PIP-38: Proposal for Pocket Network Governance and Economic Reform (SECOND REVISION)

[zaatar]

Oversight Question

The latest revision of PIP-38 makes Michael Executive Director of PNF and adds two other directors, with you (Shane) being one of them.

It amends the Articles of Association as follows: “Subject to the supervisory powers of the remainder of the board of directors …the Executive Director …shall have general supervision, direction, and control of the business and the officers of the Company and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation…”

What exactly are your “supervisory powers”? Can you and the 3rd director overrule the decisions of the executive director?

[zaatar]

Reflections on Retro-Funding

@RawthiL

I agree with this, allowing for retro funding of created value is much more clear and fair. Or even allow for part (a large one) of the requested milestones to go through retro funding.
For price target it seems right to let the DAO vote on who deserves to be compensated, as you clearly note that the price can go up for several reasons and many of them cannot be controlled by the PNF/Directors…

What’s the benefit of paying any rewards outside of retro-funding - presumably based on decisions by Michael and his PNF co-directors? In the context of PIP-38, retro-funding is the most fair and clear process for rewarding contributors.

For agility, PIP-38 expands the decision-making powers of the directors, and limits the DAO’s, regarding protocol changes they deem necessary to revitalize the Pocket Network and lift the token price. This justification for restricting DAO control does not apply to reward distribution; leaving compensation decisions to PNF is unnecessary and in no way furthers the core objectives of PIP-38.

@RawthiL

…However I don’t know how a retro funding will work to compensate the Shannon team. The DAO cannot properly judge individuals of the dev team, it would seem wrong to let the DAO vote on their compensation package when they deliver what they were asked for.

First, before determining whether the DAO should reward Grove employees for shipping Shannon, there needs to be full disclosure of what they’ve already got and will get from Grove, including any equity in Grove, and on top of that, how much more Grove could give them in POKT and equity. In other words, Michael needs to demonstrate why a DAO incentive is necessary to get Shannon to the finish line. Grove can delay disclosing what it’s giving its team and what more it could give till an application for retro-funding after Shannon ships. That would be simplest as it avoids the distraction of this debate now - better not to bog down PIP-38.

Wait for $0.50 Price Target to Reward Shannon Shippers

I recommend delaying DAO rewards for Shannon shippers till the retro-funding round triggered when the POKT token hits its first price target ($0.50). At that point, the DAO will be flush with funds and able to generously compensate them if they make a good case for additional payments. The DAO will almost surely regard an application for retro rewards favorably at that point, since the completion of Shannon will likely have factored heavily in the token’s price rise.

Further, waiting for the token to hit its first price target before rewarding Shannon shippers will avoid duplication of payments: compensating them upon the shipping of Shannon and then later rewarding all those who help raise the token price to $0.50 will see the Shannon team get rewarded twice.

Another reason to wait till the first token price target before giving retro rewards to the Shannon team: If Shannon ships and the token price stagnates, are DAO rewards justified?

The DAO does not have to “judge individuals of the dev team” to decide on whether DAO rewards are justified. As to the distribution of any retro rewards, the DAO would merely consider the same information as the PNF directors, were they to decide on how to allocate the 48m POKT currently being proposed.

[steve (Steve Tingiris)]

I voted in favor of the original version of this proposal for three reasons. First, the goals were clear (ship Shannon, get on T1 exchanges, drive up the token price). Second, I trust @o_rourke and the people around him and believe he is the best person to lead PNF. Third, not voting for this proposal is a vote for more uncertainty and a lack of leadership.

@zaatar

In good conscience, we cannot support PIP-38 unless retro-funding replaces the ill-conceived 48m and 98m POKT compensation pools including the one for shipping Shannon. Also, clarification must be provided on what constitutes hitting a price target.

Let’s not overcomplicate this, @zaatar. My guess is that if you pick a fair way to clarify what constitutes the price target, @o_rourke would be fine with it. Also, in my opinion, if the price stays over the target for 90 days, that’s more than fair. For everything else, we need to put our trust in his leadership and hope for favorable market conditions. The right combination of strategy, tactics, incentives, etc, is anyone’s best guess.

@shane

By Grove restructuring itself, and with this new proposal not shutting down the DAO and fully centralizing PNF, I feel there has been a lot of de-risking from the original proposal.

@o_rourke is listening to feedback, as evidenced by the revisions to this proposal. So, I’m guessing he’ll continue to consider suggestions. But there is no perfect plan, and no amount of deliberation or groupthink will change that.

Continuing to do this (debate and deliberate) is the riskiest thing we can do. Again, there are no perfect plans, but a plan without leadership and a clear vision is a plan to fail for sure.

[BTTheDefendoooor (BT)]

Your stance is incredibly baffling. I just read all the pushback you gave the CREDS system, and now you’ve completely reversed your position on always having “trustless” model.

