(INVALID) PIP-38: Proposal for Pocket Network Governance and Economic Reform (REVISED)

Proposals Improvements
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:rotating_light: NOTE FROM PNF: In order to be in compliance with PNF’s bylaws, the specific contents of amendments to POKT’s Constitution and PNF’s Articles need to be presented before calling the vote. This proposal in it’s current state does not comply, as it merely gives “examples” of changes, instead of word specific changes. @o_rourke will need to revise this proposal and resubmit to the DAO for a vote. Click HERE for more info.

Major changes: Based on community feedback on the original proposal I have consolidated some of the sections in the Constitution in the Articles. I have reduced the 24 month carte blanche sole directorship of the Foundation to 6 months, with the ability for the DAO to remove the sole director if needed. I have included the ability for the DAO to vote in two new directors when the first price-based milestone (Section 9) is completed. I have removed the ability for the sole director to appoint new directors. Lastly, I have ensured that through the Articles the Foundation must submit quarterly transparency and spending reports.

*The amendments are examples. If this proposal is passed I cannot move forward without consulting legal for precise verbiage and efficiency of language. If this proposal is passed I will update the respective Foundation Github repositories to reflect these changes for all to review.

Attributes

Table of Contents

  1. Summary
  2. Motivation
    1. Fundamentals
    2. Challenges
    3. My Economic Philosophy
  3. Specification
    1. Parameter Changes
      1. Target non-DAO Inflation
      2. New Chain Emissions
      3. Node Runner Minimum Stake
      4. DAO Allocation
      5. Burn For Gateways (ARR)
    2. Execution Plan for the Foundation
    3. Current Constitution and Proposed Adjustments
      1. Section 6.3: PIP Votes
      2. Section 6.8: Majority Approval for Parameters
      3. Section 7.2: Distribution of Treasury Funds
      4. Section 8.11: Protocol Upgrades
    4. Current Articles and Proposed Adjustments
      1. Article 1.5: Requirement for DAO Resolution
      2. Article 4.5: Appointment of Directors
      3. Article 4.6: Resignation from Other Positions
      4. Article 4.8: Removal of Directors
      5. Article 4.17: Compliance with DAO Resolutions
      6. Article 4.38: Director Compensation
      7. Article 4.42-4.44: DAO Oversight on Foundation Spending
      8. Article 6.3-6.6: Appointment of Supervisors
      9. Article 6.8: Removal of Supervisors
      10. Article 6.17: Compliance with DAO Resolutions
    5. Planned Parameter Changes
    6. Marketing Strategy
    7. Workstreams
    8. Cultural Shift
    9. Compensation Package
  4. Dissenting Opinions
  5. Conclusion
  6. Copyright

Summary

We decentralized Pocket Network too early in its lifecycle. The decision to launch the DAO shortly after Pocket’s launch and subsequent decision to separate the responsibilities of Grove (formerly Pocket Network, Inc.) in two entities, in mid-2022, was partly legal and mostly philosophical. Building the network from the United States, we needed to give control to the community as soon as possible to avoid the ire of the SEC. More importantly, we are creating institutions. Having one person be the final decision maker for a protocol that is cross-border and has no opinion on jurisdictional laws results in a fragile system.

In this vein, we opted to give as much to the community as possible which led to many unquantifiable benefits for the community. It’s difficult to determine the cause-and-effect relationships but I believe from people building out products and gaining votes, there was and continues to be an unquantifiable benefit from stakeholders sticking around the last two years and continuing to build.

The first proposals to reduce inflation were seminal for Pocket Network. These were purely community driven. The involvement of everyone within these proposals is one of the things I am most proud of –- it felt that it was possible to involve a truly democratic DAO to push forward long term beneficial changes.

In addition, until January 2023, the entire operational burden of the network was under Grove. As we evolved the business at Grove, stepping down from the Foundation made sense. Grove focused on the business, while the Foundation was operationalized to focus on the network. This further decentralized Pocket, giving agency to an organization with no legal ties to Grove. Over time, PNF formulated its own vision and road map, which it has been executing to this day.

In hindsight, this was the wrong decision. We prematurely decentralized the DAO and the Foundation.

In 2022, Pocket Network had not reached true product market fit, despite relay growth and price telling us otherwise. Fully decentralizing the network has slowed us down in decision-making and fractured priorities at Grove, PNF, and the community:

  • Grove has been focused on revenue, quality of service, and shipping Shannon
  • PNF has been focused on long-term adoption of gateways, governance, and liquidity
  • The DAO has been focused on tweaking the economic parameters of the protocol

The result of these decisions lies before us. While we had reached all-time highs for the price of $POKT in 2022, the fact is that the network has been at risk of stagnation. I helped set a culture that has always under-indexed the price of $POKT in favor of building the products that drive usage and adoption for developers. This has led to a lack of prioritization of economic mechanisms and marketing efforts to drive the adoption of the network for $POKT token holders. The key learning I have had over the last two years is that the price of $POKT is the ultimate arbiter of our success. We can have all of the adoption in the world, but we will fall behind companies with more capital to invest because they are more liquid and are worth more than Pocket Network. If Pocket Network was worth billions of dollars today, I wouldn’t be advocating for this change.

It is under this backdrop that I have made the decision to submit this proposal to take over as steward of the Pocket Network Foundation. My proposal is the following:

  1. Re-elect me as the sole director of Pocket Network Foundation
  2. Give the Foundation sole discretion over as the DAO treasury and the ACL address to make parameter changes to Pocket Network
  3. An incentive-based compensation package based on shipping Shannon and the price of $POKT

I am advocating for taking control of the economic parameters of the protocol to be able to sprint. I am advocating to control the DAO treasury to continue to distribute POKT to the community for the hard work being done. I do not claim to have all the answers. I am a left-curve founder. It would be irresponsible of me to make changes in a smoky, back room without the brilliant people of this community poking holes in my, or anyone else’s ideas.

I believe I am the right person to drive the growth of this vision, because I have led the only team that has built not one, but two versions of Pocket Network, has sourced, sold, and driven the overwhelming majority of network traffic over 4 years, and have built our entire business, generating millions in revenue over the last 2 years, on top of a web3 backend.

On the current Foundation

I am not disparaging the Foundation’s efforts or integrity. I would keep several of the core work streams that are currently in flight and are critical to our success. This includes the following:

  • Multichain $wPOKT efforts
  • Gateway-verse
  • Exchanges
  • POPs and Sockets
  • Incorporating community contributions

That said, we need to reset the culture and have unified leadership under one vision.

Specifically, I am interested in doing the following at a high level, with the details of the changes specification section of this proposal:

Helping the Supply Side (Node Runners)

  • Change the number of maximum chains/services that can be staked per Pocket node
  • Adjust the network inflation rate to be temporarily higher in times of high traffic periods

Helping the Demand Side (Gateways)

  • Increase the emission rate of newly launched chains/services to be 10x higher for six months
  • Full rebates for the gateway fee mechanism to remove barriers to entry for gateways

Helping the Protocol

  • Taking leadership of the Foundation
  • Increase the DAO Allocation
  • Implement a concrete marketing strategy to drive net new POKT purchasers
  • Reposition Pocket Network to be more AI-forward

Aligning incentives

  • A milestone-based grant for shipping Shannon
  • An incentivized compensation package based on the price of POKT

The motivation for this proposal revolves around being able to push my vision for this protocol more quickly, assuming we agree on my philosophy for turning this around. I care more about the “why”, not the “how”. Ultimately, to maximize our odds of success, you can boil this proposal down to my belief that we need unified leadership and execution at this crucial time for Pocket Network.

