Lending & Liquidity Provision
So far we have only talked about passive investments, but your treasury could also take a more active role and provide utility in the form of lending or liquidity provision (LP). This can be done fairly simply by depositing a single asset into protocols like Aave, which will manage the process of lending it out via collateralized loans and recovering regular repayments with interest.
Alternatively, your treasury could supply a pair of assets such as $ETH and your DAO token or $USDT-$USDC into a pool to facilitate good liquidity for traders. The most popular platform for this is Uniswap. In the first scenario, you are providing traders with $ETH in exchange for $DAO and vice-versa, earning a fee for every transaction.
💡 Uniswap offers two LP platforms: Uniswap V2 offers liquidity along an infinite price spectrum, meaning that a 50/50 asset pair can be deposited and left without active management, albeit for a lower yield. Uniswap V3 also allows LP from 0-infinity, but gives the option to restrict the range for a higher yield.
The risk here is that if one of the pair of assets appreciates strongly against the other, then traders will drain that side of your pool beyond your range, leaving you with 100% of the (relatively) unwanted asset, which might continue to lose value, while not generating any yield. For this reason it is strongly recommended to only provide LP for well-correlated assets so this likelihood is reduced. 💡
Whichever type of LP you choose, it is good practice (and good etiquette) to fund a pool for your DAO token and the L1 asset to earn fees, aid price discovery, and achieve a broad distribution.