It’s amusing how you’re now happy to give your complete “trust” to Mike after advocating for a trustless model just a few months ago.

@steve

I trust you, @Dermot, @b3n, and the rest of the PNF team. But this isn’t the way if we’re trying to create a governance model that works regardless of our levels of trust in one another.

@steve

However, we are all aligned in wanting a system that can be trusted regardless of who is leading PNF in the future. So, from my perspective, this is not about getting comfortable now. It’s more about keeping us comfortable over the next “3-5 years and beyond”.

What a difference the author of a proposal makes.

I won’t question your motives, but this clearly shows how favoritism runs rampant in the DAO. You spent hours critiquing the CREDS system and constitutional changes but haven’t pushed back on anything in Mike’s proposal and were even happy to accept the initial proposal.

@steve

There are too many significant changes conflated into this one proposal. I’ve spent over 12 hours reviewing the changes and considering their implications, and I still don’t feel like I fully understand them.

Lastly, you speak of not voting for this proposal as a lack of leadership. Far from it. Leadership was demonstrated under the old PNF. What Mike has displayed is anything but.

[o_rourke (Michael O'Rourke)]

@zaatar

Retro-funding is the way to go with compensation for sustained price rises that can be traced to actions by contributors. Michael, however, is a special case. To properly align his financial interests with those of the DAO, he should either agree to retro-funding (or have to reach agreement on threshold options with TWAPs of at least six months). Replacing the price-target payouts with retro-funding preserves all the upside of compensation and eliminates all the downsides including inflation.

Thanks for the feedback. Regarding retro funding, it’s not clear to me how that is materially different than the current structure. The goals are clear. The value created is clear. I need unanimous agreement from the board to receive anything.

Will change the 30 days trailing average to 90 days. I think this is reasonable.

@zaatar

The proposal should make clear that if Michael loses his directorship, he is no longer eligible for compensation for price targets that are hit subsequently.

This is onerous. What if a different director takes over and I decide to push things from a different direction? Still need unanimous acceptance from the directors to make anything happen.

@zaatar

For example, what if the price goes up without appreciable changes to the fundamentals? Can we really expect the token appreciation to endure if nothing on the ground changes? Further, how do we attribute the growth in value? Is that due to Michael and/or other contributors? External factors?

The real question is: Do Michael and/or other contributors deserve compensation if the macro condition improves but the underlying fundamentals remain the same? Other measurements that provide a more well-rounded picture of progress should be considered. Those could be:

• Trading volume to X value or increased by X%
• Listings on Tier 1 exchanges
• Paid relays increased by X value or X%
• Net inflation (supply growth - burn) less than X%
• Gateways increased to total count of X
• Max X% of paid relays from a single source (a metric of diversification)

Having one clear, simple goal is the most important thing here. We know what the goal is, and the expected outcome. To hit these goals all of the above will factor into it.

@zaatar

What exactly are your “supervisory powers”? Can you and the 3rd director overrule the decisions of the executive director?

Yes, the two directors are able to overrule decisions.

[steve (Steve Tingiris)]

Thanks for your feedback, @BTTheDefendoooor .

@BTTheDefendoooor

It’s amusing how you’re now happy to give your complete “trust” to Mike after advocating for a trustless model just a few months ago.

@BTTheDefendoooor

What a difference the author of a proposal makes.

For the record. I was not “advocating for a trustless model,” - I was pushing back on a proposal that I felt would have centralized control (within PNF) while obfuscating accountability. It’s not about the author; it’s about the proposal.

If you read all my comments on CREDS, you would have also seen that I said I would vote for a proposal that centralized control if there was clear accountability.

@steve

I would be more inclined to vote to turn all decision-making over to PNF. At least that way, there would be accountability. This proposal will make it almost impossible to understand the voting system and impossible to audit the outcome of a vote. So nobody will be responsible or able to challenge anything.

I did trust the previous leadership and would likely have supported a proposal similar to this one if they had authored it.

@BTTheDefendoooor

Lastly, you speak of not voting for this proposal as a lack of leadership. Far from it. Leadership was demonstrated under the old PNF. What Mike has displayed is anything but.

The previous leadership stepped down. In my opinion, stepping down in the face of adversity is not leadership. So, yes, from my perspective, a vote against this proposal is a vote for a lack of leadership.

[RawthiL (Ramiro | POKTscan)]

@o_rourke

Thanks for the feedback. Regarding retro funding, it’s not clear to me how that is materially different than the current structure. The goals are clear. The value created is clear. I need unanimous agreement from the board to receive anything.

I think that the difference is that instead of letting the directors decide on how rewards are distributed, the DAO can vote on that by means of a retroPFG, similar to the one we had previously.

I think this is not a bad idea, as it gives the DAO the power to decide on how rewards are distributed. Also, this gives the community members reasons to become DAO voters.

The impact of actions on price increase is difficult to measure, and I think is highly subjective too. A mechanism like retro PGF can be used to avoid accusations on how rewards are distributed.

