The Growth Program recently put forward a 2025 re-election vote. One of the objections to the election was the manner in which the tokens would be paid. This is a response to that line of discourse and hopefully a structure that can help additional projects helping Compound as well.
Feedback greatly appreciated.
TL;DR
Our goal is a proposed structure for the DAO to fund teams who put forward plans to improve Compound Protocol without requiring them to have spent years build credibility with the DAO to make sure they are trustworthy and not acting as malicious actors infiltrating the DAO.
To do so, we propose distributing funds to teams in a manner that combines the best of token cliffs, vesting, and clawbacks as described below. This structure will give teams the funding and autonomy they need to sink or swim from the moment they’re funded while keeping safeguards in place for the DAO to respond should the team make what’s deemed to be a malicious proposed use of funds.
The funding mechanism also prevents recipients being paid in governance tokens from centralizing DAO voting power and seizing control for their organization.
Potential Negative Outcomes when Funding Teams
When funds are irreversibly transferred from a DAO treasury to a community member or team who has promised to do work on behalf of the DAO, here’s a list of all the negative outcomes that could transpire.
Funding Risks
- Fraud: The team misappropriates funds for personal gain instead of delivering the promised product or service.
- Collusion: The team colludes with third parties to siphon off funds through inflated contracts or unnecessary expenses.
- Mismanagement: Funds are used inefficiently or misallocated due to poor planning or lack of expertise.
- Team Disappearance: Team members abandon the project after receiving funding.
Execution Risks
- Failure to Deliver: The project fails to meet deadlines or deliver a viable product.
- Lack of Transparency: Insufficient reporting or updates from the project team on progress or fund usage.
- Lack of Accountability: No mechanisms to enforce milestones or claw back funds if the project underperforms.
- Scope Creep: The project expands beyond its original mandate, requiring additional funding without delivering results.
DAO Governance Risks
- Malicious Voting: A majority of voting power is captured by a malicious actor or cartel, leading to decisions that benefit them at the expense of the protocol or community.
Proposed Funding Mechanism to Promote Benevolent Participation
AlphaGrowth will negotiate for the budget of the entire 2025 Compound Growth Program denoted in Dollars, such that the cost of service doesn’t fluctuate during the negotiation process. When the Growth Program’s budget is submitted for an on-chain DAO vote, the proposal will include an execution script that, rather than send a single transfer of COMP tokens to a wallet controlled by AlphaGrowth will perform the following operations. The script will:
- Split the approved growth program budget into eight chunks, each chunk corresponding to the business unit it will fund per the Growth Program Budget.
- The token budget corresponding to each business unit will be deposited into a Gauntlet designed Aera Vault. The Vault will be controlled by a Multisig whose keys are held by the members of the business unit. As AlphaGrowth hires leads for each business unit their keys will be added to the multisig.
- The Aera Vault will also have the following limitations:
- If governance tokens, the tokens in the vault will be unusable for voting.
- The vault’s budget will unlock in chunks. ⅓ on the day the vault is created, ⅓ 3 months after, and ⅓ after 6 months. This doesn’t mean the budget will be spent as soon as it’s unlocked, but provides a 6 month window in which to judge the competency of the business unit leadership before the DAO risks the business unit team having control over its full budget.
- For 1-year, the DAO has the ability to revoke the Aera Vault and reclaim its contents if the business unit’s performance is brought into question. At the end of the year the funds remaining in the Aera vault belong to the business unit as profit, and the units continuance depends on whether the DAO chooses to re-fund it based on the merit of whether it has hit its KPIs.
Team Upside Exposure
Teams are funded to make improvements to the Compound ecosystem which should raise the value of the ecosystem for its users. One way to reward teams for doing impactful work is to provide them the ability to take their budget in COMP token in order to have exposure to the token price.
If the DAO is against budgets in COMP alternative mechanisms can be created and put in place.
One mechanism would be to create KPIs with budgeted bonus up front. This way if token price goes down the team has the budget to sufficiently perform its duties even if the price of the token declines. If the token price increases the associated bonus can be clawed back or distributed at the end of the engagement.
An alternative way to align incentives with ecosystem contributors is to provide them an Options contract to purchase COMP, for a duration of 1 year at the price that COMP was on the day the proposal passed.
In scenarios in which the amount starts to create governance concerns, a similar mechanism can be used with AERA vaults to limit governance and vesting. For example COMP purchased through the option could return to the AERA Vault and could be held there without voting power. To withdraw it from the AERA vault the team would need to convert it to another token (in order to prevent unchecked governance voting power centralization)