Name: DAO/Foundation Nodes for Funding Operations
Category: Governance, Funding
Scope: Using DAO/Foundation Nodes for Funding
With the passage of RIP-000-018: Ren 2.0 funding and Ren Foundation and RIP-000-019: Round RIP-000-018 funding results, the DAO has voted to establish a Ren Foundation and mint 180 million new REN tokens to help fund Ren 2.0 development and ecosystem growth. With passage of RIP-000-020: Ren Foundation Domicile, the DAO is moving forward with a legal structure to support the continuing operations of the DAO and the transition to REN 2.0. The overall objective that ties these together is to move away from external funding from Alameda such that the REN DAO and community is self-funded. Using DAO/Foundation Nodes will support this effort by enabling us to have long-term perpetual funding of our development, governance, marketing, etc. operations.
In various discussions leading up to, and after, the votes for RIP-000-018 and RIP-000-019, there is a lot of controversy about how to use the new 180M REN tokens to fund operations (i.e., development, marketing, legal, etc.), but there doesn’t seem to be any clear consensus.
One option is to keep the number of possible nodes at 10,000 by increasing the bond per DN from 100K to 118K. So that this would not burden current DNOs, this option includes an airdrop of 18K REN to all “current” DNs with the balance of the 180M REN to be used for funding operations. This option is what was described in the RIPs, but it is nonetheless controversial since there is an ongoing debate on how to fairly determine the “current” DNs for purposes of the airdrop.
The second option being discussed is to keep the bond at 100K to avoid the appearance of unfairness by avoiding the airdrop altogether. Part of the rationale for this option is that there is no reason to keep the maximum number of nodes at 10K and that the entire 180M REN is kept for funding operations.
A potential issue with both options is that they appear to only be taking a short-term view of how continuing operations are funded. For example, what happens when the current funding of 180M REN is exhausted? Do we propose another funding round a few (or many) years from now? Do we look for another outside funding source? Do we keep using the current “haircut” process of allocating a percentage of earnings every Epoch from all DNs to generate future funding once current funding is exhausted or to supplement funding?
Because these long-term funding issues are not fully vetted, this proposal is being put forth to generate discussion and hopefully a consensus on how to proceed once the legal structure is fully operational.
Within the new DAO structure (e.g., board, managers, etc.), a portion of the new 180M REN should be used to set up Treasury DNs. This would replace the current haircut from all DNs to fund operations, allow transparent funding in perpetuity, and minimize the number of new REN that needs to be sold to fund short-term operations. This should be done in a very transparent manner, such that ongoing funding information from the Treasury DNs is always shared with the community. To increase incentives for supporting the REN community over the long-term, a portion of the Treasury DN income should be shared with all non-Treasury DNs in proportion to how long each DN has been in operation (up to a limited number of epochs).
As part of this proposal, the DN bond can be kept at 100K and the total number of possible nodes can be allowed to rise above 10K, but with the goal of burning / buying back most or all the 180M REN in the long-term. Whether all the 180M REN is burned or not can be determined later, but it would involve a decision on whether to keep the total number of possible nodes at 10K or just the total number of non-Treasury nodes at 10K.
Over time, the process of using Treasury DNs should provide significantly more funding for operational uses, e.g., development, marketing, etc. While this presents us with a dilution issue (i.e., more nodes mean smaller shares of total income per node), we could replace the current haircut from all DNs with a “bonus” for non-treasury DNs that is “balanced” to keep relative net income as consistent as possible. It also allows us to create incentives to reward long-term DNO support.
For example, if we assume there are currently 2,000 DNs that share in $800,000 of income per epoch, the gross income per DN is $400. If we assume that the current haircut is 5%, then $40,000 per epoch is allocated to the funding pool and each DN has a net income of $380. The haircut should be based on the per epoch funding that we should have been using if we were not using outside funding from Alameda so we get a more accurate comparison.
If we add, say, 200 Treasury DNs into the picture, then the gross income per DN is $364 and the total gross income for the Treasury DNs would be $72,727 per epoch. Assuming we only need a budget of $40,000 per epoch for operations then approx. 40% of the Treasury income could be allocated back to the non-Treasury DNs as a bonus, the net revenue for the Treasury is $43,636, and the net income per non-Treasury DN is $378.
While this example is intended to be realistic, the actual number of Treasury DNs and the share of the Treasury income allocated as a bonus to non-Treasury DNs will need to be based on projections and budgets. However, it also illustrates that this makes it possible to pay additional costs of running the Treasury DNs, increase the Treasury compared to the current situation so we can build up a war chest for unexpected development costs, marketing opportunities, and in the long-term buy back and burn the 180M new REN.
We should expect that the number of Treasury DNs and bonus share would change periodically, with the DAO proposing the numbers along with budgets and support for their recommendations so that all DNOs could vote on it. Other discussion points for these recommendations could include “What is the optimal share of Treasury DNs to avoid concentration issues?” and “How can this funding be used to expand the REN ecosystem and transactions for the benefit of all DNOs?” among others.
To avoid the potential concentration issues, we could add recommendations to the proposal such as limiting the number of Treasury DNs to between 10-20% of the non-Treasury DNs and noting that the Treasury DNs will have no voting power since they are for the benefit of all DNOs and the community.
Another potential benefit of this approach is that even though the DAO can mint another 180M REN, perhaps we can start with much less than the full amount and if the funding pipeline from the Treasury DNs is sufficient, and hopefully becomes more than sufficient, we won’t need to sell as much of the REN in the short-term and we will have fewer new REN to burn in the long-term to get back to the original 1B REN.
Regarding the allocation of the Treasury bonus per epoch, it seems appropriate to keep it simple but long-term focused. Since there were 35 full epochs prior to the “Alameda shutdown”, each DN should earn a share of the Treasury bonus based on how many of the “current” 36 epochs it has been in operation. Thus, a DN that has been operational for the full 35 “prior” epochs would get a full share, and a new DN that has only been in operation for 1 “new” epoch would get a 1/36 share of the Treasury bonus. For counting the “current” epochs, we would exclude the latest few epochs after the “Alameda shutdown” and start counting “new” epochs once the entire network is operational again (i.e., whether we can restart using version 1.0 or need to wait until 2.0 is ready). Thus, after the restart a DN could have a maximum of 35 “prior” epochs and 1 “new” epoch for a total of 36/36. For each subsequent “new” epoch, the oldest “prior” epoch is dropped from the “current” count, and once we reach 36 “new” epochs, the “prior” epochs will no longer be part of the “current” count.
A nuance of counting “current” epochs for a DN could arise if a DNO needed/wanted to transfer their DN from an old to a new wallet. For example, if they thought the security of the old wallet was compromised or they just wanted to move to a new wallet for practical reasons. In this case, we should allow the DAO to grant a “transfer” of the count from one wallet to another with sufficient documentation and proof. In this case, the 2-3 epochs when the old wallet was being deregistered would be excluded from the “current” count, so the “penalty” for transferring to a new wallet is just those 2-3 epochs and not having to start over at a 1/36 share of the bonus.
As a final thought on transparency, it should be possible to include the full Treasury DNs share of the epoch income on the Command Center along with the number of Treasury DNs and the bonus share for non-Treasury DNs. Similarly, for each DN accessed through the Command Center, their “current” epoch count could be shown along with their share of the bonus income. It would also be a nice improvement to show pending income from the current and prior epochs separately – i.e., the headings could become Withdrawable, Pending Epoch X, Pending Epoch X-1, Pending Bonus. Unlike the regular DN income per epoch, the bonus share would become withdrawable immediately and not split over two epochs.