[o_rourke (Michael O'Rourke)]

I have made a few adjustments to the proposal per @zaatar’s suggestions, including clarifying the recipient’s wallet address and increasing the vwap to 90 days trailing.

I have included @shane in the proposal. After speaking to several folks over the last week I will be amending the proposal to include Steve Tingiris as a Director. I am confident in his skillset alongside myself, Shane and the board observers.

For those of you who aren’t familiar with @steve:

He founded and successfully exited 3 tech companies, has consulted directly with NASA, the IRS, Microsoft, Google, Verizon, and Twilio through his career. He authored one of the first books on GPT-3 that was published by a major publisher in 2021 and has been focused on AI since 2013.

Steve’s background in AI, technical expertise and his expressed interests in economics will help fill out key needs for us moving forward.

Most importantly, he’s been involved with Pocket since before the launch of mainnet and an active and objective community member.

[BTTheDefendoooor (BT)]

I strongly oppose appointing @steve as a Director as part of this proposal. The community initially pushed back on the proposal because significant oversight was needed on the Executive Director’s decisions.

While I appreciate Steve’s experience and credentials and once respected his pragmatic approach to evaluating proposed changes that could impact the network, this approach was clearly absent from the outset of this proposal.

Steve was very quick to cede complete control and vote for the first version of the proposal without his usual measured approach, by his own admission, because he fully “trusts” Mike. This doesn’t seem like someone who would provide the necessary oversight that the community wants when needed.

There have been concerns about not wanting Mike’s “Yes men” on the board, and unfortunately, this appointment seems to align with those fears.

[zaatar]

New Compensation Scheme: Cut and Paste

Why DAO-Controlled Retro-Funding is an Absolute Necessity

In clear violation of transparency and conflict of interest principles, Michael’s current plan allows him and his co-directors to make decisions behind closed doors on their own compensation. In addition, our DAO-administered retro-funding scheme allows for reducing the price-target milestone rewards if necessary to protect the health of Pocket Network, thereby avoiding the possibility of large payouts that could drain the treasury and leave the DAO unable to fund vital operations. Other reasons why our retro-funding scheme must replace the current compensation plan are detailed below.

Overview

Below you will find the fully developed retro-funding scheme that we propose in place of the current compensation scheme of the Second Revised version of PIP-38. Supply growth calculations (by Ramiro) show that the number of tokens available as rewards for hitting each price target is very similar - and for the $1 and $5 marks, even larger. Price targets will be deemed to have been hit based on a 120-day TWAP to ensure that rewards are paid for improvement of POKT fundamentals, not price blips. The benefits of our retro-funding scheme will be summarized in bullet form at the end of this post.

Cut and Paste

We recognize that replacing the current compensation scheme of PIP-38 with several rounds of retro-funding takes time and that the effort needed to draft this change might work against its adoption. Accordingly, to spare Michael the work involved, and to help move the proposal to a speedy vote, we provide below the amended scheme that Michael can cut and paste into the final version of PIP-38.

Current Compensation Scheme

@o_rourke

Proposals: Remuneration Packages

Summary: Each of the following is a proposed change remuneration package – the first to the developers of Shannon and the second to Michael O’Rourke individually. This omnibus form is proper, despite the language of Section 6.2 of the Constitution, because the proposed changes below are meant to be considered in relation to and combination with one another and these proposed changes cannot feasibly be divided into separate proposals without losing their meaning.

Reasoning: The goal is to align interests between the various parties building and promoting the Pocket Network.

a. Shannon Remuneration

Approve the following incentive-based compensation package for Shannon developers and contributors.

Subject to the oversight and determination of the Foundation board of directors, the developers and contributors to the Shannon upgrade to the Pocket Network shall be entitled to the following grant of POKT:

• 48,000,000 POKT

Remuneration Package Terms:

• This incentive opportunity will be time limited and will expire three years from the date of approval.

• Payment in satisfaction of this incentive will come from the DAO treasury, be held separately in a multi-signatory wallet controlled by the Foundation board of directors following grant and be distributed to the various developers and contributors at the Foundation board unanimous decision and discretion.

• Except as otherwise determined by the Foundation, upon advice of counsel, any POKT earned pursuant to this incentive package will be locked for four years from the date of receipt, with 25% unlocking each year thereafter.

• Michael O’Rourke will be personally excluded from this incentive.

b. POKT Performance Remuneration

Approve the following incentive-based compensation package for Pocket Network developers and contributors.

Subject to the oversight and determination of the Foundation board of directors, the developers and contributors to the Pocket Network shall be entitled to the following grant of POKT:

• $0.50: 48,000,000 POKT*

• $1.00: 48,000,000 POKT*

• $3.00: 98,000,000 POKT*

• $5.00: 98,000,000 POKT*

*All prices are the average trailing 30-day price.

