Payments Negating Favouritism (PNF)

[Cryptocorn]

Attributes

Author(s): @Cryptocorn

Recipient(s): Pocket Network, PNF

Category: Governance Upgrade

Implementer(s): PNF

Asking Amount: 0

Summary:

While PNF should be allowed to make day to day budgetary decisions quickly and friction free without the need for onerous DAO/3rd party oversight, a regulatory mechanism should be put in place that larger and longer term budget items are adequately transparent, discussed and overseen by an additional neutral 3rd party.

This pre-proposal is designed to find consensus amongst the community as to what amount they believe increased budgetary scrutiny should be further implemented.

Background/Motivation:

PNF was upgraded to an active Foundation managing both day to day operations and longer term strategic projects on behalf of the DAO as part of PIP-26, ‘Foundation for a Future’. Part of the rationale for PIP-26 and the creation of a Foundation with multiple full time members was to oversee day to day operations for the DAO that were no longer the responsibility of PNI, and to entrust credible employees with budgetary decisions.

The need to approve budgetary requests via the DAO is a slow process, designed to encourage community contribution and debate. While this is useful for some decision making, more simple tasks needing to go through the proposal process would needlessly be slowed down in their execution and tire DAO members with constant votes for small items.

While the $1M+ Era budget that also asked for 80% of the future DAO funds was put to a DAO vote, and approved, 6-figure USD items within that budget are at the discretion of PNF, and (as far as I am aware) there are no official guidelines regulating how PNF spends either the DAO monies or it’s own budget.

There have been at least 2 incidents where PNF’s decision to make medium - large payments have been questioned by the community. While there is no suggestion of malice or something being untoward, there have been calls for increased transparency in PNF decision making and opening more large budgetary decision making to mandatory competition via POPs (Pocket RFQs).

Specifically:

• Payment for Gateway development going to a single company without being a POP or known to the wider community until budgeted for. (N.B. I was personally vocally in favour of this payment as I believed it to be beneficial to the ecosystem as a whole, and would want to re-emphasize that this proposal is not pointing figures or suggesting anything bad has happened, but to create clear rules around future work).

• A dashboard supplier that is well used within the community was awarded POKT rewards + monetary compensation to continue their work managing and maintaining the dashboard (again, I personally agree with this decision, although as mentioned by a PNF employee at the time of the discussion, the optics could have looked better).

Rationale:

In the interests of complete transparency and following best practise to gain the highest ROI for the DAO, a monetary figure for total compensation should be debated and set, such that any individual payment or total on-going payment by PNF to a 3rd party will need some form of oversight and follow a standardised and transparent methodology.

1. At what amount will PNF need 3rd party approval to spend funds?
2. What should that approval look like? Will it be a full DAO vote, overview by an elected 3rd party (individual or group), a rotating or randomly selected set of DAO voters charged with overseeing and confirming PNF spending? (i.e. a 3 or 5 member DAO committee could be tasked to oversee larger PNF spending, each given their seat for a limited amount of time and a small compensation package - akin to a rotating board).
3. At what monetary limit must PNF go through a POP to award a contract?

The rationale behind the pre-proposal is to have the community debate the above 3 items and to then modify the pre-proposal into a full DAO vote that will bind PNF to abiding by the agreed upon guidelines for spending.

Dissenting Opinions:

The main dissenting opinions would be:

1. PNF have been entrusted by the DAO to make decisions on our behalf and so should have sole authority to make budgetary decisions as they see fit.
2. Having to deal with oversight will slow down decision making, which was one of the impetus for upgrading PNF to it’s current status away from heavy DAO participation being mandatory for budget allocation.

1. While PNF were placed/hired to enact the best path forward for the DAO and have been entrusted with a majority of DAO funds, it is common place to have oversight over larger ticket items and have a 3rd party review major spending decisions, much as a company making an acquisition may need board approval before progressing. While we wouldn’t want to overly burden PNF with oversight for day to day spending, it would be appropriate to have clear guidance around the use of RFQs and force competition for work instead of unilaterally offering contracts without input or informing the community.

2. Debates and voting do not need to be unnecessarily long. Even the slowest method suggested, going via full DAO votes, could be concluded in ~2 weeks or less. Large allocations are usually known to be needed far in advance, a 2 week consultation and voting period before approval would not be considered unreasonable. Opening up larger contracts to an RFQ process may yield better pricing or better ideas on solving a particular issue and would show greater transparency and build trust with the community.

Implementation:

After a reasonable period of debate, it is hoped that consensus will build around both implementation methodology and budgetary limits that automatically trigger enhanced oversight. At such point a proposal can be put to the DAO to be voted in and later implemented as policy by PNF.

I invite all members of the community to discuss the above and GRIP to help with any additional discussion/expertise as needed (Economic consideration of an optimal number for increased POP/review, infographics, writing etc).