Motivation

When I, and my original co-founders, first designed Pocket Network as a system, the DAO and Foundation were critical parts to the eventual resilience and success of the protocol. A slower moving democratic DAO is meant to provide the checks and balances for a Foundation that has more autonomy is necessary for a foundational protocol providing decentralized access to data across the open internet.

Fundamentals

Every POKT token holder will agree that we have some of the best fundamentals in the industry. Some highlights are:

  • Shannon, a full rewrite of Morse, and a true technological innovation, is expected to launch this year.
  • We have multiple gateways excited to build on top of Pocket, despite it being permissioned and difficult.
  • We are no longer just RPC - Grove’s AI pilot is in flight, with our Litepaper released.
  • Our forum, consistently active, has some of the smartest and deepest-thinking community members in the space.
  • $POKT is one of the most decentralized cryptocurrencies in the world - to my knowledge no one person or entity owns more than 7% of the supply.
  • $POKT is effectively fully unlocked - we have never played low-float games.
  • Grove’s Quality of Service is world-class. We have multiple centralized RPC providers as customers of ours.
  • Grove has material, growing revenue despite a hypercompetitive market where many RPC providers provide it for free.
  • To my knowledge, Grove is the only web3 infrastructure company in the world that has an SLA with hundreds of paying customers fully dependent on a permissionless protocol.

When I see on x.com “when $5 POKT”, the above fundamentals are why I believe this is possible, but the market doesn’t reflect this reality. I share the same immense frustration as all $POKT holders. I believed the market would acknowledge what we have built, and lead to a natural value accrual. This has not proven to be the case. We need something to change.

Challenges

Here are the primary challenges I am seeing today:

  • The first, and most important - We have no new demand for the token.
    • Suppliers don’t earn enough APY/APR to justify net new buyers of $POKT coming in.
    • Gateways are not enough of an offset alone to drive value accrual to $POKT in the short to medium term.
    • Gateways allow $POKT to find an eventual equilibrium and provide stability for both the supply and demand of the token.
  • We have tens of thousands of $POKT holders who believed in us, and now are down big or have exited the ecosystem.
  • The above point has led to Pocket Network having a perception problem across the broader industry. I have personally heard from investors (and I speak to nearly everyone), that people think Pocket Network is dead or dying, that the service is not good, that we move too slow, bad tokenomics, etc.
  • Governance moves too slowly to adapt to changing conditions.
    • We have 60+ DAO voters managing $100M (at time of publication) in market cap, which is a bureaucratic nightmare.
    • While these checks and balances are important for governing a protocol that is worth many billions of dollars, the reality is that we have to go through too many processes to make decisions, and even more to iterate if they need to change.
  • Liquidity has always been bad. I’d argue the best, and most liquid time to be able to buy and sell POKT was when it was just through the various OTC telegram chats.
  • We have not been good at capturing the narrative. The only time we truly did was when relays went from 10M a day to over 1B in 10 months. Decentralized RPC was new, and we were the first to prove it was possible at scale. We have been hanging on this since 2022 and it’s old news.

Every $POKT holder who is still here believes in our mission. You see the hard work happening. At the end of the day the mission doesn’t matter if $POKT price performance doesn’t reflect the work we are doing. Pocket Network will die, and we’ll see competitors end up being the winners in the market.

Grove, who are the primary architects and customers of the protocol, and who have been able to build a business under these conditions, believe the following to be true about Pocket Network:

  • There will be a cambrian explosion of services that POKT will be able to serve, with each new service increasing the total addressable market of the network
  • Pocket Network is positioned to settle traffic for all manner of these open-source platforms, be it blockchains, LLMs, social protocols, storage protocols, etc.
  • At the current stage of the network, all barriers to attracting gateways must be removed to help drive current and future demand
  • At the current stage of the network, all barriers to diversifying the number of specialized infrastructure providers must be removed to help service this expected demand

Pocket Network has the potential to become a runaway train. Part of the motivation behind this proposal comes from my belief that we need to drastically shift our economic philosophy.

We can and should fix this.

My Economic Philosophy

George Soros defines the negative feedback loop we’re experiencing as Reflexivity, Market participants’ perceptions influence market fundamentals, which in turn influence participants’ perceptions.

We have been in a negative feedback loop with the price of POKT since the introduction of WAGMI. For those who remember, POKT price was driven purely by supply side incentives and demand for the POKT token. Before WAGMI, dynamic inflation, and had the expectation of “the tenthening” - when we hit 1B POKT, the POKT minted per relay would be cut by 10. At the time, the price of $POKT made the tenthening too extreme of a cut. We all agreed that the existing rate of inflation was unsustainable - yet the introduction of a stable inflation has removed us from one of the most important cryptonetwork properties, reflexivity.

Reflexivity has had us experience all of the downside and none up the upside. I want to bring Pocket Network back to creating economic opportunities for net new $POKT purchasers in a safe and sustainable manner.

In addition, we need to introduce resilience mechanisms that will address the downside effects of reflexivity and instill confidence in the economics of Pocket Network. Nassim Taleb calls this anti-fragility and defines it as such:

“Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors.”

We need to shock ourselves out of our situation and we believe we can do that by having more flexibility to experiment with parameters that govern the tokenomics of the protocol without litigating every change.

We do this by enabling a bottom and upper limit for inflation and immediately adjusting to the lower limit when we hit the upper limit. We keep our lower limit at ~5%, and do not adjust inflation rates until we hit 50%. We then cut back to 5% immediately. This dynamic, like parts of the world that need to deal with natural disasters, embrace the reflexivity of crypto while introducing shocks to the system that participants can get accustomed to.

If I am successful in retaking my role in the Foundation as its Executive Director, I plan on immediately adjusting parameters on Morse that deliver this shock. We cannot control the crypto market, we cannot control the macro market; we CAN control the incentives and dynamics of Pocket Network.

Specification

Parameter Changes

We’re going to move fast and iterate on all parameter changes. The proposals below are a starting point but expect them to change if things don’t work. In the same way that startups iterate fast, experiment and adapt based on user feedback, we can use the price of $POKT to ignore what doesn’t work and double down on what does. We’ll make sure to communicate everything ahead of time as changes are introduced.

Note that the details below are here to provide a rough idea of the parameters and values that’ll be used, but will be modified as a result of network traffic. We will share a spreadsheet of our plans & calculations in due course.

1. Target non-DAO Inflation

  • On-chain parameter: RelaysToTokensMultiplier
  • Target Start Value: 20%
  • Target Reset Value: 10%
  • On-chain value: RTTM will be initially adjusted to achieve 20% inflation based on today’s relay volume (i.e. network traffic). A combination of traffic growth and time-bound evaluation, it’ll dictate how these parameters will continue to change. For example, we’ll readjust if traffic jumps and aggregate inflation goes to 30%. If traffic does not change for 6 months, we will reduce inflation. Further details will be shared with the community along the way.
  • Reasoning: To leverage reflexivity and market dynamics. RTTM is currently adjusted weekly regardless of network traffic. By adjusting RTTM when the protocol grows, we can take advantage of increased rewards for node runners as traffic grows.

