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?

An ENS enDAOment