset issued by a specific blockchain protocol, frequently used as the unit of account, for staking, or as collateral within that ecosystem's derivatives markets.
Dao Treasury
Control ⎊ Dao Treasury refers to the pool of assets, often composed of protocol fees, native tokens, or various cryptocurrencies, managed collectively by the decentralized autonomous organization through on-chain voting.