2. New Chain Emissions

  • On-chain parameter: RelaysToTokensMultiplierMap
  • Target Start Value: 10x RTTM
  • Target End (Reset) Value: Baseline RTTM
  • Proposed Change: Add an entry to RTTMMap for every new chain introduced. Six months after it is onboarded, it’ll be removed from the map and default to the baseline RTTM. Note that while evaluating the impact of this change, we’ll explore other thresholds (e.g. trailing average of traffic) as an alternate signal to reset the value as a function of our learnings.
  • Reasoning:
    1. Bootstrapping Tax - Launching a new chain on POKT Network has a chicken-egg problem. Each new chain must be bootstrapped onto the network by the Gateway onboarding it, leading to an upfront off-chain expenditure/tax. This tax must be paid until sufficient demand is brought online by one or more gateway customers, which takes weeks to months to generate.
    2. Network expansion - By increasing the emission rate during a chain launch window (e.g. 3 months), and then progressively lowering as critical adoption is reached on the network, the burden of onboarding new services is lessened. This makes it more cost-effective for gateways to launch chains, and their ability to negotiate deals that are orders of magnitude lower than centralized providers

3. Node Runner Minimum Stake

  • On-chain parameter: StakeMinimum, ServicerStakeFloorMultiplier
  • Current Value: 15,000,000,000 uPOKT == 15,000 POKT (~$1,200 at $0.08 per POKT).
  • New Value: 5,000 POKT (~$350 at $0.07 per POKT).
  • Reason: Lower the barrier to entry for new node operators, encouraging greater participation and decentralization. This number is high enough to avoid a disincentive for existing POKT holders to exit their stake, yet materially reducing the barrier of entry for new POKT purchasers. If successful in value capture, we would continue adjusting this parameter to keep the value of running a POKT node within the $250 - $500 range. Note that the Stake Weighted floor would be adjusted in accordance StakeMinimum, while ServicerStakeWeightCeiling will remain at 60,0000 POKT until we see opportunity to adjust it for network growth as well. Implementation can be found here.

4. DAO Allocation

  • Current Value: 10%
  • On-chain parameter: DAOAllocation
  • New Value: 75%
  • Adaptation: We will adapt this parameter to maintain Node/Validator inflation aligned with the current schedule as annual inflation id adjusted.
  • Reasoning:
    • This will become a perpetual funding source to fund protocol development and ecosystem initiatives.
    • The protocol team has always been funded by Grove. Due to having to split our funds between building the business, and building the protocol, we have not always been able to recruit or retain the level of talent we need. This will go a long way in addressing this issue.
    • I plan on supporting many of the existing public goods initiatives and using this larger DAO take to help fund them and future ones.

5. Burn For Gateways (ARR)

  • Current Value: $0.00000085 per relay ($0.85/million-relays)
  • New Value: $0.00000085 per relay but with full rebate from DAO treasury
  • Reasoning: As mentioned above, Grove’s goal is to grow the number of gateways sending traffic to POKT in a sovereign way, and we want to remove all barriers to entry. Having to account for the cost of a protocol burn at this stage of the project is prohibitive to onboarding new gateways, especially those that are starting out and don’t have a large POKT treasury to start with.

Execution Plan for the Foundation

DAO Treasury and Parameter Execution

Put the DAO and Constitution on pause with all governance mechanisms for 6 months. Every 6 months, the DAO has the ability to vote out the sole director and reinstate the original constitution and articles. The DAO may also vote in 2 new directors once the second milestone in section 9 is complete.

Current Constitution and Proposed Adjustments

Section 6.3: PIP Votes

Current Section:

6.3 PIP votes will last 7 days and pass with Majority Approval, unless otherwise specified in this Constitution.

Proposed Adjustment: Allow the sole director to bypass PIP votes while in place.

Example:

6.3 The sole director shall have the authority to implement changes without requiring PIP votes to last 7 days and pass with Majority Approval.

Section 6.8: Majority Approval for Parameters

Current Section:

6.8 All other On-Chain parameters not specified above will be governed using Majority Approval in votes lasting 7 days.

Proposed Adjustment: Allow the sole director to govern all On-Chain parameters without majority approval while in place.

Example:

6.8 The sole director shall have the authority to govern all On-Chain parameters without requiring majority approval in votes lasting 7 days.

Section 7.2: Distribution of Treasury Funds

Current Section:

7.2 It is forbidden to propose or approve unconditional general distributions of the Pocket Core DAO Treasury to token holders, which may be misconstrued as dividends.

Proposed Adjustment: Allow the sole director to manage the distribution of Treasury funds while in place.

Example:

7.2 The sole director shall have the authority to manage the distribution of the Pocket Core DAO Treasury funds without restriction.

Section 8.11: Protocol Upgrades

Current Section:

8.11 Protocol Upgrades (including changes to the ACL) will be approved by the Council according to the PIP process.

Proposed Adjustment: Allow the sole director to approve Protocol Upgrades without the PIP process while in place.

Example:

8.11 Protocol Upgrades (including changes to the ACL) shall be approved by the sole director without requiring the PIP process.

Current Articles and Proposed Adjustments

Article 1.5: Requirement for DAO Resolution

Current Article:

1.5 Unless otherwise specified herein, no Ordinary Resolution or Special Resolution passed by persons entitled to attend and vote at a general meeting shall be valid or take effect until such Ordinary Resolution or Special Resolution has been approved by Supermajority DAO Resolution.

Proposed Adjustment: Remove the requirement for Supermajority DAO Resolution approval.

Example:

1.5 All Ordinary Resolutions or Special Resolutions passed by persons entitled to attend and vote at a general meeting shall not require approval by Supermajority DAO Resolution and shall be valid and take effect upon passage.

Article 4.5: Appointment of Directors

Current Article:

4.5 Subject to Article 4.6, a director may be appointed by Ordinary Resolution. Where a director has for any reason either been removed or has resigned, the directors of the Company may appoint a temporary director to fill such vacancy until such time as the DAO shall direct the appointment of a new director by DAO Resolution.

Proposed Adjustment: Allow the DAO to appoint new directors once the $0.50 milestone is hit.

Example:

4.5 The DAO shall have the option to appoint new directors once the $0.50 milestone is hit.

Article 4.6: Resignation from Other Positions

Current Article:

4.6 Notwithstanding any other provision in these Articles, any person appointed as a director must resign from any positions of executive or managerial authority in the DAO before being appointed to their role as director.

Proposed Adjustment: Suspend the requirement for directors to resign from other DAO positions.

Example:

4.6 Any person appointed as a director shall not be required to resign from other positions of executive or managerial authority in the DAO.

Article 4.8: Removal of Directors

Current Article:

4.8 A director may be removed by Ordinary Resolution.

Proposed Adjustment: Allow the sole director to be removed by Ordinary Resolution every six months.

Example:

4.8 The sole director may be removed by Ordinary Resolution every six months.

Article 4.17: Compliance with DAO Resolutions

Current Article:

4.17 Subject to any limitation imposed on any director pursuant to each director’s fiduciary duties to the Company and all applicable law and these Articles, the directors shall observe, implement, carry out, action and execute with best efforts any and all DAO Resolutions.

Proposed Adjustment: Suspend the requirement for directors to comply with DAO Resolutions.

Example:

4.17 The directors shall not be required to observe, implement, carry out, action, or execute DAO Resolutions.

Article 4.38: Director Compensation

Current Article:

4.38 A director or officer shall only be remunerated for services rendered. Any agreement between the Company and a director or officer concerning the remuneration of such director or officer shall be null and void where such agreement: (a) entitles such director or officer to participate in any distribution, dividend or transfer of assets of the Company or awards or entitles such director or officer to any profits or any assets of the Company, except where the transfer or entitlement of assets is in the form of a POKT token grant subject to at least 3 years vesting; or (b) sets the remuneration according to a percentage of the turnover, income, profits or earnings of the Company; or (c) agrees to remunerate the director or officer for an aggregate sum exceeding US$300,000 per annum (as of January 2023), adjusted annually for inflation by reference to the Consumer Price Index as measured by The Bureau of Labor Statistics, where such aggregate sum includes the annual vesting amount of any POKT token grant, and the value of the per annum vesting of such POKT grant will be determined by the prevailing market price as at the time of the grant and shall not exceed 50% of the director’s US$ salary.

