PIP-26: Foundation for the Future

The DAO is our future. It’s actually amazing to see how much thought was put in this. I’ll repeat what I said not too long ago, genius idea/structure and a great progression to the DAO and building out a next generation decentralized community. 100% support

+1 to Mike point - not sure how much work it’d be but can see the confusing

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Thanks for posting this well-thought-through proposal @JackALaing and others. This is an important step in our maturation process and one I support.

While I am in favor of this proposal and the general move in this direction, I have concerns about a few different areas:

  • Subject matter experts being subject to removal - With Jack’s move to a position subject to removal from DAO voters, we’re putting a human resource at risk due to politics, not necessarily job performance.
    • To eliminate this, I’d suggest a separation of duties where the Directors serve to check Jack’s job performance rather than a group of DAO voters (myself included) not close to the actual work. Jack would lead the Foundation as an employee/contractor, while Dermot and Nelson would oversee his actions/performance.
    • The difference between the current approach and my suggestion is subtle, but the solution addresses one edge case where Jack is removed as Director but would enter a gray area concerning continued employment.
  • Uncertainty of Transition - Given the intermingled nature of Pocket Network, Inc. (PNI) and Pocket Network Foundation, it is unclear what assets the Foundation has and what PNI received as part of this separation. Without a budget and resources to act independently, the Foundation will likely be far less effective than desired, and in a worse case, be forced to be propped up by PNI. It would be helpful to DAO voters to understand what assets the Foundation controls and if it is in a position to stand independently of PNI.
  • Insiders in Control - While I believe that Dermot, Nelson, and Jack will act credibly neutral, the more skeptical among us will point to the fact that the (new) team controlling the Foundation is very closely aligned with PNI. Without proper controls, we could fall into old habits, replicating a scenario where PNF is a subject of PNI.
  • Lack of oversight for Foundation Assets - The current Foundation Directors are free to manage the Foundation Treasury and Assets as they see fit, independent from the DAO. This raises concerns that funds may be deployed in ways that are not in line with the wishes of the DAO. While some discretion is a good thing so the Foundation can move quickly, unlimited discretion is a potential problem. We should seek to institute some sort of DAO-based control and transparency of these assets and any spending.
  • Parameter Updates/Treasury Control - The Foundation should control its assets and those of the DAO. Without holding its treasury/parameter keys (held by PNI), it’s difficult for me to believe the Foundation is truly independent and neutral. The timeline for the implementation of the custody-based multi-sig remains unclear (unless I missed that). The question is: do we trust the proposed Directors enough with the assets of the Foundation and the DAO?

I’m working on a proposal that addresses many of these issues, but I believe this proposal is the logical first step in that process. I would like to hear what the proposers and the larger community have to say about these concerns raised above.

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+1 This is something I’ve been thinking about! Want to make sure we get everything right when it comes to a rebrand but we definitely need to do something about the confusion about the distinction between PNI/PNF as currently stands.

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Subject matter experts being subject to removal - With Jack’s move to a position subject to removal from DAO voters, we’re putting a human resource at risk due to politics, not necessarily job performance. To eliminate this, I’d suggest a separation of duties where the Directors serve to check Jack’s job performance rather than a group of DAO voters (myself included) not close to the actual work. Jack would lead the Foundation as an employee/contractor, while Dermot and Nelson would oversee his actions/performance. The difference between the current approach and my suggestion is subtle, but the solution addresses one edge case where Jack is removed as Director but would enter a gray area concerning continued employment.

Your proposed structure does not entirely remove the risk you identified, because the DAO can simply threaten to remove the directors if they do not fire me. We have already added the supermajority requirement to structural changes, which makes it less likely that a political faction of the DAO will be able to unilaterally change things. And if there is supermajority consensus from the DAO, odds are it’s not just political.

