RFC-000-016: Launch a Community Ecosystem Fund

Name: Launch a Community Ecosystem Fund
Category: Protocol
Status: Draft
Scope: Launch a Community Ecosystem Fund governed by the Ren community, financed by RenVM, used for investing in Ren ecosystem growth

Overview

To empower the Ren community to start growing the Ren ecosystem without the core team’s direct involvement, we propose to launch a Community Ecosystem Fund. This fund would be governed and managed by the Ren community, and could be used for anything Ren related that the community deems important. The goal of the Community Ecosystem Fund should be to further the growth of the Ren ecosystem, such as promoting or sponsoring the development of integrations of RenVM or Ren-wrapped assets.

To finance this Community Ecosystem Fund, we propose to reclaim part of the rewards that currently are spent as gas fees when claiming rewards every epoch from the Darknode Payment contract (DNP). In the last few epochs, we have seen about 10% of the rewards being spent on gas fees, which comes out to a little more than $100,000 per epoch across the entire network. If we can remove this cost, and have half of the savings finance the Community Ecosystem Fund, the Ren community would have more than $50,000 (at current volume) every month that could be spent on for instance grants for building out applications integrating RenVM, or on launching liquidity mining programs for new Ren-wrapped assets on Ethereum or other host chains. The other half of the savings will go back to the Darknode operators, leading to more rewards overall than previously.

TL;DR: Darknode operators see +5% in profit, and a Community Ecosystem Fund would see ~$50K/month worth of funding (which is an absolutely huge amount).

Background

Darknode Claiming

Right now, Darknode operators collect fees in discrete intervals through a process called “claiming”. Fees are paid to the Darknode Payment contract on Ethereum and at the end of the epoch 50% of the fees in that contract can be claimed by Darknode operators. However, for the claim to happen, each Darknode must explicitly submit an Ethereum transaction to call the claim function on the DNP contract.

The reason we currently require Darknode operators to claim each epoch, is to make sure inactive operators are not automatically getting assigned rewards that they can withdraw. In this current system, inactive Darknodes forfeit their rewards to the other Darknode operators.

Given the current gas fee climate on Ethereum, it is not economically acceptable to require each Darknode to claim every epoch, since the gas fees are about 10-20x more than the infrastructure cost of operating a node, and those gas fees go to the Ethereum miners, which does not benefit RenVM. Spending gas on claiming every epoch also prevents RenVM from implementing faster epochs (on the order of 24 hours, as opposed to 28 days).

Community Ecosystem Fund

Currently, there is no Community treasury to fund Ren ecosystem development. The most common way other crypto organisations fund ecosystem development, is through token inflation, or through fees. Given that all REN tokens are circulating, and that there are no plans to introduce inflation, the way to finance a Community Ecosystem Fund would naturally be through claiming a small portion of the rewards being generated by the RenVM network. For instance, Yearn Finance has a 2% management fee on all vaults, and a 20% performance fee that is taken out of all the profits [source]. These go to the Yearn treasury, which pays for developer wages, audits, etc.

Note that this proposal does not suggest that these rewards would go to the Ren team, or that the Ren team should receive grants from the Community Ecosystem Fund, given that the Ren team already is funded, and can in the future also be funded by setting up Darknodes. The proposed Community Ecosystem Fund that will be financed by RenVM, would be managed by the Ren community, which in turn should invest using the fund in the Ren ecosystem, ultimately increasing the volume through RenVM, which benefits the Ren community and Darknode operators, and other ecosystem participants as well.

Having the fund be financed by reclaiming part of the rewards that go to transaction fees is psychologically attractive as well because Darknode operators would still end up with more rewards per epoch, while at the same time the Ren community can be empowered to begin growing the ecosystem without the core development team being a bottleneck.

Details

A new Darknode Payment Contract will need to be written, that removes the need for Darknode operators to claim rewards each epoch. Note that withdrawing rewards, which can be done at any time, still involves a transaction fee, because you are transferring assets to your address, which will continue to be an unavoidable cost for now. But since you can decide whenever you want to withdraw, you can minimize the amount of times you withdraw over a year for instance, giving you the control to manage that cost yourself.

The new DNP contract will need to include a governable parameter for setting how much of the rewards goes to the Community Fund, which the Ren community can change through a proposal. The contract will also need to be able to set the address receiving those rewards, and have the ability to change that address if needed.