Proposed Adjustment: Allow new compensation agreements for directors and officers, including performance-based incentives.

Example:

4.38 The sole director may establish new compensation agreements for directors and officers, including performance-based incentives tied to the price of $POKT, without being subject to the existing limitations in Article 4.38.

Article 4.42-4.44: DAO Oversight on Foundation Spending

Current Article:

4.42 Financial transparency reports should be published quarterly by way of DAO Notice within the first 4 weeks following the end of the previous quarter. These should include management accounts showing actual spending vs the budget, an updated balance sheet, and cash flow forecast.

4.43 Annual budgets should be published by way of DAO Notice at least 4 weeks prior to the start of the 12-month period to which they relate. The budget should include director remuneration reported on a per-director basis, total contractor remuneration, and any other material expenses categorized as the directors reasonably see fit. The budget shall be automatically approved in full unless there is a DAO Resolution contesting any line item.

4.44 Subject to any limitation imposed on the directors by any confidentiality agreement, financial regulation, or related laws, the following special transactions shall be published by way of DAO Notice no fewer than 4 weeks prior to the transaction date and shall be automatically approved unless there is a DAO Resolution rejecting them.

Proposed Adjustment: Suspend DAO oversight on Foundation spending, allowing sole director control, but maintain the requirement for financial transparency reports to be published quarterly.

Example:

4.42 Financial transparency reports, including management accounts showing actual spending vs the budget, updated balance sheet, and cash flow forecast, must be published quarterly.

4.43 Annual budgets shall be approved and managed solely by the sole director without requiring publication by way of DAO Notice.

4.44 Special transactions shall be approved and managed solely by the sole director without requiring publication by way of DAO Notice.

Article 6.3-6.6: Appointment of Supervisors

Current Article:

6.3 With the exception of the first supervisor, the DAO may direct by way of Supermajority DAO Resolution that the directors appoint a person named in such Supermajority DAO Resolution as a supervisor of the Company either as an additional supervisor or to replace a supervisor.

6.4 Where the DAO has directed the directors by way of Supermajority DAO Resolution to appoint an additional supervisor, the directors and the Secretary shall undertake all action required to ensure that the additional supervisor named by such Supermajority DAO Resolution is properly appointed and registered in the register of supervisors of the Company.

6.5 Where the DAO has directed the directors by way of Supermajority DAO Resolution to replace an existing supervisor, the directors shall: (a) appoint the new supervisor named in the Supermajority DAO Resolution and, together with the Secretary, shall ensure that the new supervisor named by such Supermajority DAO Resolution is registered in the register of supervisors of the Company; and (b) immediately following the proper appointment of the new supervisor, remove the outgoing supervisor.

6.6 Where no supervisor has been appointed or where all supervisors have for any reason either been removed or have resigned, the directors of the Company must appoint a temporary supervisor to fill such vacancy until such time as the DAO shall direct the appointment of a new supervisor by Supermajority DAO Resolution. The temporary supervisor may be a director of the Company.

Proposed Adjustment: Allow the sole director to appoint and replace supervisors without DAO approval.

Example:

6.3 The sole director shall have the power to appoint supervisors without requiring a Supermajority DAO Resolution.

6.4 The sole director shall have the power to appoint additional supervisors and ensure their proper appointment and registration without requiring a Supermajority DAO Resolution.

6.5 The sole director shall have the power to replace existing supervisors and ensure their proper appointment and registration without requiring a Supermajority DAO Resolution.

6.6 The sole director shall have the power to appoint temporary supervisors without requiring a Supermajority DAO Resolution.

Article 6.8: Removal of Supervisors

Current Article:

6.8 The DAO may direct by way of Supermajority DAO Resolution that the directors remove a person named in such Supermajority DAO Resolution as a supervisor of the Company. For the avoidance of doubt, the directors cannot remove any supervisor unless upon the instruction of a Supermajority DAO Resolution.

Proposed Adjustment: Allow the sole director to remove supervisors.

Example:

6.8 The sole director shall have the power to remove supervisors without requiring a Supermajority DAO Resolution.

Article 6.17: Compliance with DAO Resolutions

Current Article:

6.17 Subject to any limitation imposed on any supervisor pursuant to each supervisor’s fiduciary duties to the Company and all applicable law and these Articles, the supervisors shall observe, implement, carry out, action and execute with best efforts any and all DAO Resolutions.

Proposed Adjustment: Suspend the requirement for supervisors to comply with DAO Resolutions.

Example:

6.17 The supervisors shall not be required to observe, implement, carry out, action, or execute DAO Resolutions.

Planned Parameter Changes

  • Day 1: Adjust new baseline emissions
  • Day 1: Adjust the DAO allocation
  • Day 1: Pause RTTM and do not adjust until we hit 20% inflation for non-DAO emissions.
  • Day 1: Turn on 10x emissions for new chains supported by the network
  • Day 7: Reduce the minimum stake for a node to 5,000 POKT.

Marketing Strategy

  • Targeted marketing around APY/APR for new services added to Pocket Network

    • Evolve Compare Staking Services to show the best providers, and rankings of returns on all services to create competition.
    • Campaigns across specific, new service communities to attract net new POKT purchasers
    • Create a pipeline with as few clicks as possible enabling individuals to purchase POKT and immediately stake with a node provider
    • Use end to end data to determine whether initiatives or efforts are having the desired impact on demand for POKT

  • Work with KOLs to drive new narratives around Pocket Network AI adoption and opportunities.

  • Focus on partnerships with existing AI compute protocols that enhance the quality of our supply for inference

  • Reposition the brand and website to be AI-forward, emphasizing support beyond RPC (We have solved this!) and the broader vision of the network

    • AI
    • Storage protocols like Arweave, IPFS, Filecoin
    • Indexing
    • Social protocols like Farcaster and ActivityPub

  • Do the above under the domain pocket.network (recently purchased).

  • pokt.network will forward to pocket.network and pokt.foundation will be retired

  • Focus on making the technically complex narratives around Pocket Network easy to understand for the market at large

Workstreams

  • Continue new gateway, exchange and Shannon launch workstreams
  • Shut down all other work streams that do not drive brand awareness, $POKT demand, or relay growth.
  • Research additional sinks and demand for the token such as incentivized long-term staking and demand. Such as:
    • Airdrops based on how long your nodes have been staked e.g. If your node has been staked for 1 year vs. 5, you receive an airdrop
    • Gateway incentives

Cultural Shift

  • Remove existing Foundation directors, Dermot O’Riordan, Jack Laing and Ben Perez.
  • Evaluate existing contractors, bring in community members and contributors from existing organizations in the ecosystem as contractors to push this effort forward.

Compensation Package

Ultimately, the success of the network will not be decided not by how much revenue we have nor how decentralized we are, but by the price of $POKT. I believe that we should be valued as a top 50 cryptocurrency, given the vision and what’s possible with Pocket Network.

I have historically ignored price, because as mentioned above, I believed the market would recognize the fundamentals if we focused on the product. This portion of the proposal is to align my incentives with yours. This compensation package is meant to be distributed across not just myself but all parties involved in this transition.

I want to aim for a total compensation for a percentage of the network. These numbers should be valued from the average trailing 30 day price, meaning that if we hit a specific price for one or two days, it does not count. We should be consistently above a given price target for the compensation to be fair.

