# About Treasury resources overview
Educational resources that aim to provide insightful and actionable information about Web3 treasuries. These resources focus on Web3 ecosystem treasuries and the different opportunities and approaches that could be adopted. The majority of the analysis so far has been focused on [funding](https://funding.treasuries.io/) processes. **Current contributors** {% content-ref url="/spaces/zQLAwDu1M3Ts4d7syiK4" %} [Web3 Association](https://docs.web3association.io/) {% endcontent-ref %} # Purpose & responsibilities The purpose and responsibilities of a treasury Treasuries are used for managing the assets and liabilities of nation states, corporations, organisations and communities. Treasuries handle how assets get deposited, stored and disbursed. Treasuries are responsible for ensuring financial stability and for the efficient allocation of resources. **Purpose of a treasury** Treasuries help with securely handling the assets and liabilities of an ecosystem such as for nation states, corporations or any other form or organisation. How each ecosystem manages and disburses their assets will heavily depend on what their own goals and objectives are. Some ecosystems might prioritise the sustainability and growth of their treasury assets over the long term. Other ecosystems might prioritise impact based outcomes, where they are more heavily focused on directing assets towards initiatives that can help them with achieving those outcomes. Ecosystems can often have a combination of goals and objectives that they want to achieve with their treasury. **Historical treasury responsibilities** * **Asset & liabilities management** - Treasuries are often responsible for the management of any cash, debt, capital structure and investments of an ecosystem. Cash management involves ensuring there is enough liquidity for an ecosystem to meet its short term obligations as well as forecasting future cash flows and balances. Debt management involves handling any short or long term debts and responsibly managing any debt levels. Capital structure management involves determining what the optimal mix is of debt and equity for the ecosystem at that point in time. Investment management involves managing how any surplus of assets are invested to earn a return or if invested could help with addressing any ecosystem priorities. How effectively assets and liabilities are managed across these areas will impact the overall sustainability and growth of an ecosystem over the long term. * **Risk management** - Treasuries that are responsible for other people's assets will need to manage any existing or emerging risks. Risk management can help with determining how accounts and transactions should be secured and handled as well as dealing with external risks such as inflation, foreign exchange risks or any other economic changes. A big part of risk management is planning for these risks ahead of time and preparing accordingly so that treasury assets are well protected. * **Compliance with regulation** - Ecosystems accepting any form of income and disbursing assets to fund different initiatives will be responsible for ensuring that those activities comply with any regulations that are applicable to the jurisdictions they operate in. Managing regulatory concerns will include looking at existing and future policies of these nations and then supporting any internal efforts to ensure that the treasury operations comply with these regulations. * **Strategic planning** - Those involved with managing treasuries can often play an important role in strategic planning. Financial strategies can help with aligning treasury functions with achieving ecosystem goals and objectives. Treasuries can also be responsible for assessing potential mergers and acquisitions of other ecosystems. Treasuries will need to support these larger strategic transactions. # Impact of treasuries How treasuries can impact peoples lives Treasuries have a multitude of ways in which they can impact people's lives: * **Income** - People can often rely on treasuries to receive their income. Nation state, corporation and Web3 ecosystem treasuries all have many contributors that can rely on the income they receive from their ecosystems treasury. * **Economic stability & growth** - The decision of where assets get allocated can have a big influence on the stability and growth of a community. Effective treasury management with impactful capital allocation can give any nation state, corporation or Web3 ecosystem a competitive advantage over competing communities. * **Taxation policies** - Taxation can impact people's income, investment returns and cost of living. Taxation policies are often set or influenced by the treasuries for both nation states and Web3 ecosystems. For nation states this could mean changing income or capital gains tax, whereas for Web3 networks this could mean changing transaction fees. * **Access to capital** - How capital is being managed by nation states, corporations and Web3 ecosystems will directly impact which initiatives will have access to capital. Treasuries influence whether there is equal access to capital and what purposes and initiatives are able to receive any funding. * **Risk mitigation** - How a treasury is managed will influence how effectively a community is able to respond to sudden adverse events such as economic turmoil or natural disasters. Good treasury management involves risk management that helps to better forecast the possibility and implications of these types of events. Risk mitigation will involve creating a plan for how the ecosystem can respond to these types of events if they occur. * **Product & services availability** - How treasury funds get disbursed will impact the products and services that end up being available for the ecosystem. For nation states this can mean determining what public services and infrastructure gets funded, for corporations this can mean what new products, services and improvements get created and provided and for Web3 ecosystems this could mean what network upgrades, open source software or new applications get developed. * **Public goods funding** - Treasuries can often play an important role in funding public goods that can generate large amounts of impact for society. Example public goods could include developing open source software, creating educational resources or scientific research, maintaining and improving biodiversity, infrastructure or air quality amongst many others. # Functional processes An overview of some of the main functional processes involved in treasury management Treasury management is complex and requires the use of a variety of different systems and processes so that assets can be managed and disbursed correctly and effectively. Some of the main functional processes involved in a treasury system revolve around how it handles income, operation and disbursement. **Income** Treasuries can often require an ongoing source of income to be sustainable over the long term. Income could come from one or multiple sources such as transaction fees, product or service offerings, financial yields, investment returns, network coin taxes or donations. **Operation** There are a number of systems and processes involved in managing a treasury and disbursing treasury assets. Some areas of concern for operating a treasury include handling any governance decisions, asset management and storage, risk management, financial strategy, self improvement processes, diversification, management and oversight of different funding processes, payment processing and enforcement of any community set constitution or policies. Treasuries could have a number of parameters that will need to be managed by a community that will influence how the treasury is maintained and operated. **Disbursement** Systems and processes are needed to allocate funding towards promising initiatives that could generate impact for an ecosystem and that could help with addressing any goals and objectives. Progress needs to be audited and verified and impact needs to be measured when initiatives get completed. Treasuries might also need to disburse assets to pay for operational costs involved in maintaining and operating the treasury itself.