The initial reward percentage going to the Community Ecosystem Fund

We propose to initially set the reward percentage going to the Community Ecosystem Fund at 5%. We suggest that this is a good initial value as it’s currently half of the current rewards being spent on claim transactions, while we can let the other half go to Darknode operators increasing their monthly rewards. In absolute USD terms, it is also a good initial value as it roughly provides the Community Ecosystem Fund with >$50,000 per month, which is more than enough to attract/hire Community developer, offers grants for building out applications integrating RenVM, sponsor liquidity mining programs to bootstrap liquidity for Ren-wrapped assets, pay for audits, etc. If this amount being collected becomes too large and underutilized for some reason, it could always be sent back to the DNP contract and redistributed to the Darknode operators. On the other hand, 5% could be argued to be too small, as we’d might want to be more aggressive in investing in the Ren ecosystem, to increase future RenVM volume and hence receive higher rewards for the Darknode operators. A well-invested $20k on the development of a new DeFi application, only needs to generate about $100mm of RenVM volume over its lifetime, to provide returns on that investment for the Darknode operators. But given that we will need some time to build out community processes in place for governing, managing, and investing those funds, a too large initial value would likely lead to underutilized funds.

The initial Community Ecosystem Fund address

To start saving rewards being spent on claim gas fees as soon as possible, we propose to initially have the Ren team in control of the address which receives the funds, until we decide on and transition to a community-operated multisig, or something of that sort. The Ren team commits to not spending those funds that will accrue in that address, and will hand over the control to the Ren community as soon as we’ve set up community control of that address in a safe manner. If the community proposes that we should wait with this proposal, until we are able to set up a community-controlled address first, please discuss this topic.

How the community-operated address should be structured, and how to transition into that structure, needs to be drafted, and community input is crucial for that.

The governance of Community Ecosystem Fund would likely also need some kind of voting or signaling system, likely off-chain, which needs to be drafted and then developed. We suggest that the signaling system should only take into account the voice of the Darknode operators, because there is no way to technologically force the Darknode operators to adhere to any other kind of authority, centralized or decentralized, given that they are the ones running RenVM.

Implementation

  1. Develop, test, and audit the new Darknode Payment Contract.
  2. Decide through Community governance the initial parameters for the share of the rewards that will go to the Community Ecosystem Fund.
  3. Assign the initial Community Dev Fund address receiving the rewards.
  4. Migrate Darknodes to the new Darknode Payment Contract.
  5. Launch a platform for community signaling.
  6. Transition control of the Community Dev Fund address to a community-operated multisig.
11 Likes

I like the idea, but oppose “This fund would be governed and managed by the Ren community”, or better said, would prefer to break it down to “this fund will be governed by darknode ops”.

From the TL;DR: “Darknode operators see +5% in profit, and a Community Ecosystem Fund would see ~$50K/month worth of funding (which is an absolutely huge amount)”

Based on that, even though darknode ops would earn more fees if the claiming process were changed, they’d earn even more if no % was deducted for the dev fund.

Alas, totally support the idea of the “community fund”, but would rather call it “darknode fund” and have the governance in the hand of darknode ops only, as in the end they are the ones paying for it. Also, darknode ops should have a strong incentive to vote for decisions increasing renvm’s adaption and accrual of volume going through renvm, as they are the direct beneficiaries.

Just to clarify, when writing about governance, I explicitly only refer to governance about the “community fund” (which I’d prefer to be called darknode fund), not governance in general which isn’t set in stone yet and in my opinion may very well include community members and not just darknode ops.

7 Likes

In my opinion it should be less, e.x. 1% and it should be managed only by darknode operators.

3 Likes

Sounds a brilliant idea I would purpose a 1 darknode 1 vote for proposal for the what is used with the community fund . As those who run darknodes have the most skin in the game this would also stop the theoretical attack on a vote if was based on token holdings from an exchange or from someone borrowing from a lending pool

2 Likes

Fully support this initiative. I agree with 5% as well. Less than that would not be enough to have meaningful results. At the end, this will revert in more fees to us. We just need to see it as investment, specially, for long term holders.

3 Likes

In order to make a more informed decision, we should know what our relationship to Almeda Research is.

6 Likes

I am hugely in favour of this proposal. 5% is great however I would be happy pushing this further to 10% at the end of the day reinvesting this money in to generating more fees will end up with more fees. So it is a win win really. More dapps, more users, more fees, more growth. Any lower than 5% I don’t think would be as beneficial for developement. Happy for Ren team to be temporary custodians of the fund until we move to community controlled fund.

2 Likes

It would be good if we could hold votes to the wider community as well to inform the decisions of darknode operators. For the final vote, ultimately final decision should be down to the darknode operators

1 Like

I think community fund might be a better name, the main reason is we want to encourage ideas from outside of our own community aswell and the darknode fund does not sound inclusive to that. The final voting decision should still come down to Darknode holders but I think a more inclusive naming is better. After all it is just name.

2 Likes

We really need to know what our relationship to Almeda Research is. Would they have rights to a community fund.

2 Likes

Sounds good to me - it is needed and I see no other solution as of yet. Ok with the 5% for now - in future when we can lower or raise if needed depending on how volume increase goes.