This compensation plan should be time boxed to three years from the date of this proposal passing. The compensation should come from the DAO treasury and is contemplated in the changes to the above parameters. I am targeting a 20% dilution of the network, divided between all of the participants who help reach this goal.

All POKT that I earn will be vested over the course of 4 years on 1 year cliffs from the day that the milestone is met. This does not apply to others receiving grants.

All POKT from shipping Shannon will go to the individuals who contributed to the protocol. I am excluded personally from this grant and will only receive a grant if we reach the price milestones outlined below.

When the first $0.50 milestone has been reached, the DAO will have the ability to vote in two new directors for the foundation.

The current total supply rounded down is at 1,680,000,000 total POKT. Aiming for a 20% total dilution, this is 336,000,000 POKT.

  1. Shipping Shannon: 48,000,000 POKT
  2. $0.50: 48,000,000 POKT
  3. $1.00: 48,000,000 POKT
  4. $3.00: 98,000,000 POKT
  5. $5.00: 98,000,000 POKT

In the current market a $5 price point would put us in the top 15 of all cryptocurrencies today. In 3 years time, I would expect a $10B valuation result in POKT realistically being in the top 50 cryptocurrencies in the world assuming that the general market increases relative to POKT as well.

Dissenting Opinions

Michael hasn’t been in the trenches, involved in the community or discourse. Why should we trust you now?

I officially stepped down from PNF in January of 2023. Since then, my focus has been on being there for the Grove team, traveling for BD and raising capital for Grove. PNF has been there for the community, and I have always answered their calls to hop on a community call or X spaces.

It’s absolutely correct that I have not been around the Den or the forums. The fact is I was burned out last year. The roller coaster ride up to $3 and down to $0.025 came with a level of euphoria and distractions that I was not prepared to handle. I have paid for that mentally, physically and emotionally over the last 24 months.

Grove is operating smoothly with a small, crack team now. The company knows exactly what it needs to build. Most importantly, I have the energy and space to turn my focus outwards now. Grove is in good hands with leadership and the team.

Knowing my job is changing - driving forth efforts to improve the token and the network allows me to create the space needed to handle it.

Wait, so no more DAO?

This proposal is meant to put the DAO and Constitution on pause for 24 months, at which point the DAO can choose to vote me out or bring in new directors. Community programs and funding has already moved to the Foundation, and I am asking for discretion on who and what gets funded from the DAO treasury. The same level of transparency in how, who and what gets funded is not changing. As outlined in the proposal I still believe that we cannot have one single point of failure for Pocket to succeed in the long run. I have already given up control through creating the DAO initially and stepping down from the Foundation with 7 figure funding. I plan on doing the same again with the benefit of lessons learned.

As mentioned above, it’s impossible for me to make changes without the community’s input or thoughts.

How can I be sure you can execute on this plan?

At Grove we’ve done the following over the last 18 months:

  • We reduced our infrastructure costs from $800k/mo to under $70k/mo in 8 months.
  • We built a recurring revenue business model on track to hit $1M ARR next quarter
  • We went from 10% of our traffic being paid to over 90%
  • A full rewrite of our backend infrastructure to be competitive with our centralized counterparts
  • Migrated from AWS to GCP with very few hiccups
  • A full rewrite of the Pocket Network protocol, leading to Shannon’s public testnet

All we have done is execute on the product and protocol since we began this journey. The difference here is that for the first time, I am setting my sights on the main thing the broader crypto market judges us on - the price of $POKT. I will be laser focused and unabashedly upfront about this.

I want to be clear - these are my ideas to create sustainable change within the token. The outcome is what’s important, not how we get there.They may work, they may not work. It may not be enough by itself. We will fail quickly, double down on what does work and learn quickly. I expect the conversation and feedback from the community to continue informing the decisions we make.

We haven’t seen traffic go up. How can you justify that Grove has executed?

The RPC market is difficult. There are 100 - 200 centralized RPC providers in the market, with many providing service for free as a loss leader to their validation businesses. As I mentioned above, Grove has gone from 10% paid traffic to over 90% in the last 12 months, and is now steadily increasing traffic either through direct customers or our gateway customers. This will be combated by bringing on as many gateways as possible and chipping away over time. Outside of gateways on Pocket that provide free traffic (completely possible), expect steady growth in this sector for Pocket Network as gateways ramp up.

Grove received a 30M grant of POKT last year. Is this not enough?

This was for Grove to retain the team in the form of grants, and at these prices the amount is negligible compared to competitors. I am advocating for this control from leading the Foundation, not Grove.

Conflicts of interest? You’re the CEO of Grove, the leading gateway provider in the network. Wouldn’t this be a conflict of interest with new gateways and post-Shannon?

The reason why it’s important that I do this is because I feel that there are very few people who can be unbiased from a practical, philosophical and moral perspective. While I want Grove to succeed, I have dedicated the last 8 years of my life to Pocket Network. As I wrote in Grove’s gateway thesis:

“Grove will be open sourcing its own Portal over the next year to activate the demand-side of the network. It is clear we are going to live in a world with hundreds (or thousands) of gateways, all solving different needs for developers. Our goal with Grove is to make it as easy as possible for existing gateway providers or new gateway providers to build lucrative gateway businesses on top of Pocket Network.”

In addition, the incentives outlined are aligned directly with the network.

This is a big shakeup. PNF is now starting to move faster. Why should we change?

This is an about-face in terms of focus and priorities. We are hovering near all time lows again after 18 months of a fully operational PNF. While PNF has critical workstreams, I believe that I am the right person to lead this effort given the experience I have had in turning Grove around. At the end of the day, I have most to lose here to make this succeed.

Legal risks?

After speaking with several attorneys, being the CEO of Grove and leading the Foundation does not materially change much within the USA. Our attorney’s view is that Pocket Network is sufficiently decentralized.

However, the SEC does not care about Pocket Network being decentralized. Through this proposal, a light may be shown on us by the broader crypto community which could alert the SEC. This could lead to a love letter. While we have a strong case in court, we don’t have the capital to defend ourselves. That is the risk.

The benefit we have is that it is election season. The SEC’s year end is September 30th. It takes time and research to send out notices, and they have already done the work that they expect to do for any future notices by their year end. Gary Gensler is likely to be replaced no matter who gets elected, leading to a lame duck leader until next year.

Why should you be the person to do this? Why not someone else?

The reason for wanting to do this comes from being one of the people that started this thing. I think a quote from the author Michael Lewis on the Tim Ferris podcast encapsulates my feeling:

“A feeling if I don’t do it, it won’t properly get done. This book should be written and that person should be me. I have an obligation to this material. Once I have that feeling, it’s a motive, and whether I’m full of myself or not, it’s a deeper and more inspiring motive than I need to make a living, I need to get on the bestseller list, I have to have something to tell my friends. It’s the highest motive, I have an obligation, I have a duty.”

What happens if this proposal doesn’t pass?

I would conclude that the community doesn’t agree with my vision, which is fair and fine. As a founder of this project, I would be frustrated and sad. Grove would continue operating and I would ultimately push the economic proposals forward regardless.

Conclusion

There is a lot in this proposal. I have put it all within one because our current situation merits quick change and adaptation. While I remain a firm believer in the governance model of Pocket Network, it’s evident that we need to reach a scale where its checks and balances are truly beneficial.

I care about the price of $POKT. The technical talent and brilliant community we have deserves better. At this stage in our development, it is crucial to have a fully integrated stack from the protocol, to the gateway layer, the community to move swiftly and enable others to build quickly and efficiently.

It is with this understanding that I propose taking a more centralized approach to governance and development, at least for the time being. This approach will allow us to remove barriers, streamline decision-making, and rapidly respond to the needs of our network and community.

