PIP-39 Pre-Proposal (amended): New Compensation Scheme for PIP-38

Proposals Pre-Proposals
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In order to secure the passage of PIP-38, Michael O’Rourke, now head of PNF, agreed to replace the PIP-38 compensation scheme with a DAO-managed alternative in line with this pre-proposal. The DAO scheme is being presented as a pre-proposal in order to allow for changes based on feedback from the community including Michael. Michael has committed to implementing the compensation scheme that evolves from this pre-proposal and is ultimately approved by the DAO.

NEW: Amended today, August 25, this preproposal now incorporates changes suggested by Michael and MSA’s suggestion to soften the 1-yr deadline for completion of Shannon. Further tweaks can be made based on community feedback. My goal is to achieve the broadest possible community consensus before putting it to a vote.

Attributes

Summary

DAO-managed retro compensation for hitting price targets will replace the compensation scheme that was included as part of PIP-38. The DAO also manages compensation for Shannon completion.

Appointment of a Committee

The DAO shall appoint a neutral three-member incentivization committee (the “Committee”) that shall by majority decision approve PNF-recommended awards under the following remuneration plans. For further details see “Implementation” below.

Highlights

  • Preserves PIP-38 reward package sizes for price target milestones subject to 15% limit of DAO treasury (Committee can vary this percentage)

  • Price milestone grants to be allocated as per recommendation by PNF subject to final approval and tweaking by Committee

  • Applications for price milestone grants must be submitted to PNF by contributors and be based on published criteria

  • Nominations to DAO Incentivization Committee due within 14 days of passage of this proposal

a. Shannon Remuneration

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

  • Up to 48,000,000 POKT

Shannon rollout will be deemed to have occurred when all POKT, nodes, and traffic have migrated to the new chain and the current chain is deprecated.

Remuneration Package Terms:

  • This incentive opportunity will be time limited and will expire at midnight Pacific Time on August 10, 2025 (one year from the date of PIP-38’s passage). However, upon recommendation by PNF, the Committee can extend this limit if the delay is due to circumstances beyond the Shannon team’s control.

  • Total payout shall not exceed 15 per cent of the DAO Treasury, though the committee, following consultation with PNF, can vary this percentage.

  • PNF will recommend to the Committee how to divide the rewards among the Shannon team. If all team members are Grove employees, Grove could make this recommendation. However, PNF (or Grove) must justify this split to the Committee.

  • Payment in satisfaction of this incentive will come from the DAO treasury, be held separately in a wallet controlled by the Foundation, and be distributed by the Foundation as directed by the Committee directly to the individual developers and other 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), and if necessary upon the 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.

  • All grant recipients must be KYC’d before receiving any grant funds.

  • In the event that there is wrongdoing or a violation of the spirit of this agreement, the Committee, by majority vote, may suspend, modify, or rescind this package.

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

Total Grant Size

In determining the total size of this grant, the Committee may consider any previous remuneration and incentives received from Grove (including tokens and equity) and any potential additional Grove remuneration. The Committee may consult with Grove and PNF or the prospective grant recipients personally on any matter relating to the grants. At Grove’s request, or that of the prospective grant recipients, the Committee shall keep sensitive information, including on remuneration by Grove, confidential. Grove shall provide the Committee the names and POKT account addresses of the prospective grant recipients.

b. POKT Performance Remuneration

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

The DAO shall 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.

Remuneration Package Terms:

  • For each of the first two price milestones, a total of 48m. POKT will be awarded, and for each of the last two, 98m. POKT. The totals will be reduced in order not to exceed 15 per cent of the DAO treasury. However, the Committee, following consultation with PNF, can modify this percentage.

  • The price targets must be achieved by midnight Pacific Time, August 10, 2027 (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.

  • Retro grants will be awarded to applicants (devs, PNF directors, marketers, etc.) whose work is shown to have had a positive impact on the token price and on Pocket Network fundamentals such as Tier-1 exchange listings, increases in exchange trading volumes, paid relays and the number of gateways, drop in net inflation (supply growth - burn), and diversification of paid relay customers. The Committee, or PNF with the Committee’s approval, can expand or modify the criteria for receipt of a grant.

  • Anyone can apply to PNF for a grant based on the eligibility criteria. These applications must be made public.

  • Based on the eligibility criteria, the Foundation will propose the distribution which must be approved by majority vote of the Committee. The Committee must treat PNF’s recommendations with deference. However, by majority vote it can modify the distribution recommended by PNF, though before doing so it must try and reach agreement with PNF.

  • In the event that there is wrongdoing or a violation of the spirit of this agreement, the Committee by majority vote may suspend, modify, or rescind this package.

  • All grant recipients must be KYC’d before receiving any grant funds.

  • Payment in satisfaction of this incentive will come from the DAO treasury, be held separately in a wallet controlled by the Foundation, and be distributed by the Foundation as directed by the Committee directly to the individual grant recipients in accordance with the majority decision of the Committee.

  • Except as otherwise determined by the Committee (or subject to its direction and approval, the Foundation), and if necessary upon the advice of counsel, any POKT earned pursuant to this incentive package will be locked for four years from the date that the price target is deemed to have been met, with 25% on the first anniversary and 25% unlocking each anniversary thereafter.