Remuneration Package Terms:

• This incentive opportunity will be time limited and will expire three years from the date of approval.

• Payment in satisfaction of this incentive will come from the DAO treasury, be held separately in a multi-signatory wallet controlled by the Foundation board of directors following grant and be distributed to the various developers and contributors at the Foundation board unanimous decision and discretion.

• Except as otherwise determined by the Foundation, upon advice of counsel, any POKT earned pursuant to this incentive package will be locked for four years from the date of receipt, with 25% unlocking each year thereafter.

Replacement Scheme: Retro-funding Rounds

Cut and paste starts here:

POKT Performance Remuneration

Approve the following incentive-based retro-funding rounds for Pocket Network developers and contributors.

The Foundation board of directors shall organize retro-funding rounds to reward developers and contributors to the Pocket Network when the POKT token price reaches each of the following targets:

• $0.50:

• $1.00:

• $3.00:

• $5.00:

*All prices are the average trailing 120-day price based on data available at coingecko.com.

• The price targets must be achieved within three years from the passage of PIP-38, though the DAO can extend this time frame by vote that terminates before the three years lapse.

• Payment of the retro rewards will come from the DAO treasury, be held separately in a multi-signatory wallet controlled by the Foundation board of directors and be distributed to the various developers and contributors as per voting by the DAO.

• PNF will create a neutral committee to oversee all retro-funding rounds. The composition of the committee can vary between rounds.

• Depending on tokenomics at the time of the retro-funding rounds, PNF may require that token grants, or a portion thereof, be locked for a given time period from the date of receipt, with a set percentage unlocking each year thereafter.

• Retro grants will be awarded to applicants whose work is shown to have had a positive impact on the token price and on Pocket Network fundamentals. The DAO may choose to widen the scope of recipients to include other contributors to the network or ecosystem generally.

• The Grove team behind the work on Shannon and launching it on mainnet will be eligible to apply for retro-funding as part of the first round held after Shannon’s mainnet launch. Payments Grove employees already received for their work on Shannon could be considered in determining the size of any retro grants.

Percentage of ‘Value Created’

• The DAO will allocate 20% of “value created” for retro-funding grants after achievement of the first milestone ($0.50) and 10 percent for the $1, $3 and $5 milestones. “Value created” is defined as the total of POKT tokens in the treasury wallet (6386713deb27b609daad5e2e32ee6591753e5f4e) multiplied by the price target that was reached minus the amount of POKT tokens in the treasury wallet (6386713deb27b609daad5e2e32ee6591753e5f4e) at the time of PIP-38’s passage multiplied by token price at that time. PNF or the DAO can reduce the percentage of “value created” to be distributed at each milestone if necessary to preserve the value of the POKT token and Pocket Network health.

• If a price target (or targets) has (have) been achieved before a funding round for the previous price target has started or if it has started but the application window is still open, the two (or more) rounds, together with their respective reward pools, shall be combined into one.

Cut and paste ends here.

The following chart exemplifies how the size of a retro-funding rewards pool will be determined.

Item	Amount	Note
Treasury Amount	30,554,471	6386713deb27b609daad5e2e32ee6591753e5f4e
Current POKT Price	$0.04	Needs to be calculated at time of passing
Current Treasury Value $	$1,222,179	Needs to be calculated at time of passing
Future Treasury Amount	300,000,000	Input
Future POKT Price	$1.00	Input
Future Treasury Value $	$300,000,000
% Payout	10%
Value Increased	$298,777,821
Payout $	$29,877,782

The following chart compares the maximum rewards available for retro grants at each milestone with the payouts proposed under Michael’s current compensation scheme.

PIP-38 Reward Change

Quarter	Supply POKT	DAO Treasury	DAO Value	POKT Price	Tag	DAO Treasury Change	Milestone Reward	Milestone POKT	Mike Proposal		Diff
Q0	1.68B	30M	$1.52M	0.05	Today	0	$0.00		0.00	$0.00	$0.00
Q1	1.77B	93M	$4.69M	0.05	-
Q2	1.86B	160M	$8.01M	0.05		$6 M
Q3	1.95B	230M	$115M	0.5	1st Milestone	$113M	$22M	45M	48M	$24M	-$1.28M
Q4	2.05B	303M	$151M	0.5	-	$150M
Q5	2.15B	380M	$190M	0.5	-	$188M
Q6	2.26B	461M	$230M	0.5	-	$229M
Q7	2.37B	546M	$546M	1	2nd Milestone	$544M	$54M	54M	48M	$48M	$6.46M
Q8	2.49B	635M	$635M	1		$633M
Q9	2.61B	728M	$728M	1	-	$727M
Q10	2.75B	827M	$2.48B	3	3rd Milestone	$2.48B	$247M	82M	98M	$294M	-$46M
Q11	2.88B	930M	$2.79B	3	-	$2.78B
Q12	3.03B	1038M	$5.19B	5	4th Milestone	$5.19B	$519M	103M	98M	$490M	$29M

Comparison between retro-funding and Michael’s current compensation scheme

Comparing the proposed retro-funding method with Michael’s scheme, we see that the total pay package values for each scheme are very similar: slightly lower at $0.50, $6.46m more at $1, and $46m less at $3 and $29m more at $5.

