GSR: 70% of DAO treasuries are overexposed to native tokens, risking triple impact in a downturn

Author: GSR (Spencer Hallarn)

Compiled by: DeepChain TechFlow

DeepOcean Summary: The fatal flaw in DAO treasury management is being exposed—most assets are concentrated in native tokens, leaving protocols vulnerable to a triple blow of plummeting token prices, sharply reduced revenue, and collapsed on-chain activity when the market turns. Spencer Hallarn, Global Market Head at GSR, breaks down the survival strategy after the bull market fades—a must-read for anyone holding DAO tokens or participating in protocol governance.

Nearly 70% of DAO treasury assets remain concentrated in native tokens, exposing protocols to the risk of simultaneous declines in treasury value, revenue, and on-chain activity.

• The industry remains highly concentrated. Nearly 70% of DAO treasury assets are held in native tokens, exposing many projects to a single source of risk during downturns.
• Crypto treasuries are structurally procyclical. Since most projects retain the majority of their reserves as their own tokens, their treasury value, protocol revenue, and market activity often decline in tandem.
• Projects always hedge too late. Our OTC desk observes a surge in demand for downside protection after price declines, at which point option premiums have already risen, and any floor price set by the project is far below the token’s starting point.
• Protection doesn’t require selling. The collar strategy pays for downside protection by giving up some upside potential, rather than depleting stablecoins, allowing the project to maintain both its position and operational reserves.
• Treasury structure is more important than market timing. Separate operational reserves from long-term holdings and establish risk management policies to extend your runway before market conditions deteriorate.
• GSR is an active participant in the crypto treasury and risk management market. Our services include OTC execution, block trading, and structured derivatives—such as collar strategies and other hedging structures—for foundations, protocols, and other market participants.

At GSR, we have witnessed the same story play out repeatedly in every market cycle.

Crypto treasuries are inherently procyclical because most DAO treasuries remain heavily concentrated in their own tokens. Overall, over 70% of treasury assets are held in the project’s native token, with relatively low allocations to stable assets or diversified reserves.

We see the consequences of this configuration during every downturn.

When the cycle reverses and the token price declines, the treasury, originally intended to fund the roadmap, suddenly becomes the project’s greatest risk.

Given the current environment, we are having more of these types of conversations with clients than ever before. Clients are not only suddenly asking when the market will recover, but also whether projects have enough operational runway to continue building until the market rebounds.

The second challenge is structural.

As treasury value declines, protocol activity weakens, fee generation slows, and liquidity deteriorates in tandem. The treasury becomes least valuable precisely when it is needed most.

We see this across all timeframes. The team believed they had a treasury capable of sustaining itself in difficult markets, but both sides of the balance sheet were exposed to the same underlying risks.

Costs have not decreased with the drop in token price. Salaries, audits, infrastructure, and grants are all denominated in USD, so projects funding themselves by selling tokens must sell more tokens to raise the same amount. Selling a larger supply in a weak market further depresses the price, which in turn increases the number of tokens needed for the next quarter. The treasury is being depleted much faster than a simple drawdown would suggest.

This is the first question we ask every client: If the market declines for another 12 months, can your treasury still fund your roadmap?

This is a clear pattern we’ve observed on our OTC desk.

In a bull market, very few projects are willing to hedge, as paying option premiums feels like giving up upside potential. Then, a market sell-off occurs, and the conversation changes almost overnight. Suddenly, everyone wants protection.

Unfortunately, that’s also when protection is most expensive.

As shown above, after a market decline, implied volatility typically rises, increasing the cost of downside protection precisely when demand is highest. This is financially equivalent to buying insurance once the storm has already arrived overhead.

We’ve seen this scenario play out again and again. Every client wishes they had hedged when volatility was low. But no one can go back in time to do it.

Hedging should be viewed as an ongoing treasury policy, not a last-minute panic response. You don’t need to predict where prices will go next—just ensure that known liabilities are funded regardless of market movements.

There is more than one way to protect payments. Due to the typically higher volatility of crypto assets compared to traditional assets, the most common structure we implement is the collar strategy. The project sells a call option above the current price and uses the received premium to buy a put option below the current price. This ultimately establishes a defined range for the project’s token. Value is protected below the put strike price, in exchange for the project forfeiting gains above the call strike price. When properly structured, the two legs can offset each other, allowing the trade to be executed at zero cost. This makes the collar strategy a preferred hedging tool for many projects, as directly purchasing put options consumes precisely the reserves the hedge aims to protect.

The collar strategy is not a sale, as the project retains exposure within the selected range. It exchanges gains above the call strike price for a known floor price. When a dollar cost budget is established a year in advance, the collar strategy can transform volatile assets into a defined range that the finance team can plan against.

None of this diminishes the rationale for acting early. A collar strategy is a tool that provides protection starting from the token’s execution price. A project setting a floor at $10 when the token is priced at $10 protects the majority of its value. A project that waits until the token drops to $4 to act will have a floor close to $4. The structure is viable in both scenarios, but it cannot recover what has already been lost.

Projects that have successfully navigated multiple cycles have treasuries with separate, clearly defined portions.

Operational reserves are held in cash or stable assets to cover salaries and operating expenses. Longer-term crypto holdings are maintained as investments, supplemented with appropriate hedges when necessary. Strategic positions are preserved without jeopardizing the organization’s survival.

The diagram above illustrates the difference. A treasury held entirely in native tokens could lose years of operational runway during a sharp drawdown. By segregating reserves and protecting long-term holdings, significantly more operational runway is preserved, even without assuming any market recovery.

Survive first, then grow.

This is precisely the area where we invest our efforts.

Each treasury is unique. Liquidity, governance structure, vesting schedules, operational budgets, jurisdictional restrictions, and token concentration all influence how a treasury is structured, along with the associated risks and trade-offs.

GSR collaborates with foundations, DAOs, and protocols to provide OTC execution, collar strategies, and other customized derivatives, structured hedging solutions, and block trades. These transactions can be tailored to manage treasury concentration, market risk, and liquidity based on the specific needs of each treasury.

GSR's activities in these markets include executing and structuring treasury trades under various market conditions.

Our industry remains cyclical. The projects that ultimately rise to the top will be those that never stopped building, because their treasuries were designed from the start to weather the downturns.

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