I am profoundly thankful for the role the current Foundation has played. Their efforts have always been guided by the highest integrity and dedication to Pocket Network. The Foundation has laid the groundwork upon which we can build, and their contributions have been invaluable. However, the current situation calls for a change in strategy, and therefore, leadership, to prevent stagnation and drive the network forward.

I care deeply about the success of Pocket Network and its potential to become the routing layer for all traffic on open data sources. My commitment to this mission is unwavering. I am committed to the full, day to day communication needed for a change like this. I am embracing the need to truly care about the $POKT token price and its holders. With your support, I believe we can create a thriving ecosystem that lives up to the incredible potential of Pocket Network. Together, we can ensure that Pocket Network not only survives but thrives as the backbone of decentralized infrastructure.

Copyright

Copyright and related rights waived via CC0.

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Proposal is up for vote here: Snapshot

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I am not a DAO voter but I have been following this project since 2021 and had written an idea about the structure of inflation which I had been pondering for a long time in conditions of lack of information. So I think I have the right to give my opinion about this proposal.

I have attentively read this proposal and am continuing to read all messages in telegram group, so there emerged many questions about the past money management and the effectiveness of its use, the made strategic decisions etc. which cast a shadow on the future success of the project or shows this project to be more risky with the possibility of becoming successful. Most likely such a drastic proposal should have been discussed first within the two organizations internally between the main actors what could have prevented the price from falling by 30 percent. On the other hand, all the factors are unknown to me in order to say what could be done and what couldn’t. The only thing I like so far is Mike’s confidence in that the project can or will be revived.

Before moving on to some points of the proposal it is worth paying attention to the conceptual wrapping of the entire message coming from “reflexivity”, on the basis of which appeared specific Mike’s ideas. The focal point lies in Soros’s theory of “reflexivity” which can be considered of speculative nature. At the time of the financial actions of his hedge fund “Quantum Fund” he was a pure speculator with some philosophical ideas about an “open society”. Soros once said :

“It doesn’t matter at all whether you are right or wrong. All that matters is how much money you make when you are right and how much money you lose when you are wrong.”

However, the theory of reflexivity сan’t estimate the value of an asset, comprehend long-term prospects and is aimed at extracting short-term profits with the help of mass psychology using media and advertising. Sometimes this theory works well, a good example of hype would be the succesful initial public offering of BYND stock - the company that produces an artificial meat substitute. But then this business went poorly and the stock fell. Every step he took in speculations was with his new ideas without the possibility of using standard NPV, IRR and other models in real investments. Soros had a well-developed intuition that helped him speculate. As he said:

“My personality is that I don’t have any particular investment style. Every time there’s something new – new approaches, new methods, new ways to achieve your goals.”

Soros even worked for a while with Jim Rogers who additionally carried out the fundamental analysis. So this theory not about business but about speculation. From this point of view, the principles of Warren Buffett who are adheres to the theory of value investing is much more suitable.

Strategic points

A) Pocket project represents a real business with a new category of digital asset - pokt. The token price is not the best representative criterion for the success of the project’s business. Hence, it would be better if this proposal was presented in terms of business prospects (relays) rather than a token price.

Let’s make some calculations to comprehend the necessary number of relays for token price levels. For instance, if we eliminate the speculative component moving away from exchanges when where are only clients which buy tokens from Pocket network then price (intrinsic token value) will be created only by demand from clients and inflationary supply. In this case:

  • 5 usd per 1 pokt at the current level of inflation will be correpsponding to 220k pokt * 5 usd / 0,00000085 = 1,3 trillion daily relays;

  • 3 usd per 1 pokt will mean 780 billion daily relays;

  • 2 usd per 1 perk will show 520 billion daily relays;

  • 1 usd per 1 pokt will give a number of 260 billion daily relays;

  • 0,5 usd per 1 pokt will be stipulated by 130 billion daily relays.

As a token price rises to 5 usd inflation can be reduced to 30% (calculation not shown) - a level that would meet the interests of node runners and stakers (on condition of 10% allocation to DAO and 45 000 (15k pokt) nodes)

Next, as it was shown in the new tokenomics model that for LLMs the price per relay can be twice as expensive. It is not possible to say what part of relays would come from LLMs but there could be guessed offhand that 20%, then an average price per relay would be 0,00000102 usd what gives another (0,00000085/0,00000102) 20% reduction of relays for the target prices. Then the adjusted number of relays to reach the target prices will look as follows:

  • at 5 usd per 1 pokt - 830 billion daily relays;

  • at 3 usd per 1 pokt will mean 500 billion daily relays;

  • 2 usd per 1 perk will show 320 billion daily relays;

  • 1 usd per 1 pokt will give a number of 167 billion daily relays;

  • 0,5 usd per 1 pokt will be stipulated by 83 billion daily relays.

In addition the Price to Earnings ration (P/E) from the traditional financial analysis can be applied to evaluate the number of relays which are needed for a price of 5 usd per token and for the company to be considered well-establlished in the market. In this example revenue will be taken instead of net profit. Number of tokens is taken after inflation increased by 20 percent. The current P/E ratio for Pocket is 411, сomparable to the value of venture dotcoms. Provided that the average P/E ratio for technology companies on the stock market is about 40 it is possible to get a number of relays:

P/E = (5 usd per token * 1,7 bln tokens * 1,2 additional inflation in proposal ) / (Daily Number of relays * 0,00000085 usd per relay * 365 days) = 40

where Daily Number of relays should be 820 bln which is close in value to the aforementioned assumptions based on the estimation using intrinsic token value.

If to speak in terms of reflexivity or “expectations” of market participants the reflexivity ratio can be got as the market token price divided by the intrinsic token value what equals as of today:

Reflexivity ratio = 0,045 / (524 mln daily relays * 0,00000085 usd per relay / 220 000 pokt) = 22,5

When a token rose on the news about Big Announcement, Upbit listing, Crypto listing, Andrew Kang tweets then this ratio reached 100. Why is this number “22,5” attractive to date? On the reason the today’s reflexivity ratio is net-clean and in circumstances of uncertainties is based only on goodwill of Pocket Network. Moreover, this project isn’t backed by T1 VCs like Jump Trading, Jump Crypto, a16z, Paradigm, Multicoin, Polychain, Binance Labs, Coinbase etc. which have vast marketing possibilities.

What does this “22,5” reflexivity ratio show? This number allows to 22,5x reduce the number of relays at the appropriate token price levels based only on the intrinsic token value.

So combining both approaches together there can obtained the ranges of the volumes of daily relays necessary to reach the token price levels:

  • at 5 usd per 1 pokt - 37 …… 830 billion daily relays;

  • at 3 usd per 1 pokt will mean 22 ……. 500 billion daily relays;

  • 2 usd per 1 perk will show 14 ……. 320 billion daily relays;

  • 1 usd per 1 pokt will give a number of 7,4 …… 167 billion daily relays;

  • 0,5 usd per 1 pokt will be stipulated by 3,7 ……83 billion daily relays.

Thus, Mike’s proposal should include the additional target criteria expressed by the volumes of future relays (proposed by Mike in his vision) and tied to the compensation price levels. This step will show the project’s confidence in the future and its focus on the long term prospects.

B) That part of the proposal where is suggested to increase inflation by 20% has the ambiguous consequence and the questionable impact on the token price. If I caught the course of actions right this step wouldn’t be of any avail for stakers besides dilution because 75% of daily inflation will be directed to DAO. It turns out that the total supply will be 1,7 bln * 1,2 = 2,04 bln, every day 930 000 tokens will be minted and 700 000 of which will be moved to exchanges to fund the further work. Will it create a pressure on price via selling on exchanges? Certainly. This action will be bringing down the price further because this measure violates the economic principle by significantly increasing the number of tokens without providing them with collateral (relays).

