Author: GSR (Spencer Hallarn)
Compiled by: Deep Tide TechFlow
Deep Tide Guide: The fatal flaw in DAO treasury management is being exposed—most assets are concentrated in native tokens. Once the market turns, the protocol will face a triple blow of plummeting token prices, sharply reduced revenue, and collapsing on-chain activity. Spencer Hallarn, Global Head of Markets at GSR, breaks down the survival rules after the bull market recedes, which is extremely important for everyone holding DAO tokens or participating in protocol governance.
Nearly 70% of DAO treasury assets remain concentrated in native tokens, structurally exposing protocols to the simultaneous decline of treasury value, revenue, and on-chain activity.
Key Takeaways
- The industry remains highly concentrated. Nearly 70% of DAO treasury assets are held in native tokens, leaving many projects facing a single source of risk during downturns.
- Crypto treasuries are structurally pro-cyclical. Because most projects keep the majority of their reserves in their own tokens, their treasury value, protocol revenue, and market activity tend to decline simultaneously.
- Projects always hedge too late. Our OTC desk observes a surge in demand for downside protection after price drops, at which point option premiums have already risen, and any floor price set by projects is far below the token's starting point.
- Protection does not require selling. Collar strategies pay for downside protection by giving up some upside potential rather than consuming stablecoins, allowing projects to maintain both their positions and operational reserves.
- Treasury structure is more important than timing. Separating operational reserves from long-term holdings and establishing risk management policies before market conditions deteriorate can extend the operational runway.
- GSR is an active participant in the crypto treasury and risk management market. Our activities include providing OTC execution, block trades, and structured derivatives—including collar strategies and other hedging structures—for foundations, protocols, and other market participants.
At GSR, we see the same story repeating every market cycle.
Crypto treasuries are structurally pro-cyclical because most DAO treasuries remain highly concentrated in their own tokens. Overall, over 70% of treasury assets are held in the project's own tokens, with relatively low allocations to stable assets or diversified reserves.
We see the consequences of this configuration in every downturn.
When the cycle reverses and token prices fall, the treasury originally intended to fund the roadmap suddenly becomes the project's biggest source of risk.
Given the current environment, we are having more of these conversations with clients than ever. Clients are not only suddenly asking when the market will recover but also whether the project has enough operational runway to continue building until the market does.
When Prices Fall, Activity Shrinks
The second challenge is structural.
As treasury value declines, protocol activity weakens, fee generation slows, and liquidity deteriorates simultaneously. The treasury becomes least valuable precisely when it is needed most.
We see this across cycles. Teams think they have a treasury that can sustain them through difficult markets, but both sides of the balance sheet are exposed to the same underlying risks.
Costs do not fall with token prices. Salaries, audits, infrastructure, and grants are denominated in dollars, so projects financing through token sales must sell more tokens to raise the same amount. Selling more supply in a weak market further depresses the price, increasing the number of tokens needed next quarter. The treasury burns down faster than a simple drawdown suggests.
This is exactly the first question we ask every client: If the market falls for another 12 months, can your treasury still fund the roadmap?
Protection is Cheapest Before It's Needed
This is a clear pattern we observe on our OTC desk.
In bull markets, very few projects want to hedge because paying option premiums feels like sacrificing upside. Then the market sells off, and the conversation changes almost overnight. Suddenly everyone wants protection.
Unfortunately, that is also when protection is most expensive.
As shown in the chart above, implied volatility typically rises after market declines, driving up the cost of downside protection precisely when demand is highest. Financially, this is the equivalent of buying insurance when the storm is already overhead.
We've seen this play out repeatedly. Every client wishes they had hedged when volatility was low. But none can go back in time to do it.
Hedging should be seen as an ongoing treasury policy, not a last-minute panic call. You don't need to predict where the price will go next, only ensure that known liabilities can be funded regardless of market moves.
There is also more than one way to pay for protection. Because crypto asset volatility is typically more expensive than traditional assets, the structure we execute most often is the collar. A project sells a call option above the current price and uses the premium received to buy a put option below the current price. Ultimately, this sets a defined range for the project's tokens. Value is protected below the put strike price in exchange for giving up gains above the call strike price. If structured properly, the two legs can offset each other, allowing the trade to be executed at zero cost. This makes collars the hedging tool of choice for many projects, as outright put purchases consume the very reserves the hedge aims to protect.
A collar is not a sale because the project retains exposure within its chosen range. It trades away gains above the call strike for a known floor price. When dollar-denominated budgets are set a year in advance, collars can turn a volatile asset into a range the finance team can plan around.
None of this diminishes the case for acting early. A collar is a tool that provides protection starting from the day the token is priced. A project setting a floor when the token is $10 protects most of the value. A project waiting until the token falls to $4 ends up with a floor near $4. The structure is available in both cases, but it cannot recover what has already been lost.
Treasury Structure Determines Operational Runway
Projects that successfully navigate multiple cycles have treasuries with separate compartments, each with a clear purpose.
Operational reserves are held in cash or stable assets to cover salaries and operating expenses. Longer-term crypto holdings remain invested but are hedged where appropriate. Strategic positions stay intact without threatening the organization's survival.
The chart above illustrates the difference. A treasury held entirely in native tokens could lose years of operational runway in one significant drawdown. Separating reserves and protecting long-term holdings preserves much more operational runway, even without assuming any market recovery.
Survive first, then grow.
How GSR Can Help
This is exactly the area where we dedicate our efforts.
Every treasury is different. Liquidity, governance structure, vesting schedules, operational budgets, jurisdictional restrictions, and token concentration all influence how a treasury is built and the risks and trade-offs involved.
GSR works with foundations, DAOs, and protocols to provide OTC execution, collars and other custom derivatives, structured hedging solutions, and block trades. These transactions can be used to manage treasury concentration, market risk, and liquidity, tailored to the specific circumstances of the relevant treasury.
GSR's activity in these markets includes executing and structuring treasury transactions across different market conditions.
Our industry remains cyclical. The projects that ultimately stand out will be those that never stop building because their treasuries were built from the outset to withstand the valleys.
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