# Example treasuries Example nation state, corporation and Web3 treasuries **Nation state treasuries** Nation state treasuries are responsible for supporting the growth and stability of a country's economy for the benefit of its citizens. * [U.S. Department of The Treasury](https://home.treasury.gov/about/general-information/role-of-the-treasury) - The United States treasury has the mission to maintain a strong economy and create economic and job opportunities by promoting the conditions that enable economic growth and stability at home and abroad, strengthen national security by combating threats and protecting the integrity of the financial system, and manage the U.S. Government’s finances and resources effectively. For 2023 the treasury is looking to spend [over $6.9 trillion](https://www.usaspending.gov/explorer/budget_function) with an [expected deficit of over $1.6 trillion](https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/). As of 2022, the United States had a [national debt of over $30.9 trillion](https://fiscaldata.treasury.gov/americas-finance-guide/). * [HM Treasury](https://www.gov.uk/government/organisations/hm-treasury) - The United Kingdom treasury is the government’s economic and finance ministry, which maintains control over public spending, setting the direction of the UK’s economic policy and works to achieve strong and sustainable economic growth. For 2023 the treasury is looking to [spend over £1.1 trillion](https://obr.uk/forecasts-in-depth/brief-guides-and-explainers/public-finances/) with an [expected deficit of £132 billion](https://obr.uk/forecasts-in-depth/brief-guides-and-explainers/public-finances/). As of 2023, the United Kingdom had a [national debt of over £2.5 trillion](https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/may2023). **Corporate treasuries** Corporate treasuries play the vital role of managing the assets owned by an organisation to most effectively support its long term growth and stability for the benefit of its shareholders. * [Berkshire Hathaway](https://www.berkshirehathaway.com/) - Manages a treasury of over [$128 billion in cash and $201 billion in property, plant & equipment](https://www.wsj.com/market-data/quotes/BRK.A/financials/annual/balance-sheet) amongst other assets. * [Apple](https://www.apple.com/) - Manages a treasury of over [$20 billion in cash and $42 billion in property, plant & equipment](https://www.apple.com/newsroom/pdfs/FY23_Q1_Consolidated_Financial_Statements.pdf) amongst other assets. **Web3 treasuries** Web3 treasuries play a pivotal role in the growth and stability of emerging decentralized ecosystems, treasuries help with funding initiatives that help to grow the community, improve the underlying technology and help with enabling and supporting new use cases. * [Ethereum foundation](https://ethereum.org/en/foundation/) - As of August 2023, the Ethereum Foundation manage a treasury [worth over $590 million](https://defillama.com/protocol/ethereum-foundation#treasury). * [Cardano](https://cardano.org/) - As of August 2023 the Cardano ecosystem manage a treasury [worth over $390 million](https://lookerstudio.google.com/u/0/reporting/3136c55b-635e-4f46-8e4b-b8ab54f2d460/page/ad3AC). * [Uniswap](https://uniswap.org/) - As of August 2023, the Uniswap ecosystem manage a treasury [worth over $2.4 billion](https://defillama.com/protocol/uniswap?treasury=true). # Problems & differences Problems with existing treasuries and some differences they have with Web3 treasuries **Existing treasury problems** There are a number of issues with existing treasury systems being used by nation states and corporations. Some of those potential issues include: * **Bureaucracy** - Treasury systems that have processes dependent on layers of management and control can become easily bogged down by layers of bureaucracy, making them slower to respond to crises or implement innovative solutions. * **Lack of transparency** - Full transparency over how decisions are being made and how budgets get allocated is not always guaranteed. Low transparency can lead to a lack of trust in the systems and processes being used which could also lead to speculation on whether there is any corruption or mismanagement of treasury assets. * **Political influence** - If a treasury is centralised and controlled by a small group of actors it could potentially be more easily swayed in how it makes its decisions through a mix of influences coming from external actors or incentives. These influences could lead to corruption, mismanagement of assets or suboptimal decision making. * **Debt accumulation -** Many nation states have accumulated a significant amount of public debt which has increased the risks of long term financial stability and prosperity for these treasuries. * **Limited participation** - Many nation and corporate treasury systems are often operated and governed by an elected or appointed group of individuals. This can reduce the diversity of opinions involved in treasury decision making and means the community could often have little influence on the decisions that get made. **Differences between existing treasuries and emerging Web3 treasuries** There are a number of differences between existing treasuries that are widely adopted and emerging Web3 treasuries: * **Scope & scale** - Nation state treasuries manage the finances of entire countries, meaning they can impact millions or billions of people. They deal with vast budgets covering different areas such as healthcare, education, infrastructure or defence. Web3 treasuries usually only manage the funds for a specific decentralised project or platform which currently has less scale and often a narrower focus. * **Regulation & oversight** - Nation states treasuries operate within established legal and regulatory frameworks and are subject to numerous checks and balances, audits and governmental oversight. Web3 treasuries being still in their infancy are often operating in a more fluid regulatory environment where the legal status is still uncertain. * **Decentralisation** - A key difference between nation state and corporate treasuries with Web3 treasuries is the increased level of decentralisation that the treasuries adopting distributed ledger technology are trying to achieve. Distributed ledger technology can help with increasing the amount of community governance and participation through governance mechanisms and coin holder voting instead of only using elected officials and representatives. * **Income sources** - Nation