Executive Summary
A treasury allocation is a governance-authorized on-chain action that transfers protocol-controlled assets to a recipient for a defined purpose. Allocations are enforced deterministically by smart contracts, but their real-world outcomes depend on off-chain delivery by recipients.
This page defines:
- the allocation accounting model
- an evaluation framework for allocation decisions
- security and failure modes
- verification and audit methods
Let:
- (T) = treasury balance before allocation
- (A_k) = allocation amount of proposal (k)
- (T’) = treasury balance after allocation
Single allocation update:
[
T’ = T - A_k
]
Over (n) allocations:
[
T_n = T_0 - \sum_^ A_k
]
Where each (A_k) is executed by a governance proposal payload.
2. Allocation Taxonomy
Treasury allocations generally fall into categories:
- Ecosystem Development — applications, integrations, SDKs.
- Protocol R&D — security research, audits, economic modeling.
- Infrastructure Support — operator tooling, monitoring, reliability improvements.
- Community Programs — education, onboarding, documentation, events.
- Strategic Interventions — bootstrapping demand or supply where markets underprovide.
These categories are conceptual; on-chain execution is simply calldata.
3. Evaluation Framework
Treasury allocation is a decision under uncertainty.
Define an allocation proposal (k) with expected outcome function:
[
Outcome_k = g(Impact_k, Feasibility_k, Risk_k, Alignment_k)
]
A practical decision function is:
[
Score_k = w_1 Impact_k + w_2 Feasibility_k - w_3 Risk_k + w_4 Alignment_k
]
Where (w_i) are governance-chosen weights.
3.1 Impact
Measures the expected improvement to protocol objectives such as:
- increased network demand (fees)
- improved operator participation (bonding)
- strengthened security posture
3.2 Feasibility
Assesses execution likelihood given:
- technical scope
- team capability
- delivery timeline
3.3 Risk
Captures:
- execution risk
- adversarial risk
- opportunity cost
3.4 Alignment
Ensures outcomes strengthen protocol-level objectives rather than private value capture.
4. Governance Security Model
Allocations inherit governance security.
Let:
- (B_T) = total bonded stake
- (\theta) = fraction required to control governance outcome
Capital required for control:
[
Capital_ \ge \theta B_T
]
Treasury safety therefore depends on stake distribution and participation.
5. Failure Modes and Risks
5.1 Protocol-Level Failures
- calldata errors
- insufficient treasury balance
- target contract reverts
5.2 Governance-Level Failures
- capture by concentrated stake
- low quorum / low participation
- rushed proposals with insufficient review
5.3 Outcome-Level Failures
Because delivery is off-chain:
- recipients may fail to deliver
- outcomes may be unverifiable
- incentives may misalign
Treasury can enforce transfer, not performance.
6. Verification and Audit Model
Verification splits into two domains:
6.1 On-Chain Verification (Deterministic)
Confirm that:
- proposal executed successfully
- transfers occurred
- recipient address matches intended target
- treasury balance decreased by (A_k)
This is verifiable via transaction logs and state reads.
6.2 Off-Chain Outcome Verification (Non-Deterministic)
Outcome verification requires:
- milestone reporting
- public deliverables (code, docs, deployments)
- reproducible evidence of impact
Treasury governance should prefer allocations with measurable, auditable outputs.
7. Diagram — Allocation Lifecycle
8. Protocol vs Network Separation
Protocol (On-Chain):
- allocation authorization and execution
- deterministic transfers
- on-chain audit trail
Network/Off-Chain:
- recipient delivery
- ecosystem impact
- outcome measurement
Treasury controls assets on-chain; results depend on off-chain execution.
References
Last modified on February 23, 2026