Whether or not the CEO or Executive Director of a non-profit foundation should be a voting board member is a subject of debate and many foundations do it differently. The argument for me stepping down into a non-board CEO role would be worth considering only if/when the Foundation reaches a scale that it makes sense to separate long-term governance from day-to-day operations. However, we are not going to be in that position for a while. Where we are today, the Foundation is an extremely lean organization that is just now becoming operational and will need to be dynamic in the coming years. It is most crucial that we can move fast and the board can make decisions that are informed by the day-to-day operations I’ll be managing. This also has the benefit of ensuring that I am subject to the highest level of accountability.

On a personal note, I’m willing to take the risk on my continued employment that I may be removed from the Foundation if the DAO is dissatisfied; I’ll still lend my DAO expertise in any case as an independent DAO contributor.

Uncertainty of Transition - Given the intermingled nature of Pocket Network, Inc. (PNI) and Pocket Network Foundation, it is unclear what assets the Foundation has and what PNI received as part of this separation. Without a budget and resources to act independently, the Foundation will likely be far less effective than desired, and in a worse case, be forced to be propped up by PNI. It would be helpful to DAO voters to understand what assets the Foundation controls and if it is in a position to stand independently of PNI.

PNI only receives assets from the Foundation through invoices that it submits for work done and this will continue to be the case.

The Foundation will be in a position to stand independently with an estimated runway of 1 year on stablecoins alone. We are basing the runway on stablecoins, not the value of PNF’s treasury of approx 23M POKT, as we do not want to be in a position where PNF has to sell its POKT holdings while the market for POKT is still so nascent.

In Q1, we are considering asking the DAO for more POKT to reimburse recent expenses that the Foundation incurred to set up public goods for the ecosystem (e.g. Copper custody integration fees, loans to market makers, exchange listing fees, etc), to fund a Foundation sponsored research program, amongst other new initiatives, and to provide the Foundation with more runway so that it can take a truly long-term view.

In the long run, we expect the Foundation to be able to extend its runway by managing the POKT treasury as the market for POKT matures and to reach a self-sustaining point through non-profit revenue models like donations.

Once the new Foundation team is appointed, we will get to work quickly on providing more transparency into Foundation financials, including sharing annual accounts and quarterly transparency reports (the latter being enforced by clause 4.42, as introduced by this proposal).

Insiders in Control - While I believe that Dermot, Nelson, and Jack will act credibly neutral, the more skeptical among us will point to the fact that the (new) team controlling the Foundation is very closely aligned with PNI. Without proper controls, we could fall into old habits, replicating a scenario where PNF is a subject of PNI.

If you want the people leading the Foundation to also have experience and expertise in Pocket Network, they are naturally going to have a connection to PNI. Therefore, if your benchmark for the suitability of Foundation directors is their (lack of) alignment to PNI, you’re setting the Foundation up to be an ineffective organization run by people who lack expertise about Pocket Network.

If you speak to any PNI employee, or any one who knows any of the proposed new board, I imagine that they will mostly opine on the fact that we all have high integrity and are never scared to speak up for what we believe is the right thing. In fact, I would say that the closest thing that Dermot, Nelson, and I have in common is our values, and not our connection to PNI.

The “proper controls” exist in any case. See below for more detail on the controls as per Cayman Law and the remedies available to the DAO as well.

Lack of oversight for Foundation Assets - The current Foundation Directors are free to manage the Foundation Treasury and Assets as they see fit, independent from the DAO. This raises concerns that funds may be deployed in ways that are not in line with the wishes of the DAO. While some discretion is a good thing so the Foundation can move quickly, unlimited discretion is a potential problem. We should seek to institute some sort of DAO-based control and transparency of these assets and any spending.

The Foundation’s treasury and the DAO treasury are distinct. This is a good thing for the ecosystem, since the Foundation will be able to operate on a longer-term time horizon than the DAO.

It is also important for the Foundation to be able to deploy funds based on their knowledge of what’s happening on the ground. If the DAO is not close enough “to the actual work” to check my performance, as you said above, how are they close enough to check the Foundation’s spending in the course of performing the work?