The retro-funding rewards pool sizes noted above will be reduced by any DAO spending.

As the DAO treasury will be growing at a fast clip due to the 75% DAO take, the longer it takes to reach a milestone, the fatter the DAO treasury will be at that time and the larger the POKT pool available for payment of retro-funding grants.

There is a clear correlation between the wealth of the DAO and the rewards that it will be distributing for each milestone. This is much healthier for the DAO’s finances than being locked into paying compensation irrespective of the treasury contents as in Michael’s current version of PIP-38.

Why DAO-controlled Retro-Funding is Superior to the Current Scheme

• Better for Decentralization. DAO keeps control of its treasury (better for decentralization). There is absolutely no justification for the DAO to relinquish control (to PNF) over the distribution of its treasury funds as part of a compensation scheme; maintaining control over compensation spending in no way interferes with PIP-38’s core objectives - revitalizing Pocket Network and lifting the token price.

• Avoids Egregious Conflicts of Interest. Having the DAO make decisions on the compensation spending will address the inevitable conflicts of interest that arise when PNF directors seek a piece of the compensation pie. Leaving the decision on how to apportion compensation to the directors will lead to an untenable conflict of interest. Even if they were to recuse themselves from voting on their own compensation, having the directors vote on compensation for their co-directors is equally unacceptable.

• Transparency and Fairness. A close-door process where the Directors (including the Executive Director) decide on their own compensation violates DAO principles of transparency and fairness. Further, while PNF may publish the reasons for its allocation decisions, by having the DAO control the grant application process, openly engage with applicants, and vote on the grants, the process will be far more fair and transparent.

• Flexibility. The DAO or PNF can decide to reduce the reward pool size if necessary to protect the token value or health of Pocket Network. This makes it possible to avoid large payouts that could drain the treasury, leaving the DAO unable to pursue other important activities. Also, based on tokenomics at the time of each retro-funding round, PNF will decide whether to require reward locking and unlocking periods.

• Consideration of Previous Payments and No Double Dipping. Eliminates the separate funding round for the Shannon shippers upon Shannon mainnet launch, and instead, makes the Grove dev team eligible for additional compensation at the price milestone that follows the launch. This avoids a situation where they get rewarded twice for the same work, and also allows the DAO to consider any previous payments from Grove in determining appropriate additional compensation.

[Jinx (Chris Jenkins)]

Steve was one of my suggestions in our conversations around this in the Den. His resume and relevant skill set would make an excellent addition to the PNF team. As I mentioned when we discussed this on the TG, we can either work to have the most qualified people in director roles possible, or we can create an adversarial board at the foundation. Which of these is better for POKT? The former moves us ahead towards our mission. The latter simply acts as a constant stumbling block in a time where we need to move fast.

Seeing our relays climbing again this week should be reminder of who we are and what we do. LFG.

[zaatar]

@o_rourke

Thanks for the feedback. Regarding retro funding, it’s not clear to me how that is materially different than the current structure. The goals are clear. The value created is clear. I need unanimous agreement from the board to receive anything.

DAO-Vote Retro-funding Addresses Interest Conflicts Where Directors Seek Compensation Pie

The retro-funding scheme that I propose (see “cut & paste” version above) is materially different for the following reasons:

1. the DAO will vote on allocation of the funds not the directors. Not only is this more democratic, but in the inevitable scenario where directors seek a share of the compensation pie, having the DAO decide on entitlement also addresses obvious conflicts of interest;

   Leaving the decision on how to apportion compensation to the directors leads to an untenable conflict of interest. Even if they recuse themselves from voting on their own compensation, having the directors vote on compensation for their co-directors is equally unacceptable.

   As far as achieving the core objectives of PIP-38 is concerned - revitalizing Pocket Network and lifting the token price - there is absolutely no justification for the DAO to relinquish control (to PNF) over the distribution of its treasury funds as part of a compensation scheme.

2. while the reward pools are comparable in size between your version and mine, in my version the DAO or PNF can decide to reduce the reward pool size if necessary to protect the token value or health of Pocket Network. Reward locking and unlocking periods are not automatic; PNF will decide on these based on tokenomics at the time of each retro-funding round;

3. my version eliminates the separate funding round for the Shannon shippers upon Shannon mainnet launch, and instead, makes the Grove dev team eligible for additional compensation at the price milestone that follows the launch thus avoiding a situation where they get rewarded twice for the same work - and also - allowing the DAO to consider any previous payments from Grove in determining appropriate additional compensation

4. while PNF may publish the reasons for its allocation decisions, by having the DAO control the grant application process. openly engage with applicants, and vote on the grants, the process will be far more fair and transparent.