[h5law]

Fully in favour of this discussion. My 2 cents:

I believe that PNF have the authority over their own treasury and as such can and should spend it in the places they believe will do the most good. That being said the following types of payments should require some extra communication:

• any unexpected payments
• potentially ongoing payments
• payments that may appear to show some air of “favouritism”
  • I appreciate this term may be loaded but for the purposes of this discussion what I mean by favouritism is any payment that appears to bypass any pre-existing frameworks

I think these should be communicated in a short forum post PRIOR to their execution. No need for a full vote, just transparency around what is going on - this doesn’t have to be a long report but simply a detailing of:

• the situation
• the reasoning
• the amounts
• the recipients
• the goal

I feel like addressing this beforehand will help the community to feel more involved. And although they won’t be able to do anything about the transactions; it may help to squash any problems before they arise. Openness is in our DNA afterall.

Previously I mentioned the lack of needing a full vote. I lied. I feel like some payments should require a full vote. It is true we don’t want to burden and slow down PNF on a day to day basis, but as a DAO, as a community we should not only remain in the loop but also have some input into how PNF operates on its treasury. Sure we can kick them out post damage but wouldn’t we rather potentially give our opinion on payments that appear to be unneeded or shortening the PNF runway unnecessarily? I am not saying there is any specific examples of these currently but perhaps the following would be a good idea:

• Any payments >$10k USD outside the scope of a preapproved payment (such as onboarding a new employee, or payments for external contributors ie. wPOKT) should require some sort of formal vote

Finally I would like to add the following point: I strongly believe we should build in the open, publicly and we must enforce this. If anyone is to receive DAO monies, or money from the PNF treasury, their work MUST be public (open sourced, freely available and publicly communicated to be as such). If anyone is unwilling to adhear to these standards in my opinion, they MUST NOT be given a thing. Again openness is in our DNA. If anyone wants to remain private and closed source, they must also be willing to not get grants, or payments in any form or fashion.

[JackALaing (Jack Laing)]

Thanks @Cryptocorn for pulling this together and @h5law for sharing some more community perspectives, both last week and again here. It’s something we’ve reflected on a lot and we really think the root cause of last week’s drama was inadequate transparency on PNF’s part.

We’ve actually developed some materials around transparency which we had planned to release in the next few weeks and hopefully the community recognises the steps we are taking to be leaders on working in the open with the new Era Notion page and access to most of the planning and documentation we are working with day to day.

Before exploring any additional steps, it would be really helpful to hear voices on articulating the types of conflicts that might require more transparency from PNF before making any decisions.

PNF specifically exists as an active entity to allow it to act quickly as a credibly neutral steward. Upon reflection we could have been more transparent as it related to POKTscan and understanding some of the unique sensitivities there, but it’s important to recognise that acting rapidly to support POKTscan is well within the scope of what should be expected from PNF as a credibly neutral steward of the ecosystem. It is within our scope to decide that supporting a critical data operation that our keystone Gateway-verse project will depend upon for accounting of protocol revenue owed by different gateways, and that we depend upon for weekly governance transactions, is worth more than $10k per month. It is also within our scope to evaluate that tasking other builders with reinventing the wheel is an opportunity cost to the ecosystem that both 1) risks delays to keystone projects, 2) diverts their talents away from other value-accretive activities, which PNF aims to leverage more through a series of POPs that we will be releasing soon.

Given the strategic value that a nimble PNF brings to our ecosystem, if the DAO wishes to take any additional steps, it should limit this to articulating stricter transparency expectations that PNF must follow, e.g. a requirement to notify the DAO above a certain grant value, but we should be very careful about going down the path of introducing new governance policies/mechanisms.

One thing Ben and Dermot have shared from their experience in business and startups is that responding to one misstep with governance changes or new rules, as opposed to allowing adaptation and learning, is a fast path to bureaucratic hell. We are all on this journey to our destination with a strong vision and desire to learn fast and improve. We’ve definitely got the message to improve on transparency and hope we don’t have to spend too much time litigating potential governance changes here when we are so open to having the community help us learn.

[SteveO]

Transparency should certainly be increased. There is a lot of room for improvement. There was a huge allocation of $1.4m of DAO funds to PNF recently. That payment should be noted down and fully traceable. ERA budget payout opened up a lot of room for possible spending misuse. Just for an example, $100k spending for a headhunting fee should be clearly traceable. Was it really $100k? Or was it $88k? How can the community unequivocally determine that the remaining $12k did not end up in PNF executive’s pockets? ERA budget will either resurrect or completely destroy Pocket. If funds are being misused, POKT will not make it but people responsible for managing this money might realize exorbitant financial benefit.

In order to successfully circumvent this problem and mitigate the risks arising from it, I wrote a way to successfully solve a known Agency Problem in the field of governance.

As in the corporate world, and even more so in the crypto realm, the goal is to eliminate the trust factor as much as possible, following the most famous rule: “Don’t trust, verify”. Accordingly, ensuring convergence of interests of PNF leaders and investors should be the primary goal encoded into Pocket DNA that will increase the trust of the community and investors in the activities carried out by PNF leaders.