The Foundation does NOT have “unlimited discretion”. “DAO-based control and transparency” already exists. We will be required by the articles of the Foundation to publish quarterly spending and are ultimately subject to removal by the DAO. Further, every director on the Foundation is subject to director’s duties which require them to - amongst other things - show due skill, care and diligence when carrying out their duties, to avoid any conflicts of interests, and to always act loyally, honestly and in good faith in what they consider is in the best interests of the Foundation (and, by extension, the DAO).

Parameter Updates/Treasury Control - The Foundation should control its assets and those of the DAO. Without holding its treasury/parameter keys (held by PNI), it’s difficult for me to believe the Foundation is truly independent and neutral. The timeline for the implementation of the custody-based multi-sig remains unclear (unless I missed that).

The Foundation’s keys are held by the Foundation, not by PNI. Since Mike (PNI’s CEO) is currently a supervisor of the Foundation, he has access to the keys, but this does not mean that PNI controls the keys.

If this proposal passes, Mike’s access to the keys would be removed and control would be left to the newly appointed and existing directors. For extra security, we already have Copper custody support and are working with Copper to ensure that Copper wallets are capable of submitting governance transactions.

The question is: do we trust the proposed Directors enough with the assets of the Foundation and the DAO?

That’s up for each individual to decide. The fact is the directors have a fiduciary duty as directors under Cayman Law, are held accountable by the DAO’s ability to replace directors, and must provide regular transparency reports on spending. In the case of these proposed directors, all three of us have built our careers in the crypto space over a number of years and have professional reputations to maintain.

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Thank you for this evolutionary proposal!

A few questions before I note my two main concerns with the proposal. Some of these questions may seem incidental, but I want to make sure I fully understand it.

Can you provide info on PNF’s new operating systems?

What update(s) does this refer to?

What improvements are being considered? Will these be put to a DAO vote?

Will the DAO vote on whether to adopt this socialware?

What is the role of the “Secretary”? The proposal does not say. And who will be the Secretary?

Who is meant by “members” of the Foundation? Officers? Others?

What resolutions does this contemplate? And what is a special resolution? (it’s not defined in this PIP.)

What is contemplated here? Do you mean to the DAO?

For ease of reference, please provide a link as part of this proposal to the memorandum. Also, please provide a link to the DAO Constitution (mentioned in PNF’s Roadmap for Q4 22). There’s already a link to the Foundation Articles.

How much money (stable coins) are we talking about?

Can you give the background to how the foundation was funded? Regarding the DAO Treasury, does it consist wholly of the DAO’s 10 per cent share of POKT node servicer rewards? And I apologize for asking what is probably obvious, but who now controls access to the DAO Treasury and will PEP-26 change that?

You refer to these Articles in the proposal. Is the “Company” PNI? Will these sections need to be amended too – since PNF directors would no longer have any fiduciary duties to PNI?

How long are these positions for? “Permanent” implies appointments for life. To build in accountability, should term renewal not be required every few years by a DAO (supermajority?) vote?

I will reply with another post shortly on my main two concerns. One relates to the proposed definition of supermajority and the other to the weakening of DAO oversight over PNF spending.

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Hi @zaatar - jumping in here, although Nelson and Jack may wish to supplement my answers / give their own take:

Neither me or Jack have been appointed to PNF yet, so this item is a first-order priority once onboarded. We shared our initial thinking on the problems we see with the DAO and how PNF can help solve some of these coordination problems in our presentation in Tampa . See slides 102-112 here

And Jack also summarised the planned approach in his OP.

To answer you directly though, PNF’s operating systems ultimately refer to how we plan to embed PNF’s values and operating principles into its working practices; how we communicate, how we facilitate feedback, how we listen, how we act transparently, how we collaborate, and so on.

One fundamental way the community can keep PNF accountable is by referencing PNF’s public roadmap and KPIs. We want to ensure this is a two-way process, as PNF aims to partner with community stakeholders, not act as the parent. And to amplify the impact that all stakeholders in the ecosystem can make.