So a big contradiction appears: on the one hand, the proposal declares its intention to increase the price of the token, on the other hand, unsecured inflation will bring down the price of the token. In economic terms these additional tokens can be considered as a credit secured by future contracts for relays from AI and other companies. The second important point is how will these tokens be sold if there is no liquidity so as not to collapse the price? In order not to destroy the price of the token, liquidity must be created.

That is why in Mike’s proposal the timeliness of steps is urgently essential. In this sense one of the best scenarios for the development of events may be the following:

  1. in 1 month a big contract with AI company should appear (it can be a Memorandum of Understanding or something like that) in order to show that this time the Pocket network forecasts about the volume of the AI relay market are correct and the company is moving in the right direction because the previous bet on the market of regular relays didn’t justify itself (instead of the planned 5 billion, by this time there are only 500 million paid relays);

How to secure such a contract, not yet known but I don’t work at Pocket to answer, the only thing that can be said is that now the main vector of work should be aimed at obtaining such a contract to increase the company’s goodwill.

  1. in 2 months T1 exchange listings should be executed using all available resources (acquaintances, business connections, backing VCs etc) to create the necessary liquidity to hold the token price at least at current levels.

Tactic point

That part of proposal dealt with the reduction of minimal stake to 5000 tokens is controversial. Why do new people would like to stake in this project if there is no any comfort in staking? Now for staking a person must perform many actions: go to the project website, then visit TG group and find out about Discord, or visit Discord at once, then enter Node Runnder group, then to choose a Node Runner, to understand APY, then communicate via email or other sources, then send tokens because there isn’t yet truly non-custodial staking etc. Can this be considered as comfortable? Certainly, not.

There needs to be done a lot work with Node Runners related to the quality of the staking service when a person enters the website (it can be comparestakingservices or other website) where all node runners are presented with the clear information about APY, available number of nodes or slots for staking and the most important the possibility to stake and unstake via smart contract when a potential staker doesn’t need to send tokens to address of a node runner and conduct correspondence

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Hi @o_rourke,

Thank you for your proposal. However, in its current form, it does not meet the requirements for a constitutional change. As previously outlined by @JackALaing, we need clear, precise wording for any proposed amendments…

Your proposal currently contains “example” changes rather than the actual wording that would be implemented. While you mentioned consulting legal counsel for proper phrasing after the proposal passes, this approach conflicts with PNF’s bylaws. Voters need to know the exact final wording before casting their votes.

For reference, please see the example of a properly formatted amendment proposal here, and how Jack implemented changes via a GitHub PR: CREDS Upgrade Focused by jacklaing · Pull Request #10 · pokt-network/governance · GitHub

I suggest revising your proposal to include the exact wording you intend to use for each change. The current version, even if it receives votes, would not be considered valid. Implementing these changes without following proper procedures could put any current PNF director at risk.

Unfortunately I was traveling when this proposal was posted, so was I was not able to review and provide feedback until today. To ensure we proceed correctly, I recommend consulting legal counsel and resubmitting the proposal with the final, precise wording for each proposed change.

This approach will help us maintain governance integrity while still addressing the desired changes through the proper channels.

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As this discussion concludes,I would wish to seek clarifications on the following clauses

Does this means that protocol development will be moved from Grove to the DAO through PNF ?

What are the ideas/strategies/plans to ensure a decentralized approach to protocol development,now that POKT sits at the intersection of many blockchains ?

On the second part,
I would wish to echo the sentiments by @AVAV is it possible to tie your remuneration package not only to price increases but to percentage increase in relays served by Old chains(not the ones with x10 emissions) ,for example,you could include that for every price milestone achieved there should be at least 100% increase in paid relays…

Third part is about rewards ,
@shane was exploring to have source rewards in Shannon,with the approach you are proposing does it mean we will have full rebates for the gateways and source rewards ,if so will this come from the 75% DAO take ?

Lastly as a personal opinion the tokens amounts are a lot,and Yes,I have no idea what a fair amount is.I am proposing a 30% reduction to the figures stated above…

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Compensation Package Concerns

The proposed compensation package raises concerns that demand debate.

(My comments here are based on common sense and a rudimentary grasp of economics - not expertise.)

Low Market-Cap Appeal

Investors drool over low market-cap projects. Bearing in mind Mike’s observation that economic factors, not technical brilliance, is what will draw investors, the 20% dilution envisaged here, albeit staggered, alongside the increasing inflation that the proposal calls for, threatens to weaken POKT’s attractiveness and propel the token price downward.

Compensation Amounts Excessive

The compensation amounts noted here for all the price targets, though especially for $3 and $5 - $294m and $490m - not only are hugely excessive, but also are unnecessary to generously compensate - and incentivize - all those whose work will help achieve the price targets. These compensation amounts should be cut - and drastically.

For any compensation numbers to begin to make sense, a tentative list of all those on the receiving end, and roughly their respective grants and how they’d be calculated, including Mike’s, is needed.

Also, as others have noted, how do we disentangle the contributions of compensation recipients from that of unknown actors such as LP providers who also help drive up the token price?

In the “Den” (on Telegram) on July 11, Mike commented: “I would create a framework to divide up the POKT across all participants.…It is subjective at the end of the day and it would need to be something done closer to getting to that point. Too many unknowns and would have folks review it.”

The framework should be articulated as part of this proposal. To avoid any hint of bias and arbitrariness, any grant decisions should not be made by a single individual and should follow a well-defined formula. To say “it is subjective at the end of the day” is unacceptable.

Commentary from the ‘Den’

Since not everyone here has been keeping up with the discussion on in the “Den,” and to help inform this debate, I’ve copied some helpful feedback below from July 11:

Tim Riggins: “… Maybe add a max for each individual to receive and what would happen with rollover funds. Continuing with that segment, what happens if a member of the DAO leaves or is kicked shortly before the comp threshold, that should be clarified as a lot of people (yourself included) could get boned out of their compensation WHEN we hit the price targets.

“On top of that, who is determining contribution % for the devs with comp in mind. You’ll get pushback about playing favorites regardless of how it is divvied up.”

Ashley: “I’d also add that compensation for Mike (or any other person with compensation tied to POKT price) could happen in smaller tranches throughout a range to prevent front-running.”

Vojtech: “…I am not sure how hitting certain price targets helps to onboard more builders, when it’s not even clear how the distribution of these rewards actually works.

Like there is a handful of contributors, Grove is spending more on their infra than DAO spends on these contributions. Yet, we are thinking of throwing away rewards like we are J.P. Morgan kind of business.”

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@o_rourke

I posted this in the Den but figured this might be easier as things are wild there.

You mention " I want to bring Pocket Network back to creating economic opportunities for net new $POKT purchasers safely and sustainably.

However, you said you are not up to date on the current T1 listing conversations. If the Net New Purchases is a high priority, how are you expecting to drive Net New purchasers, and where does a T1 listing fall on your “list of things to do”?

There has been an overwhelming cry for a US-based T1, as well as a Binance listing. I know I speak for most people in the community when I say the lack of progress made in this category has been massively disappointing.

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Oversight: Why It’s a Must, Revisited

New evidence has emerged on why DAO oversight is an absolute necessity if Mike assumes control of PNF.

In a previous post, I focused on two good reasons for an oversight body:

  • Address conflict of interest concerns by rejecting actions that benefit Grove at the expense of the DAO and other Pocket Network participants

  • Preserve decentralization of Pocket to maintain confidence of contributors and investors for whom it’s critical, and avoid regulatory/SEC problems

Now another big reason has come into view.