I propose less burden on the managers regarding the decisions related to the spending of funds, but a significantly higher level of transparency and more importantly traceability of the spending of funds so that the reasonableness of the spending can be reviewed by the community. Goal is that community can challenge the PNF spending retroactively, preventing the possible favouritism and thus maintaining a high level of treasury management quality.

[Igboze (Igboze Israel)]

Thanks for this great piece.

Should this be more of a situation where PNF disburses its funds to the commhnity, owned and managed by the community?

This could be funds that are for ecosystem activities that are below 10 or 5k.

This could work differently from the DAO as it takes longer time with the DAO.

JUST THINKING

[b3n]

We have already provided here all relevant wallet addresses for the Era budget so that anyone can follow the flow of funds. The Notion page goes further than just the funds and includes project timelines and documentation (working docs, specs, outputs etc). We will also provide a consolidated update for the Era budget and keystone projects at the end of each cycle (every 2 months). I think much of what is requested re transparency is already covered there but if you have more specifics let us know.

Re the agency problem and incentive alignment we responded in the other thread already. That said, the impending launch of wPOKT provides access to DAO tooling which can further our goals to remove some of our social norms in favor of some increased trustware and we will provide more info on that for discussion after wPOKT is live

[Ale_dVG]

As requested from GRIP, an infographic explaining this proposal.

[shane]

For starters… this proposal name is very confusing since PNF is an entity… and now it is a name for a proposal. I’d suggest a name so we can discuss this proposal without accidentally referring to the real PNF

I’m not sure this proposal is warranted yet. I was the primary critic with how a substantial gateway grant is being given to one company, without contest… but I think I would lean to first seeing how PNF adjusts with all the recent feedback, before using bureaucracy.

I honestly think that most issues would be resolved by leaning more into POPs. So far the interest around them has been fantastic, and response of them has great from what I can tell. I believe that PNF has noticed how powerful they can be, so I trust they will not rely on closed methods moving forward

I’m still not sure what exactly is being built with the gateway grant, nor it’s price justification, but I assume the coming gateway POPs will start to open things up beyond a single company. PNF took an L for how the gateway initiative was kicked off, so I’m hopeful they will use their agile structure to pivot when needed to setup this initiative for success. I’d like to see how things correct before making another DAO system.

Sockets

Also, I realized that I was misunderstanding the Sockets program, and I believe many in the community are misunderstanding them as well. I had thought that Sockets had to first be pre-approved/sanctioned/whitelisted by PNF, prior to their posting. I’ve learned that I was mistaken, and anyone can open a Socket with just a forum proposal.

PNF’s role is not in deciding who can open a Socket, but in determining if they fulfill what they say they will fulfill, and determine if it is adding value to the ecosystem. They are easy to open, but PNF will be quick to close. This means that all the recent Socket are not endorsed or pre-sanctioned by PNF. They will be watching for value add like everyone else, and determine if it is worth grant. I had been thinking the opposite, so I wanted to make sure others understood this as well.

Technical Chops (Side Note)

I hope that as the protocol team comes under PNF, their technical chops as an organization will grow as well. I think PNF would do well to have a pseudo CTO like role for an individual and team that oversees the technical side of grants and sockets. Large ticket items especially, like the gateway initiative, should have more technical eyes involved IMO. The PNF team right now is great, but they aren’t developers so in the meantime I’m trusting that they are still covering their technical needs.

[JackALaing (Jack Laing)]

Thanks for sharing these thoughts Shane, we’ve learned some good lessons and plan to share more on transparency next week.

We plan to make full use of POPs, with a wallet POP just published and more to come spanning protocol features, maintenance roles (e.g. docs), and other initiatives that support our keystones. The responses to these have been amazing and we plan to continue to leverage as much as we can.

That is indeed how sockets are intended. They are lightly permissioned seed grants to ensure that PNF, and governance, is not a bottleneck on value creation. If you are reading this and you have an idea to contribute to Pocket, just take the time to scope out your contribution, post it to the forum in the sockets category, and you’ll be “plugged in”. The only requirement to get started is that you commit to working in the open. Keep in mind though that if you don’t follow through on your commitment or there is no evidence of your impact you’ll be unplugged in a month. We will work on improving the documentation about this mechanism so that it is clearer to all potential contributors.

We also see the need for a technical perspective to oversee the protocol and related contributions. This is why we posted this referral incentive for anyone who helped us to hire a Protocol PM. I’m happy to say that our new Head of Product began onboarding earlier this week. He joins us after more than 10 years in data and product leadership roles, most recently with 2 years at Chainalysis and then 2 years at Polygon, where he built out their product organization and oversaw PoS mainnet, Supernets, Avail, and Applied Research. He will be filling the role that Jess previously held in helping Olshansky to manage the protocol roadmap but he is part of the PNF team and will advise on all technical/product matters. We’ll be publishing a forum post soon with details on all recent new hires in the protocol team.