5. my version allows the DAO to extend the period for reaching the milestones beyond 3 years

@o_rourke

Will change the 30 days trailing average to 90 days. I think this is reasonable.

Ninety days is too short. My cut-and-paste version now sets the TWAP at 120 days.

@o_rourke

This is onerous. What if a different director takes over and I decide to push things from a different direction? Still need unanimous acceptance from the directors to make anything happen.

I have removed this restriction from my cut-and-paste version. You are able to apply for retro-funding grants at all price milestones whether or not you’re still a PNF director.

[o_rourke (Michael O'Rourke)]

@zaatar

the DAO will vote on allocation of the funds not the directors. Not only is this more democratic, but in the inevitable scenario where directors seek a share of the compensation pie, having the DAO decide on entitlement also addresses obvious conflicts of interest;

Leaving the decision on how to apportion compensation to the directors leads to an untenable conflict of interest. Even if they recuse themselves from voting on their own compensation, having the directors vote on compensation for their co-directors is equally unacceptable.

As far as achieving the core objectives of PIP-38 is concerned - revitalizing Pocket Network and lifting the token price - there is absolutely no justification for the DAO to relinquish control (to PNF) over the distribution of its treasury funds as part of a compensation scheme.

@zaatar

while PNF may publish the reasons for its allocation decisions, by having the DAO control the grant application process. openly engage with applicants, and vote on the grants, the process will be far more fair and transparent.

The purpose of this proposal is to recentralize control through the Foundation for a temporary period of time. We will have a transparent and public framework decided and shared with the community well ahead of hitting any milestones, which we expect to get feedback for. I do not think it is prudent to give control of compensation to those who aren’t leading the effort, though feedback on the framework will be welcome as it has been on this proposal.

There are many checks and balances in this proposal. I hope the process we’ve gone through the last three weeks gives you confidence in future decisions that are made.

@zaatar

my version eliminates the separate funding round for the Shannon shippers upon Shannon mainnet launch, and instead, makes the Grove dev team eligible for additional compensation at the price milestone that follows the launch thus avoiding a situation where they get rewarded twice for the same work - and also - allowing the DAO to consider any previous payments from Grove in determining appropriate additional compensation

Shipping Shannon as a milestone is straightforward. I do not think it needs to be tied to price. The work involved is difficult and requires some of the deepest thinkers and best engineers in the world to make it happen. I believe they deserve it.

@zaatar

Ninety days is too short. My cut-and-paste version now sets the TWAP at 120 days.

90 days significantly reduces risk of manipulation. The price being above the indicated amounts for that period of time tells me that it is genuine in what is a very volatile, thin market.

[o_rourke (Michael O'Rourke)]

I have put the proposal up for vote:

https://gov.pokt.network/#/proposal/0x64a7c5af6d9e5d8c146c3ebc0eafe3c53e71a9696e08d4ab10196c1d7fd72414

[zaatar]

Yes, Recentralize Control - But for What?

@o_rourke

The purpose of this proposal is to recentralize control through the Foundation for a temporary period of time. We will have a transparent and public framework decided and shared with the community well ahead of hitting any milestones, which we expect to get feedback for. I do not think it is prudent to give control of compensation to those who aren’t leading the effort, though feedback on the framework will be welcome as it has been on this proposal.

There are many checks and balances in this proposal. I hope the process we’ve gone through the last three weeks gives you confidence in future decisions that are made.

Centralized control is required only for decisions affecting token price and network/ecosystem health and performance. I support that part of PIP-38.

However, there is absolutely no conflict between these core objectives and the DAO keeping control of the compensation process. No amount of transparency, or checks and balances, can eliminate the conflict of interest where the decisions on the rewards to be paid to the directors (“those leading the effort”) are made by those same directors. Leaving control of reward allocation to those who themselves will be seeking rewards is anything but “prudent.”

DAO Can’t Write a Check in the Dark

@o_rourke

Shipping Shannon as a milestone is straightforward. I do not think it needs to be tied to price. The work involved is difficult and requires some of the deepest thinkers and best engineers in the world to make it happen. I believe they deserve it.

Yes, they certainly deserve a generous paycheck.

But as I have said elsewhere, to decide on whether the DAO should be writing it and for how much, we need to know what Grove is giving them (tokens and equity) and could give them more of. All the relevant details can be disclosed as part of a Grove dev-team retro-funding application and the DAO could vote on it. The retro-funding application could be made as soon as Shannon launches on mainnet - I’m now persuaded that it need not be tied to price. Or you could disclose this information now and DAO voters could consider it in deciding whether to vote for PIP-38. However, with what we know now, it’s impossible to say whether 48 million is the right number.

TWAP: Longer is Better

@o_rourke

90 days significantly reduces risk of manipulation. The price being above the indicated amounts for that period of time tells me that it is genuine in what is a very volatile, thin market.