Updating the DAO constitution refers to the updates in Jack’s OP, ie:

This was covered in the SOTU update in Tampa, and relates to some ideas on removing more friction from the proposal process while also increasing contributor accountability. See slides 102-112 here

All changes that affect the proposal process will be subject to a DAO vote.

See the following screenshots from the presentation by way of example:

Socialware refers to mechanisms that create assurances through human relationships, eg cultural practices and processes like AMAs, debates, as well as recommendations on how we communicate and give feedback to each other. Well-developed mission, vision, values, and practices on transparency would fall into this bucket. It’s basically the social layer of the DAO. And we want to work hard to improve that. As I think we all agree that it could be a lot better.

Socialware is opt-in, and could be as simple as a new channel in discord, or some simple recommendations on what we - on behalf of the community - believe to be best practice. Or even simply a new website that collates certain key community resources. As a result, most new social ware initiatives will not be subject to a DAO vote. On the other hand, any thing that gives special permissions to any particular group, or has additional funding implications from the DAO - such as a proposal like GRIP - will require DAO approval.

The Secretary is Silverside Management , the Cayman Islands organisation paid to carry out company secretarial functions for PNF, such as filings etc

The Secretary is referred to in PNF’s articles, which are stored publicly on Github - see here

There are no “members” in the context of PNF as an “ownerless organisation”. If PNF were to change its legal structure to have shareholders or other beneficiaries, it would then have a set of “members”. However, such a change is not envisaged or planned, so you can ignore all references to members

Jack listed the types of resolutions that require an ordinary/special resolution in his original post, namely:

  • Director appointments (except where the appointment is temporary to fill a vacancy)
  • Director removals
  • Admission of new members (a legal term for Foundation members, of which we have none)
  • Restricting the subsequent admission of new members
  • Validating prior/future acts of directors which would otherwise be in breach of their duties
  • Designating and revoking the designation of beneficiaries
  • Amending previous Ordinary/Special Resolutions
  • Fixing a quorum for the transaction of business at a meeting of directors
  • Releasing directors from liability in connection with the discharge of their duties (except in cases of their own dishonesty)
  • Transferring the jurisdiction of the Foundation
  • Winding up the Foundation and determining the distribution of Foundation assets
  • Changing the Foundation’s name
  • Changing the provisions of the Foundation’s Memorandum
  • Altering the Articles of the Foundation

The legal definition of ordinary and special resolutions is referred to in the articles linked above

The Foundation is legally based in the Cayman Islands; if it were to change jurisdiction it would require a special resolution.

Sharing these here for posterity:

We are currently reconciling all finances, including all immediate outgoings, such as paying for the Copper custody arrangements on behalf of the whole ecosystem and putting together a budget for 2023.

Once the new Foundation team is appointed, we will get to work quickly on providing more transparency into Foundation financials, including sharing annual accounts and quarterly transparency reports (the latter being enforced by clause 4.42, as introduced by this proposal).

The foundation received a gensis grant of POKT as per the token distribution chart on the website

The Foundation has approx 23m POKT in its treasury as of today.

POKT was sold to investors as part of previous financing rounds, which has resulted in PNF having some stablecoins on its balance sheet.

PNF’s major outgoings over the last couple of years have been funding PNI’s development work on behalf of the ecosystem, payments to Copper (for custody), market makers and exchange listing fees.

This proposal does not affect the DAO’s treasury or how the DAO allocates such treasury.

As per Jack’s comment in the original post:

The articles refer to the foundation as the “Company”

PNF directors will have no affiliation or duty towards PNI

Similar to most board positions, there is no specific end date for these appointments. For now, the key priority is getting the foundation up and running and delivering value to the ecosystem. We expect the board to expand in the latter half of next year once certain critical operational and strategic items on the roadmap have been delivered. At that point, the hope is that the PNF board can be more focused on governance than operations, and it would likely make sense to have fixed term limits, or to explore other ideas around voting via the DAO, and so on. This will be a collaborative process, and we want to seek community feedback and input throughout.

