Ethereum News Today: Ethereum-native treasuries seen as DeFi game-changers but face centralization legal risks Bernstein

Bernstein analysts have identified Ethereum-native treasuries as a transformative yet risky segment within decentralized finance (DeFi), with the potential to challenge traditional financial institutions despite significant hurdles. These protocols, designed to help decentralized autonomous organizations (DAOs) manage and deploy on-chain capital, are positioned as a "most promising and underexplored area" in DeFi [1]. The report highlights their ability to offer real-time capital execution, transparency, and composability—features that could enable them to rival asset managers and financial operating systems in influence and value. However, the analysts caution that the sector faces critical challenges, including centralization risks, legal ambiguities, and governance vulnerabilities.

The protocols, such as Karpatkey, Llama, and Avantgarde, operate using smart contracts to allocate liquidity, generate yield, and execute grants. Unlike traditional financial systems, they integrate diverse strategies—from yield farming to staking—into automated, permissionless frameworks. Yet, Bernstein notes that many treasury DAOs are controlled by a small group of delegates or core contributors, raising concerns about accountability when managing large public funds [1]. This concentration of control undermines the decentralized ethos of DAOs and could deter institutional adoption.

Legal uncertainty further complicates the landscape. The report emphasizes that liability for asset mismanagement in decentralized structures remains undefined, creating a barrier for protocols seeking to scale. For instance, it is unclear who within a DAO would be held responsible for governance failures, a problem that intensifies as strategies grow more complex. "Ethereum-native treasuries are effectively unregulated asset managers," the analysts write, warning that this lack of legal clarity exposes them to enforcement risks or internal governance breakdowns [1].

Despite these risks, Bernstein believes the category could mature as DAOs adopt professional financial tools and regulators begin to establish clearer standards for decentralized entities. The report draws parallels to the early growth of hedge funds, suggesting that Ethereum-native treasuries could evolve into multi-billion-dollar businesses serving as the financial backbone for decentralized ecosystems. This trajectory hinges on overcoming scalability challenges, particularly in maintaining decentralization while ensuring compliance with emerging regulatory frameworks.

The analysts acknowledge Ethereum’s foundational role in this evolution. As the leading platform for DeFi innovation, Ethereum’s infrastructure supports protocols that optimize liquidity and automate capital deployment. Recent inflows into Ethereum-based exchange-traded funds (ETFs)—$4.1 billion in the past 10 days—underscore the network’s capacity to underpin next-generation financial applications. However, Bernstein stresses that Ethereum’s transition to proof-of-stake and layer-2 solutions must address rising demands for speed, cost efficiency, and security [1].

Critics argue that the hype around Ethereum-native treasuries may outpace practical use cases. For DAOs to gain traction, they must address gaps in user education, interoperability with traditional finance, and alignment with evolving regulations. While the long-term vision is compelling, Bernstein cautions that the path to mainstream adoption will require navigating a complex interplay of technological, legal, and market risks.

Sources:

[1] [Ethereum-Native Treasuries Tipped To Rival Wall Street, But Face Major Risks: Bernstein](https://www.benzinga.com/crypto/cryptocurrency/25/07/46655947/ethereum-native-treasuries-tipped-to-rival-wall-street-but-face-major-risks-bernstein)