If the purpose of the payouts is to reward the creation of lasting value and an improvement in the Pocket Network’s fundamentals, a longer period is better. My preference is 180 days (though I dropped it to 120 in my cut-and-paste plan above, in the hope that it would induce you to accept the plan). Should the DAO be paying out potentially many millions of dollars when the risk of manipulation is only “significantly reduced.” We need to be able to rule out the possibility of manipulation.

Flexibility Needed to Reduce POKT Rewards Pool

@zaatar

while the reward pools are comparable in size between your version and mine, in my version the DAO or PNF can decide to reduce the reward pool size if necessary to protect the token value or health of Pocket Network

You do not address this point. By allowing for reducing the size of the rewards pool, my compensation scheme avoids the risk of large payouts that could drain the treasury and leave the DAO unable to fund vital operations.

[Breezytm]

Unfortunately you are wasting your time. The proposal had the vote while it was still in draft. Making any modifications to it is only to make face and further cement it as “Mike listened to the community and made adjustments.” - This is chess not checkers my friend. The ex PNF directors knew this and tried to explain it to us several times. Unfortunately we were not listening.

You are a kite dancing in a hurricane.

[BTTheDefendoooor (BT)]

Well said, my friend.

@Breezytm

You are a kite dancing in a hurricane.

[zaatar]

I would support PIP-38 if it adopted the compensation scheme set out below (which modifies the one I posted above). If you truly wish to build value over the next few years, a few more weeks to properly debate and hopefully adopt a DAO-managed scheme should not be an issue.

New, Improved Compensation Scheme

Highlights

• Preserves DAO control over its own Treasury regarding compensation

• Does not conflict with core objectives of PIP-38 to revitalize and grow POKT network

• Eliminates inevitable conflicts of interest inherent in current PIP-38 compensation scheme

• Allows for variation of compensation payouts to accord with tokenomic circumstances and reason

PIP-38 Amendments to Constitution and Articles of Association

If PIP-38 passes, the following clause shall be added where appropriate to both the Pocket Constitution and the Articles of Association:

“The DAO powers necessary for the carrying out of the DAO-managed compensation scheme shall constitute an exception to any limitations or changes arising from amendments contained in PIP-38 to this document.”

Replacement Scheme

a. Shannon Remuneration

Approve the following incentive-based compensation package for Shannon developers and contributors.

The DAO shall appoint a neutral three- or five-member committee (the “committee”) that shall recommend the awarding of a grant of POKT to the developers and contributors to the Shannon upgrade to the Pocket Network not to exceed:

• 48,000,000 POKT

In determining the size of the grant, if any, the committee may consider any previous remuneration and incentives received from Grove (including tokens and equity) and any potential additional Grove remuneration. If Grove fails to disclose the information requested by the committee for this assessment, no grant will be awarded.

The DAO shall vote on whether to approve the grant as recommended by the committee. Or in appointing the committee, the DAO may choose to leave to the committee the final approval of the grant.

Remuneration Package Terms:

• This incentive opportunity will be time limited and will expire three years from the date of this proposal’s passage.

• Payment in satisfaction of this incentive will come from the DAO treasury, be held separately in a multi-signatory wallet controlled by the committee (or subject to its direction and approval, by the Foundation board of directors) following the decision to award the grant and be distributed to the various developers and contributors in accordance with the majority decision of the committee.

• Except as otherwise determined by the committee (or subject to its direction and approval, by the Foundation board of directors), upon advice of counsel, any POKT earned pursuant to this incentive package will be locked for four years from the date of receipt, with 25% unlocking each year thereafter.

• Michael O’Rourke will be personally excluded from this incentive.

b. POKT Performance Remuneration

Approve the following incentive-based retro-funding rounds for Pocket Network developers and contributors.

The committee (or subject to its direction and approval, by the Foundation board of directors) shall organize retro-funding rounds to reward developers and contributors to the Pocket Network when the POKT token price reaches each of the following targets:

• $0.50:

• $1.00:

• $3.00:

• $5.00:

*All prices are the average trailing 120-day price based on data available at coingecko.com.

• The price targets must be achieved within three years from the passage of PIP-38, though the DAO can extend this time frame by vote that terminates before the three years lapse.

• Payment of the retro rewards will come from the DAO treasury, be held separately in a multi-signatory wallet controlled by the committee (or subject to its direction and approval, by the Foundation board of directors) and be distributed to the various developers and contributors as per voting by the DAO. The DAO may vote, at each funding round, to delegate to the committee the decision on the final approval of any grants.

• Except as otherwise determined by the committee (or subject to its direction and approval, by the Foundation board of directors), upon advice of counsel, any POKT earned pursuant to this incentive package will be locked for four years from the date of receipt, with 25% unlocking each year thereafter.

• The DAO may vary the composition of the committee between rounds including after the Shannon completion grants.