  • Contributors are eligible for only one grant for any work (e.g., Shannon developers are eligible for price-target grants only for work done after Shannon rolls out - not for earlier work already rewarded by a Shannon completion grant).

  • No single individual shall receive more than 5% (2.4m POKT) of the payout for each of the first two price milestones, or more than 2.5% (4.9m POKT) of the 3rd and 4th price milestone payouts. The Committee, by unanimous decision, can increase this percentage.

  • 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.

New Incentives

PNF may choose to allocate funds from an incentive-based package other than for retro-funding. For example, it may wish to set up a rewards program for long-term POKT staking, or it may wish to do an airdrop. Or PNF may wish to launch such initiatives using totally separate DAO funds. PNF shall submit any such proposal (using price milestone money or new funds) to the DAO incentivization committee for approval.

Implementation

Would-be Members Have 14 Days to Self-Nominate

Following the passage of this proposal, the DAO shall appoint the Committee, to consist of three members. Interested individuals will have 14 days to submit their names to act on the Committee along with any information they wish the DAO to consider. If fewer than five individuals have thrown their hats into the ring, the nomination phase will be extended for further 14-day periods until at least five people have self-nominated.

Committee members will be precluded from applying for a share of any compensation package. Further, they must not be related in any way to, or employed by, any grant applicant. For example, re the Shannon rollout rewards, they must not be part of the dev and contributors team or related in any way to any member of the team.

Committee Member Remuneration

Fourteen days from the closure of applications, the DAO will vote on the composition of the Committee. To compensate for their time and the opportunity cost of not being able to contribute in other ways, making themselves ineligible for price-target grants, active Committee members will receive, to be divided equally, one per cent (1%) of the total rewards package of each price-milestone distribution event on the same terms as the other recipients. Alternatively, they may opt for payment at a rate of $200 per hour with a 35-hour weekly ceiling, which rate and ceiling will also apply to work on the Shannon rollout.

The Committee shall consult, as needed, with the Foundation’s counsel on how to execute the terms of this proposal (e.g., any agreement on non-disclosure of information provided by Grove or Shannon rollout grant recipients) and take the steps needed to give these terms effect (e.g., possibly constituting under the Foundation’s umbrella).

Once the Committee is formed, it will draw up and publish on the Forum (Discourse) the terms of its operation in consultation with Foundation counsel.

Votes on Changing Committee Members

The DAO may vary the composition of the Committee between funding rounds, including after the Shannon completion grant, after the Committee has completed its work on that round. Voting on a change to the Committee’s membership must be initiated within 30 days of the Committee completing its work on the previous funding round, and no vote may start once a new price target is hit. Any community member can initiate a vote; if no one does so within 30 days, the Committee’s composition shall remain unchanged.

If a Committee member is suspected of impropriety, a combined vote by the other two Committee members will trigger their suspension, or, if two Committee members are suspect, the 3rd member and two of three PNF directors will trigger the suspension. The DAO would then vote on removal and, if necessary, replacement. The 30-day time frame noted above would not apply to this vote, or to a vote to replace a member who resigns or is unable to continue in the role.

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.

  • 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.

Dissent

For the price targets, having to maintain a price above a given milestone for 120 days is too long; 90 days is acceptable. For a currency as volatile as POKT, a period of that length is very difficult to achieve. We could hit $1 per token even before we manage to get a 120-day time-weighted average price (TWAP) above $0.50.

Why reward people for something that isn’t maintained? Hence, the longer the TWAP, the better. If we’re convinced that long-term value creation isn’t viable, why even pay out rewards in the millions of tokens when price milestones are reached? If long-term value creation isn’t possible, then this is a blatant pump scheme which the community shouldn’t support.

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This make a lot of sense.I also think 90-day time-weighted average price is enough to justify a reward.
Is it me or Michael is excluded from rewards,I think he deserves a reward once we hit the milestones set out.
Thank you for this it’s well thought out.

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Thanks for posting this. I want to address the core outcomes you are looking to achieve and see what we can do to get to an agreement here. I can get behind the DAO appointing an independent committee of three to approve compensation.

The important part we’re solving for here is the conflict of interest, decentralization and flexibility. Here is what I think we could do given your concerns:

  • The Foundation proposes a three person independent Remuneration Committee that that DAO votes on and is approved through majority vote
  • When each milestone is hit, the Foundation proposes the distribution that must be approved by ⅔ to the Remuneration Committee
  • The DAO can choose to remove committee members on the same timeline (every 6 months) as Foundation directors
  • The Committee’s responsibility is focused on just the distribution of POKT of PIP-38. That said, responsibilities could be expanded through the DAO later if needed.
  • The amounts for each milestone remain the same, assuming it is approved by the Remuneration Committee

While hitting each milestone creates some overhead by having to go through the process with the committee, I don’t think it is overly burdensome.

I do not think that any mechanisms specific to amounts and how people will be rewarded should be included in the proposal. To your last point, this allows for it to be flexible. The Foundation can work with the Committee to ensure that the distribution is fair with a public framework of how POKT was distributed. Initial amounts should be proposed by the Foundation and justified to the Committee. Ultimately the Foundation is closest to understanding who has contributed what on a daily basis.