1 Like

I fully support this proposal, but only if the the fund is being managed by actual Darknode operators.

They have actual skin in the game, they’re factually paying for the fund.

The reason we currently require Darknode operators to claim each epoch, is to make sure inactive operators are not automatically getting assigned rewards that they can withdraw. In this current system, inactive Darknodes forfeit their rewards to the other Darknode operators.

However, since operators need to be active (see quote), I propose a governing amendment which requires operators to vote in the allocation of such funds. Voting mechanism would be as simple as 1 Darknode = 1 vote.

2 Likes

While I like the idea in principle, It would be good to have a broader discussion/proposal on the scope of the fund and some more specifics. The devil is always in the details.

Some questions that immediately come to mind:

  1. What’s in scope for what the fund can invest in?

  2. Would this be a truly standalone structure or would resources be shared with the core team? For example would staff and dev time be provided by the core team to stand up and operate the fund or will all stand-up and ongoing resource costs be borne by the fund and its funders?

  3. Based on the position on question 2, What portion of the fund will go towards ongoing costs of “running” the fund vs given out in grants? Basically fleshing out specifics on these broadly suggested uses :point_down:

3 Likes

Yeah, speaking personally, I like the idea of having the general community in on the discussions and ideas, while the darknode operators are the ones doing the final decisions/voting, as it’s ‘their’ money.

We don’t want to exclude people who can’t afford the 100k REN to run a node, who could be brilliant people, and people we could give give grants to for some development work, but it’s also nice to have an extra incentive to get a Darknode so you do get a say in how the Fund invests in the ecosystem.

And imagine large investment funds who might have a large stake in REN, we wouldn’t want them to influence votes unless they have skin in the game, with REN locked up in bonds.

4 Likes

I don’t have a final say in this anymore than everyone else in the community does, but I can reply to some extent:

That’s 100% up to the community/darknode operators. As soon as we hand over the control, the Ren team could not do more than try to persuade the community if we think that a proposal would not be in everyone’s best interest (e.g. if there is a proposal to pay a competing protocol to build something that would steal volume from RenVM, we’d strongly voice against that, but we couldn’t physically stop you because we wouldn’t control the multisig).

A general principle I can think of is anything that benefits the long-term growth of the Ren ecosystem, and that is cost-effective (I don’t think a community yacht party would be a good investment, the community can do that with their own funds :sweat_smile:).

As I detailed in the post, we propose something truly standalone to the core Ren development team, resources not shared with the Ren team nor used to pay for our staff.

I’d personally recommend that we build up the processes and structure of the DAO first, before considering paying for the ongoing costs of “running” it, using motivated volunteers.

And in the future (~6 months from now) when the machine is running, and we are standing on firm ground, we can consider how to make sure the machine is well-oiled and incentivized continue to operate at a fast pace and effectively.

1 Like

I don’t understand, if we are part of Alameda, what is their role? We were told that it was to help with development. If that is true then what is the purpose of the fund?

3 Likes

What DAO are you referring to here? Do you mean the ecosystem fund as a DAO or DAO in the broader sense relating to the project as it moves down the path of Decentralization?

The more I think there are a number of prerequisites that we may need to iron out that would impact the purpose and structure of what a community fund would look like.

Like a number of others have stated there are still a number of outstanding questions around the operational and strategic impacts of the Alameda partnership as well as the overall plan on broader governance questions

2 Likes

I’m in support of this proposal. However, I think there are a few things that should be ironed out in terms of how the fund operates.

  1. Executive team/leadership to run the fund: The community should consider nominating an (incentivized team of individuals) to help run the fund, develop processes for vetting projects/teams, reporting to the community, etc.

This will be needed to keep the fund operating smoothly and making good decisions.

  1. Governance process: An official governance process should be drafted, presented and ratified by DN owners. This would involve determining how projects are approved for funding, oversight, procedures for when projects go wrong/aren’t delivered, payment, etc.

  2. A framework for priorities for development: Specifically where are the most vital areas required for development to help the ecosystem grow?

  3. Other funding sources: Additional funding sources for the fund beyond the re-purposed DN gas fees. For example will the fund be seeded with tokens from projects supported by the fund, etc.

Once these items are determined, then I think the DN owners will feel more confident about not only supporting this proposal but making sure it’s actually going to work as intended.

4 Likes

With DAO I mean the Community Fund for now, but I can see it being the first part of the bigger DAO in the future.

1 Like

We’ll have more answers for you later about the Alameda join but regardless I don’t think it’s relevant in this proposal. The purpose of this Fund would be to give more power to the community, let the proper DAO start to grow. If the community prioritizes something that the Ren team does not, this is the perfect tool to rectify that.

And the Ren team will continually invest in the Ren ecosystem aside from developing RenVM itself, in parallel to whatever the Community Ecosystem Fund could accomplish.

3 Likes