state treasuries often rely on taxation such as income tax or capital gains tax. Web3 treasuries often rely on protocol transaction fees. A key advantage for Web3 networks is that these fees are collected automatically at the point of completing a transaction rather than manually at the end of a fiscal year. * **Transparency** - Existing nation state and corporate treasuries have more choice on exactly how transparent they are with any financial budgets, statements and transactions relevant to the treasury. It is usually the case that nation states have the mandate to provide complete transparency, however this can still be hard to fully verify. In contrast, transparency in public blockchains can be provided at all times due to the use of a public ledger. It becomes much more difficult or even impossible to tamper with or hide how treasury assets are being disbursed and used in public Web3 networks. * **Geopolitical differences** - Nation state treasuries must account for geopolitical considerations, international trade, and diplomacy in their decisions. Web3 treasuries, while operating globally, do not yet have these same concerns and instead are currently more focused on technological development, community growth, and protocol sustainability. # Opportunities & concerns Opportunities and concerns for Web3 treasuries **Opportunities to improve treasury systems** Blockchain and distributed ledger technology provide a number of opportunities for improving how treasuries are developed and operated. Many of these improvements could lead to increases in economic stability and treasury efficiency. Efficiency gains could reduce costs or increase growth or the amount of funding that an ecosystem has available for funding public goods. Even small percentage improvements in how these treasuries are managed and how funds get disbursed can represent a massive return on investment for growing Web3 ecosystems. Some example opportunities 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 emerging treasury systems and processes. * **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 and oversight can happen as soon as funds are disbursed, which helps with spotting any irregularities sooner so they can be investigated and resolved. * **Automated smart contracts** - Treasury operations such as payments or contractual agreements could have their funds disbursed automatically through the use of smart contracts. Conditions for distribution can be built into 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 that help to protect 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 reporting and forecasting tools that could guide future decisions. * **Decentralised 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 when executing 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 that community. Open and transparent voting systems mean it will be easier for anyone in the community to verify the results from any treasury decision. * **Improved identity management** - Self sovereign identity (SSI) could help with providing evidence about who has received funding from the treasury, this could help with reducing any identity 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 decentralised ledger means that data and transactions would be stored and distributed across multiple nodes that operate 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 managed and disbursed. Reliable 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. **Opportunities to replace existing products & services** Web3 treasuries could eventually replace a number of products & services that are commonly used. A number of open source solutions could be developed and combined together as needed to replace many of the following products and services: * **Banking** - Banks are commonly used for sending and receiving payments, savings accounts, loans and wealth management. All of these services and any existing functionalities can be created in Web3 ecosystems as smart contracts and open source solutions. Communities will be able to manage their assets themselves using these solutions and without the need for a bank. * **Payroll** - Contributors that receive income from a Web3 treasury will need to ensure that they are paying any taxes they owe. Solutions can be created that make it easy for anyone to translate their addresses and on-chain data into a report showing how much income they have received between two specified points in time. As this data is on-chain and always available it should be easy enough to automate many parts of this process of reporting total income to tax authorities. Contributors could also automate the depositing of assets into other accounts such as retirement funds or any other financial obligations they have when their income is received. * **Accounting** - Financial record keeping is much easier with distributed ledger technology as every transaction and asset is always available and easily verifiable. Self sovereign identity solutions might be needed to ensure it is clear when assets are going to certain individuals so that these transactions can be properly tagged during any audits. * **Auditing** - Public and on-chain data will make it easier to automate the auditing of treasury transactions and where funding has been allocated. * **Reporting** - Treasury transactions should often be public, always available and easily verifiable. This can help with making reporting easier and increasingly automated over time. Solutions could aggregate and present any transaction data into reports that highlight different trends or insights or other key pieces of information that are required for any compliance. * **Analytics** - Public and on-chain data can be used within any analytics tools to identify trends and statistics about what is happening in each treasury. * **Legal compliance** - Self sovereign identity solutions could be integrated into any treasury to handle KYC for anyone that is receiving treasury assets as income when this is required. Public ledger data that is always available will also help with making it easier for individuals and companies to create automated reports and document filings for complying with any local legal requirements. * **Asset management** - Open source contracts can help with automating the allocation and management of treasury assets. Smart contracts could automatically reduce the amount of assets available for funding rounds if the value of the current treasury assets falls below a certain