Looking forward to your further questions and input. However, to respond to your last point, we are delivering more DAO oversight over PNF spending through quarterly transparency reports, which goes much further than any other foundation in the ecosystem. DAO control over appointment/removal of directors is another key aspect of “DAO-based control and transparency”. Ultimately, we expect to be removed if we aren’t doing our job. Furthermore, PNF will need financial support from the DAO in the future to continue its mandate, so it will be a crucial priority for those leading PNF to showcase to the community exactly how we are deserving of current funding and what we plan to do in the future to deserve any more.

FWIW, I’m very excited to work on unlocking Pocket’s DAO and its wider community. It’s a mission very close to my heart. And I like to think that we can do a decent job of leading by example and showcasing PNF’s operating philosophy, which we all put a lot of work into defining and aligning around. S/o to @b3n in this regard too!

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I’ll supplement Dermot’s answer with some additional clarifications.

This roadmap item actually refers to updating the document hosted here, which is a separate document from the Foundation’s Articles.

The Constitution itself is outdated in parts which are the main areas that should be updated. Although I also generally plan to perform an audit of the document to see where else we can tighten it up.

These updates would naturally need to be approved by the DAO.

It depends on whether adopting the specific upgrade would change the existing permission structure of the DAO.

Socialware will generally not require a DAO vote. Dermot explains this quite nicely. In general, if a system is mentioned in the DAO Constitution or Foundation Articles, it will require a vote to upgrade.

The “better governance documentation” roadmap item aims to clear up questions like this.

The Memorandum is a simple 3-page document which has no real reason to be amended. The list of “items that Ordinary/Special Resolutions govern” in the proposal was intended to be a comprehensive summary of the information that can be found in the Articles, rather than to be illustrative of things that might actually be changed.

In any case, I will explore whether we can publish the Memorandum to GitHub alongside the Articles.

*PIP-26

The DAO treasury is controlled by the Pocket Network blockchain itself. Access to transfer funds out of the DAO treasury is governed by the Access Control List (ACL). The Foundation’s account is the only account that the ACL currently grants permission to transfer funds out of the DAO treasury, which the Foundation does only when PEPs are approved. PIP-26 changes which actors operate the Foundation, and thus who signs the DAO transfers corresponding to PEPs.

Permanent doesn’t typically imply a life appointment. See permanent vs temporary employment.

I look forward to the rest of your feedback, though I disagree with this assertion.

While it is true that we are empowering the directors to make salary decisions without DAO approval, the directors already had the power to do all other spending of the Foundation’s treasury at their own discretion, and we’re also adding a requirement for the directors to publish quarterly remuneration. This represents, in my opinion, a net improvement in accountability over Foundation spending.

The transparency & DAO controls that we have in place over the Foundation are better than any other Foundation I’m aware of. I’d be happy to be proven wrong.

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Can you please point to the the source of this authority (which section of the Constitution or Foundation Articles)?

The Foundation’s Articles:

4.13 Subject to the Laws, the Memorandum, these Articles and the Bylaws, the business and affairs of the Company shall be managed by or under the control of the directors, who may exercise all the powers of the Company other than those that are required by these Articles or the Bylaws to be exercised by the general meeting or others.

“business and affairs” aren’t explicitly defined but they are referenced in relation to the bylaws, which fall under the authority of the directors:

Power to make bylaws

23.1 The directors may adopt bylaws that are not inconsistent with the Laws or the constitution.

Potential scope of bylaws

23.2 Bylaws may relate to any aspect of the business or affairs of the Company, or any of the duties or powers of the directors or their delegates, or others who have duties or powers under these Articles, including the way of achieving the Company’s objects, the benefitting of beneficiaries, the investment, management and protection of the Company’s assets, the remuneration of directors and their delegates, the delegation of the directors’ duties and powers, the supervision of the management of the Company, and the appointment of advisers and other service-providers.

