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