threshold. Treasuries could adopt different DeFi solutions as part of their portfolio management strategy and automatically allocate between assets depending on their risk tolerances. * **Risk management** - Many checks and balances can be introduced to help with protecting treasury assets. Threshold values for different parts of the treasury could trigger protective counter measures to ensure the safety of assets. Allocations could be automatically set aside for emergencies and market changes could trigger automatic responses that help to protect an ecosystem's assets. * **Decision making** - The data that is available on-chain could be used to automate a number of decisions that need to be made when operating a treasury. Automated decisions could be established around what tax percentage or fixed amount should be used when the value of the treasuries assets drops below or exceeds a certain value. Another decision a treasury might need to make is how much funding should be available when the treasuries assets drop below or exceed certain values. An ecosystem could manually make these decisions however they could also decide to fully automate them by developing these solutions into the protocol itself or by using smart contracts. **Concerns for emerging Web3 treasuries** * **Volatility -** Cryptocurrencies have historically been very volatile, the value of the total assets under management for different Web3 treasuries can change fairly 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 complexities** - Increasing the amount of participation in treasury decisions can help with making these systems more representative of a community's preferences and opinions. However there is also an increased amount of complexity with governance for the treasury when more people are involved. Treasuries need to identify simple and effective governance solutions that will enable these systems to scale to a larger audience of voters. Being able to delegate voting power to other people will likely play an important role in developing longer term solutions. * **Voter apathy** - Decentralised 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 overburden the voter will be an essential part of developing decentralised decision making systems that can 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 could have an excessive amount of influence over these emerging Web3 networks and the decisions that get made. Democratic decentralised networks are currently difficult to implement at scale due to the threat of sybil attacks. # Stakeholders Overview about community member, contributor and founding entity stakeholders that can be found in Web3 ecosystems Community members, contributors and founding entities are different stakeholders that can often be involved in treasury operation and decision making within a Web3 ecosystem.
**Community members** * **Who are they** - Community members include anyone that participates in the ecosystem. This could mean anyone that attends ecosystem events, owns any coins or tokens, uses any of the available protocols or applications or that has any other interests or participation in the ecosystem. Both contributors and members of the founding entities would also be classed as community members. * **Treasury involvement** - Community members may or may not be able to participate in treasury decisions depending on how an ecosystem manages their treasury. Even if the community members are able to participate in these decisions a number of those members may not be interested in participating in these decisions and any related activities. For ecosystems that are prioritising decentralisation of the treasury, a longer term goal for the ecosystem would be to increase the participation of community members by enabling them to participate in voting on any important treasury decisions. This could also mean giving them the possibility to delegate their voting power to another community member. The level of participation from community members in treasury processes and decisions can often range from being very engaged to very passive. **Contributors** * **Who are they** - Contributors are anyone that helps with supporting or improving the ecosystem. This could mean working on the infrastructure, tools, applications, growth or events that are related to the ecosystem amongst many other areas. Contributors also include anyone who contributes towards operating the treasury itself. * **Treasury involvement** - There are usually many important areas that require contribution efforts in a Web3 ecosystem such as the infrastructure that supports the network's operation. This means it will be fairly common that only a subset of ecosystem contributors will directly be helping with operating the treasury systems and processes. Contributors that work on operating the treasury could be selected by a founding entity or be elected through community governance. In terms of payment for these contributors, this could come from the founding entities or through treasury funds. There is an amount of time commitment involved with becoming a contributor in these ecosystems as those interested would need to develop a certain level of skill and knowledge to effectively contribute towards improving and maintaining the treasury systems and processes. **Founding entities** * **Who are they** - The founding entities are any entity that was setup at the beginning to help with the growth and development of the ecosystem. The original founders may or may not still be involved with the ecosystem however the founding entities will often have some level of influence over the ecosystem such as how the treasury is operated and how assets are being disbursed. For some ecosystems this can come in the form of a foundation that handles ecosystem treasury assets which this founding entity is then fully responsible for. For other ecosystems the founding entities could be in the process of creating a decentralised treasury system where the control over that system itself may or may not have been fully handed over to the community whilst it's still being developed. * **Treasury involvement** - Founding entities will often be the most highly engaged and responsible for an ecosystem's treasury, in the beginning the founding entities are needed to set up any initial systems and processes. ## Long term considerations Further considerations can be made about the ecosystems that are trying to increase the amount of decentralisation in how their treasury is operated.