• Retro grants will be awarded to applicants whose work is shown to have had a positive impact on the token price and on Pocket Network fundamentals. The DAO or committee may choose to widen the scope of recipients to include other contributors to the network or ecosystem generally. Contributors are eligible for only one grant for any work (e.g., Shannon developers are ineligible for price-target grants for work related to completion of Shannon if they already received grants for rolling out Shannon).

Percentage of ‘Value Created’

• The DAO will allocate 20% of “value created” for retro-funding grants after achievement of the first milestone ($0.50) and 10 percent for the $1, $3 and $5 milestones. “Value created” is defined as the total of POKT tokens in the treasury wallet (6386713deb27b609daad5e2e32ee6591753e5f4e) multiplied by the price target that was reached minus the amount of POKT tokens in the treasury wallet (6386713deb27b609daad5e2e32ee6591753e5f4e) at the time of PIP-38’s passage multiplied by token price at that time. The committee can reduce the percentage of “value created” to be distributed at each milestone if necessary to preserve the value of the POKT token and Pocket Network health.

• If a price target (or targets) has (have) been achieved before a funding round for the previous price target has started or if it has started but the application window is still open, the two (or more) rounds, together with their respective reward pools, shall be combined into one.

A chart showing how the size of a retro-funding rewards pool will be determined can be found here.

A chart that compares the maximum rewards available for retro grants at each milestone with the payouts proposed under PIP-38’s compensation scheme can be found here.

Comparison between retro-funding and Michael’s current compensation scheme

Comparing the proposed retro-funding method with Michael’s scheme, we see that the total pay package values for each scheme are very similar: slightly lower at $0.50, $6.46m more at $1, and $46m less at $3 and $29m more at $5.

As the DAO treasury will be growing at a fast clip due to the 75% DAO take, the longer it takes to reach a milestone, the fatter the DAO treasury will be at that time and the larger the POKT pool available for payment of retro-funding grants.

There is a clear correlation between the wealth of the DAO and the rewards that it will be distributing for each milestone. This is much healthier for the DAO’s finances than being locked into paying compensation irrespective of the treasury contents as in Michael’s current version of PIP-38.

Why DAO-managed Compensation is Superior to the Scheme Provided by PIP-38

• Better for Decentralization. DAO keeps control of its treasury. There is absolutely no justification for the DAO to relinquish control (to PNF) over the distribution of its treasury funds as part of a compensation scheme; maintaining control over compensation spending in no way interferes with PIP-38’s core objectives - revitalizing Pocket Network and lifting the token price.

• Avoids Egregious Conflicts of Interest. Having the DAO make decisions on the compensation spending will address the inevitable conflicts of interest that arise when PNF directors seek a piece of the compensation pie. Leaving the decision on how to apportion compensation to the directors will lead to an untenable conflict of interest. Even if they were to recuse themselves from voting on their own compensation, having the directors vote on compensation for their co-directors is equally unacceptable.

• Transparency and Fairness. A close-door process where the Directors (including the Executive Director) decide on their own compensation violates DAO principles of transparency and fairness. Further, while PNF may publish the reasons for its allocation decisions, by having the DAO control the grant application process, openly engage with applicants, and vote on the grants, the process will be far more fair and transparent.

• Flexibility. The DAO can decide to reduce the reward pool size if necessary to protect the token value or health of Pocket Network. This makes it possible to avoid large payouts that could drain the treasury, leaving the DAO unable to pursue other important activities.

[zaatar]

Michael O’Rourke, head PNF director if PIP-38 passes, has committed to adopting a compensation scheme in line with my proposal in the preceding post. In particular, he agrees to leave control over compensation payments to the DAO for hitting price-targets, and instead of lump sum payouts, agrees to compensation being based on a percentage of DAO Treasury growth. In addition, he agrees to allow the DAO, or a committee created by the DAO, to reduce compensation levels if necessary to protect protocol health and/or in light of POKT tokenomics.

Based on that commitment, I am changing my vote to one of support for PIP-38.

I encourage others whose opposition to PIP-38 stemmed from the compensation scheme to consider changing their votes as well.

However, Michael wishes to consider amendments to the proposal that would clarify the allocation of rewards at each price target. To that end, I will be floating a pre-proposal in the next few days based on my replacement compensation scheme for debate and tweaking that can facilitate the changes he - and other DAO members - might like to see made. There is also some disagreement with Michael on compensation for Shannon. That disagreement can be addressed as part of the debate as well.

The core components of the proposal outlined in my comments above (including here), in particular those matters to which Michael has agreed in the opening paragraph of this post, will not change. However the mechanics and other details might. Changes on my Shannon approach might also be made. Notwithstanding the passage of PIP-38, Michael is committing to implement the new compensation proposal if it gets passed by the DAO.

[o_rourke (Michael O'Rourke)]

Responding here to reaffirm my commitment to @zaatar’s post.