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Some things I like in this proposal:

  • expectations for Shannon to finish sooner than 3 years
  • desire to prevent events that completely drain DAO treasury
  • desire to prevent director self-dealing

That being said I find this way too complex and places restrictions and burdens on the foundation that all but undo the spirit and intention of PIP-38. Rather than spending countless time commenting on the specifics here and trying to shape this pre-proposal into something likely to gain DAO consensus, I am creating an alternate proposal that addresses the above points as very simple, concise mods to PIP-38. If you like the alternate proposal and wish to drop this one, I’d be glad to add you as co-author as I take the above three points from you…

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This post addresses MIchael O’Rourke’s comments above. I acknowledge MSA’s feedback and his PIP-40, and will respond to those separately. I have amended the PIP-39 preproposal (at the top of this thread) to incorporate the changes noted below.

Three-person committee

A three-person committee, approved by majority DAO vote, works for me. Smaller (than 5) is simpler.

PNF proposes rewards distribution for committee approval

It makes sense for PNF to recommend how the rewards be distributed since they will very likely have a better handle on who has contributed and what.

Clear and Transparent Criteria for Grants

The PNF recommendations and the subsequent committee decisions on reward distribution must follow clear and transparent criteria that are mostly established in advance (e.g., those set out in my earlier post above). But flexibility is important: these criteria can be expanded or modified when the time comes.

Including the criteria noted above now demonstrates and crystallizes the connection between rewards and value creation.

Application Process

Fairness requires that there be a grant application process where anyone would be able to apply for one based on the eligibility criteria. These applications must be made public. PNF would make its recommendations on grant allocation based on these applications. The committee must treat PNF’s recommendations with deference. However, by majority vote it can modify the distribution that’s recommended by PNF, though before doing so it should try and reach agreement with PNF.

I accept Michael’s preference for leaving the reward packages as is provided that these amounts do not exceed 15% of the DAO treasury (or other agreed percentage; MSA suggests 80%) for each price milestone. PNF would have to reduce the size of the total rewards package accordingly; the committee would enforce this reduction. In addition, the committee, following consultation with PNF, could otherwise adjust the package size; it would have to publish its reasons for doing so.

Shannon rollout rewards

The same process would apply to the Shannon rewards package. PNF by ⅔ directors’ vote recommends to the committee the percentage allocation of the rewards to the Shannon team as PNF is well placed to assess the team members’ respective contributions. If all team members are Grove employees, Grove could make this recommendation. However, PNF (or Grove) must justify this split to the committee. In addition, in keeping with the current wording of PIP-39, information must be provided if requested by the committee on prior and potential Grove payments to the team. That information can remain confidential.

I will keep this restriction as part of my proposal as it ensures a wider distribution of the reward pies. For flexibility, the committee by majority vote could up these percentages.

Votes on Changes to DAO Remuneration Committee Composition

The rationale for a 6-month timeline for Foundation directors’ tenure under PIP-38 is not relevant to the DAO remuneration committee whose sole role is to control the distribution of rewards. The community would have reason to change the committee’s composition only after seeing how well it functioned. As there is no certainty about whether the price targets will be met, or when, there is no telling when the committee would have to kick into action.

Accordingly, votes on changing the composition of the committee should be possible only after it completes work on distribution of each price-target rewards package. So as not to delay grant allocations for a subsequent price target, voting on a change to the committee’s membership should be initiated within 30 days of the committee completing its work on the previous price target, and no vote should start once a new price target is hit. Any community member can initiate a vote; if no one does so within 30 days, the committee’s composition will remain unchanged.

Further, this proposal must include a mechanism for immediate suspension of a committee member in the case of impropriety. EG, two of the three committee members can trigger the suspension of the 3rd committee member for suspected impropriety, or, if two members are suspect, the 3rd member and two of three PNF directors can trigger the suspension. The DAO can then vote on removal and, if necessary, replacement. The 30-day time frame noted above would not apply to this vote, or to a vote to replace a member who resigns or is unable to continue in the role.

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Creative Incentives

Based on chat in the Den, it appears that PNF may get creative with how it incentivizes community participation in Pocket Network. Such initiatives are to be encouraged.

PNF, therefore, could choose to allocate a portion of the incentive-based package funds - or indeed totally separate funds - other than by way of the retro-funding program of PIP-39. For example, it may wish to reward long-term POKT stakers, or it may wish to do an airdrop.

DAO Committee to Approve New Incentivization Schemes

Accordingly, I will add a term to PIP-39 that provides that PNF shall submit any such proposals to the DAO Committee for approval. The DAO thus retains control of its Treasury, which is one of the main reasons for replacing Michael’s original compensation scheme with PIP-39 (decentralization). I will also refer to the Committee not as the Renumeration Committee but as the Incentivization Committee.

Adding such a term to the compensation scheme gives PNF maximum leeway to be creative with incentivization and avoids the need for future debate and votes on DAO oversight of new initiatives that entail Treasury expenditure.

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