Concentration of reserves in own tokens: a hidden threat to decentralized organizations
My analysis of the latest data on the decentralized finance market has revealed a troubling trend: on average, 70% of DAO reserves are denominated in their own governance tokens. This is not just a statistical detail, but a fundamental structural risk that most projects underestimate.
The core of the problem lies in procyclical vulnerability. When the market declines, the drop in the native token's price simultaneously hits multiple fronts: collateral assets depreciate, protocol revenues shrink, and liquidity and trading activity plummet. As a result, DAOs are forced to sell even more coins to cover operational expenses—developer salaries, grants, and marketing. This forced sell-off further pressures prices, triggering a downward spiral.
Particularly telling is the behavior of projects during moments of crisis. Instead of proactively hedging risks, platforms turn to protective instruments only after prices have already collapsed. By that point, volatility reaches peak levels, and the cost of insurance—options, swaps, and other derivatives—becomes prohibitive. In essence, DAOs pay the maximum price for protection at the most inopportune moment.
The root of the problem lies in a false sense of security. Own tokens are perceived as a "native" asset, but in reality, they are most correlated with overall market conditions precisely when diversification is critically important. A rational approach requires that a significant portion of reserves be held in stablecoins or assets with low correlation to the native token.
My conclusion
Until DAOs reconsider their treasury policies, they will remain hostages to their own tokenomic models. Smart teams should already be budgeting for options and insurance policies as a mandatory line item, not as an emergency measure. Otherwise, the next bear cycle could prove fatal for a number of projects that today appear financially stable.