**Community influence on treasury decisions should increase over time** Increasing the decentralisation of the treasury will mean pushing decisions about how community assets should be used to the edges of the community. To achieve this, the amount of participation from the community members in treasury decisions will need to increase over time. The creation of systems that invite community participation in a way that is easy to use and that is inclusive will be important for achieving this outcome. Example treasury decisions that the community will need to be concerned about include where and how funds are being disbursed, which contributors are being elected to help with operating the treasury if any and what treasury system parameter changes are currently being suggested. **Contributors involvement in the treasuries operation should increase over time** For a Web3 ecosystem to become more decentralised the responsibility of contributors that help with the operation of the treasury should increase over time when compared to the responsibility of the founding entities. This will mean creating solutions that will allow for more of the operational control of the treasury to be handled by the community and contributors in the ecosystem rather than the founding entities. This should result in a reducing amount of founding entity influence over time and an increasing amount of the contributors that the community is selecting themselves. **Founding entities influence should reduce over time** Reducing the control and influence of the founding entities over time will help with increasing the amount of decentralisation of the network and give the community more stewardship over how the treasury is operated. One way this can be achieved is if the community can select which contributors get compensated for helping to support and improve the operation of the treasury. Another way the founding entities influence could be further reduced is if contributors working in these entities are able to migrate to different funding mechanisms where they can be elected and compensated through the treasury itself using community governance rather than being funded by the founding entity. **Number of contributors can expand or contract in response to the needs of the ecosystem** The treasury systems and processes may require more or less contribution effort over time as the systems and processes start to mature and become more automated and as the external environment changes. Due to a constantly changing environment it could be expected to see the number of contributors involved in the operation of the treasury to expand and contract based on the needs of the ecosystem at any given point in time. ## Long term importance of contributors for Web3 treasuries **Community members can easily move to other ecosystems** Web3 ecosystems are inherently digital first networks. Anyone can participate and use these networks for their own benefit. This means community members are easily able to use and benefit from multiple ecosystems and can fully migrate from one ecosystem to another at a moment's notice. This reality helps to highlight the importance of ecosystems being able to attract and retain quality contributors so that ecosystems can continue to grow and develop at a similar or faster pace than its competitors. **The skill and competence of an ecosystems contributors will highly impact how it evolves and improves over time** Both nation states and corporations require highly skilled professionals that are competent in contributing towards the overall success and daily operation of these organisations. In a similar vein, the skill level and competence of the contributors involved in different Web3 ecosystems will also be highly influential on the long term evolution and success of these ecosystems. Ultimately it will be the people who are actually contributing towards improving these emerging Web3 ecosystems that end up creating the right incentives and reasons for community members to engage and participate in an ecosystem over the long term. # Operating process Defining a general purpose operating process that can be applied to treasury systems and processes to help with better identifying different problems and opportunities Web3 ecosystems will often need ongoing amounts of maintenance and improvement to remain competitive in a fast changing environment where new technologies, consumer preferences and approaches continue to emerge that influence how these networks can be most effectively scaled, operated and used. To better think about how a treasury could be operated and improved we can outline a general purpose operating process. This operating process suggests a simple four step process that can be repeatedly used over and over again when operating or improving the ecosystems treasury. Any ecosystem could apply this process when thinking about how they are operating and improving their own systems and processes. How effectively an ecosystem is able to repeatedly move through this operating process will influence the quality of the outcomes they are able to produce. We can also explore how this process currently applies to existing ecosystems such as nation states or corporations to better compare how these different ecosystems operate compared to Web3 ecosystems. This comparison can then help with better identifying what problems and opportunities might exist for improving Web3 treasury systems and processes.