The “new” evidence is the manner in which this proposal has unfolded. The first version called for changes to the Articles and the Constitution. Jack observed (July 5) that the precise wording of any changes had to be set out in the proposal. If the proposal’s approved, these amendments have to be adopted as is. Mike can be forgiven for overlooking this requirement initially since he may have been unfamiliar with the intricacies of legislative change.

However, even after Jack pointed this out, Mike failed to notice. Or if he did notice, it failed to register. We know he read Jack’s post because he said he’d updated PIP-38 to include the legislative changes it recommended. But he added that the exact wording would be worked out if the proposal passed:

Still No Precise Wording

On July 11, Mike posted the revised version of PIP-38. Again, it failed to contain the precise wording of the changes to the Constitution and Articles, in disregard of Jack’s warning. As a result, the revised proposal has been marked “invalid.”

Decisions Might Overlook Relevant Considerations

All this goes to show that Mike, however well-meaning, could make decisions that overlook relevant considerations. This makes the need for oversight all the more vital.

Mike himself recognizes the need for others’ input:

Oversight, both before and after changes are actually implemented, must be built into the system. The right to vote Mike out of office every 6 months is not enough.

Areas Where DAO Should Keep Jurisdiction

Mike wants to be able to control the economic levers of the protocol. He specifies non-DAO inflation; new-chain emissions; node-runner minimum stake; DAO allocation; and burn for Gateways. Subject to proper oversight, that leeway is acceptable.

However, the DAO ought to retain its existing control over other aspects of the project.

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Deal Breaker: Acceptable Compensation Scheme

Addressing one of the biggest PIP-38 flaws, this post lays out a reasonable compensation scheme for Michael. It’s transparent, predictable, eliminates arbitrariness and vagueness, the numbers need not be exorbitant, and it aligns his financial interests with those of the Foundation and the DAO.

Outstanding Problems with PIP-38

I’ve been discussing PIP-38 with several members of the DAO who are not satisfied with the latest version of the proposal. While we align with the spirit of PIP-38 - moving fast and creating value for token holders - we suggest creating a situation where Michael has the autonomy to live and die by his performance while not jeopardizing the future of the project if his gamble were to fail. Further, we seek to maintain decentralization, thus minimizing centralization and regulatory risks.

We would like to see the following bullets addressed with simple and agreeable mechanisms:

  1. Compensation needs to be laid out in advance and transparent.

  2. Financial alignment can and should be achieved with Michael.

  3. The DAO shouldn’t be eliminated, but instead be equipped to provide appropriate oversight and continue to function except where doing so conflicts with the mechanisms needed to achieve the goals of PIP-38.

  4. A group of trusted individuals should be appointed to provide day-to-day oversight of PIP-38.

The focus of this post is compensation and alignment (points 1-2). Since Michael is preparing a revised proposal that includes adding two more directors for oversight, we will delay our discussion of points 3-4 till after we have reviewed the revised PIP.

Final Proposal Version Must Await Further Feedback

The imminent new version of PIP-38 should be subject to review, feedback, and discussion. We strongly urge Michael to hold off finalizing his proposal and any amendments to the Constitution and Articles of Association to take account of potential revisions based on this post and anticipated community input on his revised proposal. In other words, the revised PIP should NOT be a final version. (It would make sense, therefore, to publish it as a pre-proposal.)

Compensation & Alignment

PIP-38 lacks significant detail regarding the amount and usage of funds. This is particularly concerning as this is a massive deviation from the DAO’s track record with approved proposals.

Win-Lose

One of the major concerns with the compensation is that the outcome of PIP-38 can be win-lose for token holders and members of the Pocket DAO while Michael has only upside. As he had early liquidity, he has been able to cash out of some of his POKT position (as is his right). However, this means that POKT could still be a huge success for him personally even if PIP-38 crashes and burns the entire protocol and token. Further, Michael still has tens of millions of liquid tokens (as he reported on a community call) which he could dump as the price increases (even if it never reaches the PIP-38 targets), creating a win out of a loss.

Proposed Solutions

PIP-38 is ambitious in its goals and the Foundation could require extra funds to achieve them. We propose an alternative compensation structure where Michael receives massive upside for his work, but at the same time financially aligns himself with the project today and for the duration of PIP-38.

A Lockup

We suggest that Michael self-report all tokens in his possession/ownership to the DAO and “lock his POKT” with staking providers until PIP-38 is completed, he steps down, or is removed as Foundation director. This minimizes the risk of Michael using economics to pump his own bags or use the public for exit liquidity.

An Option

Instead of the currently proposed compensation mechanism, we suggest accomplishing this by offering Michael a “threshold” option. The option would be based on a contract (drawn up by PNF lawyers) between the Foundation and Michael and would provide that Michael pay PNF a premium for the right to buy tokens cheaply if the POKT price rises above the targets. Thus, Michael would pay up front for the right to buy POKT at a highly profitable rate when he achieves given milestones - a win-win for Michael and the project!

To illustrate, let’s say that the premium for the option is $1M in exchange for the option to buy 50M tokens at a price of $0.10. The right to purchase is determined by thresholds set out in the contract. Using the example of thresholds established by PIP-38 - $0.5, $1.00, and $3.00 - the right to buy would be divided evenly across those thresholds (33.3% at $0.5, 33.3% at $1.00, 33.3% at $3.00). In this example, at the first milestone Michael would effectively receive 16.5M POKT - worth $8.25M - at a price of $1.65M (plus the cost of the original premium). The lower the strike price stipulated by the option, the greater his profit. The strike price is an opportunity for PNF/DAO to refill its coffers that will inevitably be depleted in the process of PIP-38. Thus, the strike price should be a reasonable middle ground where PNF is able to receive some cash for the tokens but where Michael still has amazing upside. The suggested strike price of $0.1 seems to meet those criteria.

This mechanism has the effect of granting Michael a huge win at each threshold and simultaneously capitalizing PNF, creating a win-win (POKT price is up, the Foundation is capitalized), or a lose-lose scenario (POKT price doesn’t appreciate, though the Foundation/DAO loss might be mitigated if anything is left of the premium).

Contract small print:

  • To exercise the POKT purchase option, the 30-day TWAP (time-weighted average price) must be at or above each price-target threshold.

  • In the event that Michael is unable to achieve all the POKT price targets, the tokens minted to pay for Michael’s POKT would be repurposed and the Foundation would retain any remaining fiat paid for the option.

  • The option would be non-transferable and non-assignable to other parties (he can’t sell or gift it).

  • If Michael were to sell POKT during the lockup, he would immediately lose the right to exercise further threshold options and he’d be liable to a cash penalty for breach of contract.

  • The exercise period of the option would lapse two years from the date the contract takes effect (or other agreed time period), or when Michael ceases to be a director of the Foundation, whichever comes first. In the event that a threshold is met, Michael would have the right to exercise the corresponding buy option for the life of the contract (unmet thresholds would be forfeit).

  • Exercise of options must wait till 60 days from the passage of this proposal to avoid a situation where there aren’t enough tokens to cover the option.

  • If the PIP-38 inflation scheme generates for the DAO less than the number of tokens in the option, then the option contract is null and void. The rationale is the DAO should not have to be “out of pocket” for the plan if Michael fails to create the tokens necessary to see it through (which appears to be one of the primary motivations of the inflation increase according to the modelling we’ve reviewed).

Other option-style mechanisms could work, and we are not opposed to those, but what we seek is alignment between the Foundation, POKT, and Michael.

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