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

[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.