**1. Knowledge** The first step of this process is to bring together any required knowledge about a selected area of focus. Knowledge is the accumulation of any relevant information around that selected topic area. This could range from research, data, insights, analysis, cultural factors or personal experiences amongst other pieces of information. Decisions and contributions made towards an ecosystem will be highly influenced by the knowledge people have about the ecosystem and that focus area. Knowledge could be explicitly documented and stated within these ecosystems however it also may not be stored online or publicly at all. In some instances it could simply be a shared pool of knowledge that is only currently captured in the minds of the individuals involved. **2. Priorities** The second step looks to apply this knowledge by suggesting priorities along with a decision on which of these priorities are the most important for the ecosystem at that moment in time. Each ecosystem will have its own mission and purpose, these ecosystems will each need to prioritise where they want to allocate their limited capacity and resources. Priorities can naturally emerge from the shared knowledge of the individuals involved in the ecosystem. High quality knowledge about the area of focus will be a vital part of suggesting suitable priorities that could achieve the desired outcomes. New knowledge such as from emerging data, insights, research and analysis, cultural changes or technical advantages could all provide sufficient reason to change the existing priorities or to adopt new ones. **3. Ideas** The third step focuses on creating and selecting the most promising ideas that could help with addressing the most important priorities. Community members could each have a number of ideas about how the current priorities could be addressed. Ideas will help with articulating how a potential solution or approach could help an ecosystem address their priorities and achieve any longer term goals. New ideas could emerge at any time and existing ones may need to be updated once the surrounding knowledge or priorities begins to change over time. Any number of the ideas that emerge within an ecosystem could be executed to try and address the current priorities. An ecosystem will usually have limited resources, meaning they will need to identify the most promising ideas to execute so that the most important priorities can be effectively addressed. **4. Contributors** The final step is to select contributors that will execute the most promising ideas and then measure the resulting outcomes. Measuring the outcome will be an important part of determining whether any of the priorities have been addressed before the ecosystem then repeats another loop of this operating process again. The execution of any idea will require contributors to have the right skills and competencies to take an idea through to completion. The measured outcomes from any contribution efforts will create more data, insights and analysis which can then be fed back into this recurring operating process in the form of more knowledge that can be used within future decisions. **This operating process can be applied to any nation state, corporation or Web3 ecosystem** Nation states, corporations and Web3 ecosystems will repeatedly loop through this general purpose process when operating and improving their own ecosystems. The better an ecosystem is at going through this operating process loop the more accurate and effective their efforts should become on generating the desired outcomes. A general purpose operating process can be applied to any area within an ecosystem that needs improvement, whether that’s at a high strategic level or at a localised execution level. For example a high level strategy based operating process could be to identify which areas within an ecosystem have the biggest opportunity for improvement. Using this operating process you would look at all of the relevant processes and systems to fully understand how the ecosystem operates (1. knowledge). You would then identify and define where the biggest problems and opportunities exist (2. priorities), generate ideas on how to address those priorities (3. ideas) and then execute those ideas before finally reflecting on whether the priorities have been addressed (4. contributors). Another more localised example of applying this operating process could be at the execution layer, for example a development team could be looking to improve their technical workflow by reviewing and updating the code and tech stack they are using. **Applying this operating process to treasuries** {% content-ref url="/spaces/8L61e8ulVlk90t5mlQk1/pages/fLABVambqhu33KkGy0kr" %} [Funding process](https://funding.treasuries.io/process/disbursement-operating-process) {% endcontent-ref %} # Funding responsibilities Listing the funding responsibilities that a Web3 treasury could support through disbursement A Web3 ecosystem treasury could be responsible for funding a wide range of initiatives that benefit the ecosystem or wider society. Some ecosystems might choose to have no treasury responsibilities where fees that get collected by the network would only be used to pay for the node operator costs. Other ecosystems might decide that their treasury should have a number of responsibilities and look to fund a wide range of initiatives that could help with improving and growing the ecosystem.