The list of exceptional powers “that are required by these Articles or the Bylaws to be exercised by the general meeting or others”, are:

  • Director appointments (except where the appointment is temporary to fill a vacancy)
  • Director removals
  • Admission of new members (a legal term for Foundation members, of which we have none)
  • Restricting the subsequent admission of new members
  • Validating prior/future acts of directors which would otherwise be in breach of their duties
  • Designating and revoking the designation of beneficiaries
  • Amending previous Ordinary/Special Resolutions
  • Fixing a quorum for the transaction of business at a meeting of directors
  • Releasing directors from liability in connection with the discharge of their duties (except in cases of their own dishonesty)
  • Transferring the jurisdiction of the Foundation
  • Winding up the Foundation and determining the distribution of Foundation assets
  • Changing the Foundation’s name
  • Changing the provisions of the Foundation’s Memorandum
  • Altering the Articles of the Foundation

Also in the Foundation’s Articles, which implies that the directors would have accounts that they would need to share at the request of the DAO, implying that the DAO wouldn’t have already seen and approved them:

4.35 The directors shall give to the DAO and to the general meeting (or the persons who have the right to attend the general meeting) such reports, accounts, information and explanations concerning:
(a) the Company’s business and affairs; and
(b) the discharge of the directors’ duties and the exercise of their powers,
as may be required by a DAO Resolution of the Company.

Additionally, the Foundation was given a separate genesis allocation (PNF: Reserves) from the DAO treasury (DAO). If the Foundation’s spending was ever intended to be controlled by the DAO, there wouldn’t be separate allocations.

Note also that, in the DAO constitution, one of the Foundation’s original objectives is described as being to “Request funds from the Council [DAO voters] for specific projects that have strategic value to the Pocket Network ecosystem, by submitting PEPs”, implying that the Foundation would subsequently have discretion to allocate said funds, and that the DAO’s treasury is explicitly defined as “an account which holds the DAO’s common funds on Pocket Core, funded by Pocket Core’s Block Reward, and whose control is determined by the ACL”.

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Thank you for this! Very helpful. And necessary for an informed view of, and response to, this PIP.

Have any bylaws been adopted by the foundation? If so, please provide a link so that the community can view them.

Any update on this?

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the articles of the Foundation are equivalent to what Bylaws are for a US corporate entity, so there is no separate document in this regard. You can view the Articles as complete for these purposes.

We have asked Silverside Management, the company secretarial service for PNF, to provide a copy of the memorandum. We should hopefully have a copy by the end of tomorrow.

As an FYI, the memorandum is an artifact from incorporation and doesn’t contain any substantive provisions that relate to the ongoing operations and governance of the Foundation

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Here is the memorandum.

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Thanks Jack. Still working on my follow-up. Please provide at least a week’s notice before you put this PIP up for a vote.

We were aiming to put it to a vote no later than next Wednesday, so that we don’t overlap with the holiday period. Otherwise we risk undermining turnout due to voters traveling and/or we need to delay the vote into January.

Are you saying that once the DAO approves a PEP submitted by the Foundation, the Foundation can do whatever it wants with the money - in your words: “subsequently have discretion to allocate said funds”? Or would the Foundation’s use of any DAO Treasury money not have to adhere strictly to the terms for use of the funds as set out in the PEP?

It would of course be subject to the terms of the PEP. Though the PEP might request a lump sum for use in the Foundation’s own discretionary grant program. As another example, the PEP might request a reimbursement for an expense the Foundation already elected to incur at their discretion, such as the Copper custody integration or an exchange listing fee, the latter being something the Foundation can’t publicly ask permission for and thus a good example of why we need the Foundation to be able to have discretion.

And, of course, the Foundation’s current funds do not have any terms attached.

What do you mean “publicly ask permission for”? If you mean ask the DAO, why can’t the Foundation ask the DAO to cover listing fees, even if it’s for reimbursement of money dispensed from the PNF treasury?

And somewhat related, is the Foundation including its treasury part of Pocket Network?

Because the Foundation can’t communicate about prospective exchange listings before they’re official.

Reimbursement is another thing but you seem to be implying in your line of questioning that the Foundation should not have any discretion to spend funds without first asking the DAO for permission.

I don’t understand your last question.