**Incremental funding responsibilities** 1. **Node operating costs** - Network fees only pay for node operating costs. No treasury assets exist meaning the treasury has no funding responsibilities. 2. **Network & infrastructure development** - Research, maintenance and development of the network and infrastructure. This could include efforts around node development, consensus design, cryptography, transaction and ledger state design, networking and peer to peer infrastructure and any smart contract language or SDK improvements. 3. **Protocols & software libraries** - Protocols that use the networks infrastructure and software libraries that improve the developer ecosystem. This could include initiatives such as utility libraries for transaction building and querying, identity and governance tools or solutions or libraries that make smart contract development easier. Some other initiatives could be data oracles, indexers, interoperability and scalability solutions. Any protocols that could be built on the network could also be included such as a storage, communication or logistics based protocols. 4. **Application development** - Applications that utilise the networks available protocols and that can enable new use cases that the community can use. Example applications could be those that focus on finance, communication, social, gaming, governance or travel solutions to name just a few potential use cases. 5. **Ecosystem initiatives** - Initiatives that could benefit the ecosystem such as events, education & onboarding resources, mentoring efforts, media content or public outreach. 6. **Global public goods** - Initiatives that can benefit people from across the world such as scientific, technical and medical research or open source software that may not be built on or using the ecosystems network. 7. **Location public goods** - Initiatives that are focussed on geographic locations such as those that support nature, wildlife, water & air quality, roads and public infrastructure as just some examples. Web3 ecosystems could include or exclude any responsibilities from this list of suggestions based on their own preferences and needs. The beginning of this list represents Web3 ecosystems that decide to have a treasury with very few responsibilities. Each focus area going down the list increases the amount of responsibility that a Web3 ecosystem treasury could decide to support through their own funding processes. The list is roughly ordered based on the proximity the initiatives have with the network itself. Global and location based public goods start to move beyond the needs of the ecosystem itself and focus on initiatives that benefit the wider community and society. # Misaligned, partially aligned & fully aligned incentives Comparing some of the differences between misaligned, partially aligned and fully aligned incentives
Incentives have a large influence on how systems actually operate in practice and whether those systems are able to consistently generate beneficial and impactful outcomes. The systems and processes that a Web3 ecosystem adopts could result in a number of misaligned, partially aligned and fully aligned incentives. Incentives can sit somewhere along a range from misaligned through to fully aligned. When incentives are misaligned it becomes increasingly difficult to generate the desired and intended outcomes that might be most beneficial to an ecosystem. Fully aligned incentives can help with decision making and generating impactful outcomes due to the incentives being more consistently beneficial to everyone involved. An ongoing priority for Web3 ecosystems is the identification and removal of as many misaligned incentives as possible so that they can be replaced with incentives that are more fully aligned. ## Misaligned incentives
Misaligned incentives can lead to suboptimal decision making and outcomes. Treasury systems and processes that do not perform well can eventually break down the trust a community has in these ecosystems. Misaligned incentives can lead to resource misallocation, short term thinking, increased centralisation and ethical and social concerns. Misaligned incentives should ideally be removed from an ecosystem to increase the likelihood that impactful outcomes can be more consistently achieved. **Large existing project funding a new competing project** An existing project that has it’s own token and treasury has little incentive to help fund a competing project that could take away their market share and reduce their own tokens value. That existing project could also have people who are token holders in other larger projects. These token holders could have influence across these different projects and be another reason why emerging projects get little support from existing projects that have their own treasuries. One way to avoid this misaligned incentive is to use more base network incentives that can fund different ecosystem initiatives that might offer improvements over existing protocols and applications. **Short term thinking for project strategic planning** Contributors could develop solutions and use cases that are beneficial for a project in the short term such as those that help gain exposure, increase the immediate opportunity for compensation or that briefly increase a tokens value. Some of these efforts could be made for short term gain at the detriment of achieving the longer term goals that would have been more beneficial to the wider ecosystem. ## Partially aligned incentives
Partially aligned incentives sit in the middle between misaligned incentives and fully align incentives. Partially aligned incentives occur when there is a clear shared benefit in supporting a certain initiative however there is also a counteracting incentive that encourages people to consider not supporting that same initiative. Partially aligned incentives could cause a larger amount of governance and decision complexity for communities due to the need for them to agree on conflicting arguments and reasons to support or not support a given initiative. **Existing project funding open source library for ecosystem** There could be many projects in an ecosystem that each have their own token and circular economy that they are trying to grow. These projects each have an incentive to help support open source libraries that could benefit their own project as well as the wider ecosystem. The reason why this incentive is only partially aligned is that if some projects don’t support the initiative and others do there is an unfair advantage for those who only use their treasury assets for their own direct benefit rather than the benefit of the wider ecosystem. These other ecosystems would get the full benefit of the open source software yet provide no compensation to supports the required contribution efforts. These differences in financial support could also give some projects a competitive advantage over other projects that have been more giving with their treasury assets to support public goods. **Number of tasks completed incentives** Some task based incentives could be only partially aligned with generating the right outcome. For instance a task incentive that rewards people for each proposal assessments they submit has the risk of encouraging people to submit many lower quality assessments due to the incentive structure. This type of incentive might likely require a number of checks and balances to ensure a certain quality threshold is met or an improved incentive structure that rewards higher quality assessments more heavily than lower quality ones. ## Fully aligned incentives
Fully aligned incentives occur when there is shared alignment and benefit to support an initiative and little to no incentive for people to not support that initiative. Fully aligned incentives will mean that both the givers and receivers of the incentive should mutually benefit from an initiative being executed. **Open source utility library funded by base network incentives** The networks own treasury being used to fund open source utility libraries is an example of a fully aligned incentive. The entire ecosystem could benefit from the open source utility library and there aren’t any other incentives that discourage people from supporting that initiative. The complexity in this example would be a decision based one for the community as they will need to provide their feedback and preferences about which open source libraries they believe are the most impactful to support and execute. **Impact focused contributor incentives** Contributors who are paid directly from a Web3 ecosystems treasury to generate impact could be another example of a more fully aligned incentive. The provider of the incentive, the communities ecosystem treasury, wants to select and compensate competent professionals to improve the network and the use cases it provides. The contributors who would be the receivers of that incentive who would want to be paid for their contribution efforts that help with executing impactful initiatives. # Approach comparison methodology Methodology behind how approaches are being compared and analysed across the documentation. A number of analytical comparisons are made across this documentation. These comparisons explore the trade offs between approaches that could be used for different parts of a treasury system. All of these comparisons start by listing out the most important factors that can be considered when analysing the differences between any of the approaches. Each approach is then analysed against those factors to see how effective it is at addressing them. **Factor information** Factors in any of the comparisons will include the following information: * **Factor name** - A short title and name to describe the factor for consideration. * **Description** - An overview of what the factor is about and why it is relevant. * **Maximum score** - There are two scores given that are out of 5 that create a final score for each approach. The first score is the maximum score for the factor. The maximum score highlights how important the factor itself is for the approaches comparison. The maximum score ranges from 1 to 5. When an approach is being analysed a second score is given to that approach that highlights how effective that approach is at addressing the factor. The score received by the approach is then applied to the maximum score to create a final score. Doing this means that the most important factors will have more weighting in the total score when compared to other factors that might be less important. Consider the following examples: * Maximum score is 5. This means the factor is very important. Here are the final scores an approach could receive depending on how well it scores in addressing this factor: * 1 points out of 5 ⇒ 20% of 5 maximum score ⇒ 1 * 2 points out of 5 ⇒ 40% of 5 maximum score ⇒ 2 * 3 points out of 5 ⇒ 60% of 5 maximum score ⇒ 3 * 4 points out of 5 ⇒ 80% of 5 maximum score ⇒ 4 * 5 points out of 5 ⇒ 100% of 5 maximum score ⇒ 5 * Maximum score is 4. This means the factor is fairly important. Here are the final scores an approach could receive depending on how well it scores in addressing this factor: * 1 points out of 5 ⇒ 20% of 4 maximum score ⇒ 0.8 * 2 points out of 5 ⇒ 40% of 4 maximum score ⇒ 1.6 * 3 points out of 5 ⇒ 60% of 4 maximum score ⇒ 2.4 * 4 points out of 5 ⇒ 80% of 4 maximum score ⇒ 3.2 * 5 points out of 5 ⇒ 100% of 4 maximum score ⇒ 4 * Maximum score is 3. This means the factor is moderately important. Here are the final scores an approach could receive depending on how well it scores in addressing this factor: * 1 points out of 5 ⇒ 20% of 3 maximum score ⇒ 0.6 * 2 points out of 5 ⇒ 40% of 3 maximum score ⇒ 1.2 * 3 points out of 5 ⇒ 60% of 3 maximum score ⇒ 1.8 * 4 points out of 5 ⇒ 80% of 3 maximum score ⇒ 2.4 * 5 points out of 5 ⇒ 100% of 3 maximum score ⇒ 3 * **Scoring questions** - A list of questions that help with thinking about how effective each approach is at addressing the factor or not. Answering these questions will help with identifying a suitable score to give each approach for that factor. **Advantages of this comparison approach** There are a number of reasons why this approach for making comparisons is effective: * **Simple** - This format makes it easy for people to read about the different factors that are important for this comparison. It also makes it easier to agree or disagree with any given parts of the analysis which can help to improve it over time wherever this is necessary. * **Concise** - The analysis for each approach only adds enough information to make an informed judgement on what the score should be when also considering the other approaches in the comparison. This helps to keep the analysis concise and informative. If there are multiple approaches that appear to be effective at addressing the listed factors then a more detailed piece of analysis could be done separately. * **Effective for ranking** - By giving each approach a score for each factor an easier comparison can be made about which approaches are likely the most effective for different areas. The aggregation of these factors helps with identifying the most promising approaches overall. * **Visual outcome** - Generating scores for each approach and each factor means a visual table can be produced for every comparison. This makes it much quicker to find out what the outcome is for any comparison without needing to read the full content. * **Identifies experiment opportunities** - These comparisons are an effective way to identify the approaches that could be highly effective for treasury systems. These approaches can then be compared with what is actually happening across the industry and help with highlighting the most promising experiments for Web3 ecosystems to explore.