Proposal 72 funding gone wrong - A governance scheme with holes

[MatthewSVC]

TLDR

• Simply Staking was awarded with 32500 ATOM as part of Proposal 72, but has not received any of these funds, despite the promises made by the Proposal 72 committee on behalf of the Cosmos Hub.
• The post aims to spotlight governance failures and a series of multisig mismanagement issues. Assertions are backed by an extensive timeline of events with screenshots detailing our experience of being ignored and misled.
• The financial implications of such actions are significant, and in the event that it was to happen again, it could potentially jeopardise promising, less-resourced projects in the future and further tarnish Cosmos’s reputation.
• We are asking for the Funding Committee to provide a clear and detailed explanation of their actions, as any committee appointed on behalf of the Cosmos Hub community should be naturally expected to do.

Apologies for the long post - please read till the end as there are important facts mentioned throughout

Dear Cosmos Hub community,

I’m writing to share Simply Staking’s perspective on the process surrounding the Proposal 72 funding, having been selected as one of the projects (today known as EntryPoint) to receive such funding. Entrypoint was allocated 32,500 ATOM (amounting to $234,975 as of 25/08/23) as part of this funding to support the project in its incubation. As stated in the Cosmos Hub Proposal 72: FAQ, “The funds will be put towards 3 projects that are looking to leverage Interchain Security”, yet in the end, only 1 of those 3 projects received their funds. To this day, Simply Staking has yet to receive the funds that were pledged to us as part of Prop. 72, with the entirety of the remaining funds in the multisig now having been sent back to the community pool without so much of a word to us, nor any comments on our forum post “EntryPoint within the AEZ - An open letter to the Cosmos Hub community”.

Further, this has had reputational implications for Simply Staking, as not only have we informed shareholders of our success in securing the Prop. 72 funds, as well as included these in the project’s budget, but these have also been a central part of our external fundraising activities. How are projects supposed to build and collaborate with decentralised third parties when promises and commitments can be revoked without any recourse? Surely we cannot expect innovative projects, institutional adoption and serious capital to work with the Cosmos Hub if we can’t even uphold basic professionalism and courtesy? How can the world, which already thinks of the crypto space as extremely dodgy, feel at ease working with the Cosmos Hub DAO, when some of its most important members act so recklessly while performing duties on behalf of the wider Cosmos Hub community?

I would like to stress that my intention here is not to start a smear campaign, but to share our perspective on our recent experience of this entire funding process as described in Prop 72, to highlight the gaps in the governance process and centralised multisig management. In fact, the primary goal of this post is to enlighten the community about the flawed handling of this funding process and to ensure that such oversights don’t recur again, potentially further jeopardising the future of promising projects and tarnishing the reputation of the Cosmos Hub.

The loss of these funds is very upsetting for us, but while Simply Staking can (although it should not be expected to) absorb the setback of not receiving said funds, it is essential to recognise that not every team or project in the ecosystem has this luxury. Given the nature and objective of Proposal 72, those funds were meant to cover parts of core operational costs, R&D and engineering that have been invested into EntryPoint. For less well-capitalised teams, such a blow could’ve possibly meant the end of the project and developers not being paid their wages. We are very disappointed in the fact that the Funding Committee were happy to leverage Simply Staking’s brand and reputation to market their initiative at Cosmoverse, but then did not honour their own commitments.

To fully appreciate the problem we the Cosmos community have in our governance process, it is important to understand the context of the issue at hand. What follows is first a timeline of events leading up to the present day, where we have not received the grant from the Proposal 72 Funding Committee despite being promised so. Quite frankly, we have been left perplexed at the recent decision of the Funding Committee to return all the unused funds back to the community pool without communication, despite repeated efforts from our side to contact the Committee members, which have on multiple occasions left us without a reply.

As you know, Proposal 72 was introduced with the primary aim of allocating a portion of the Hub’s community pool funds to support and help finance and incentivise new consumer chain projects. The implementation of the proposal was overseen by a multisig committee, with the responsibility to review, approve, and distribute funds to promising projects that aligned with the Hub’s objectives. This committee consisted of four prominent members: Jelena Djuric, (prev. Informal Systems, now Noble), Jack Zampolin (StrangeLove Ventures), Zaki Manian (Iqlusion), and David Feiock (Galileo Group).

Timeline of Events

Please note we have purposely blanked out the names of the individuals in the screenshots of the direct messages shown below

April - July 2022

The first contact was made between David and I.

12th August 2022

The idea of our product (now known as EntryPoint) being a good fit for Proposal 72 was mentioned.

22nd September 2022

A meeting was set up between David, myself, Jelena and Thyborg to discuss the grant.

23rd September 2022

I was informed that Simply VC, now Simply Staking, had met the criteria for the grant.

25th September 2022

One of the committee members reached out with the following, confirming that we were to receive 32,500 ATOM for our project.

4th - 5th October 2022

At Cosmoverse, our project was announced to the public as one of the first consumer chains that will launch.

19th October 2022

We were approached to publish a Forum post to showcase our project and the fact that we were being funded by Prop 72.

October 2022 - June 2023

This is where we admit we took our time. We did not wish to push out a forum post before having a solid product and plan forward, something that was meaningful rather than a post for the sake of getting the funds quickly. Instead, we worked on the project while maintaining regular communication with all the committee members to inform them about the status of the project,

At no point during any of these meetings did anyone make any indication that the funds promised to us as part of Prop. 72 came with a deadline, nor the fact that the agreement had seemingly been changed and the funds were being moved without our awareness.

22nd May, 2023

We are informed by one of the Committee members that, after having considered investing in EntryPoint themselves, they cannot do so due to a conflict of interest with one of their portfolio companies.

30th June, 2023

EntryPoint posts its open letter to the Cosmos Hub forum, which to date is yet to receive any comments from any of the Committee members, who seemed so keen about the project only a few months earlier.

July 2023

In late July we attempted to reach out to the members of the funding committee, both through the messages displayed below as well as through in-person contact with multiple committee members. Most of our attempts were unsuccessful with the other parties ignoring our messages. The answers provided during in-person contacts were limited to explaining that the committee will be meeting to discuss what to do with the remaining funds very soon.

8th August 2023

A day after the final message of the above conversation was sent, one of the committee members finally reached out and disclosed to us that the remaining funds in the multi-sig had been sent back to the community pool.

The funds being sent back to the community pool indicated to us that the funding committee had gone behind our backs and fallen back on their initial agreement to grant us the funds as initially outlined in October 2022.

They indicated that they had suffered from some unfortunate selective memory loss vis-a-vis the promises made towards us.

15th Aug 2023

We are informed by one of the committee members that this forum post has been put up with regard to Prop. 72. Seeing how I personally tried to contact multiple members of the Committee on a number of occasions, both in-person and in chats, the word ‘miscommunication’ appears completely misplaced, as the Committee’s intention to avoid communication is glaringly obvious.

Seeking an explanation

We care deeply about the Cosmos Hub and have been here since the start, soto be honest it’s quite disheartening to see how this situation was handled. It is somewhat ironic that for a very decentralised community, the allocation of funds to multiple beneficiaries requires a centralised body. To return to the Cosmos Hub Proposal 72: FAQ, it contained the question: “What do we gain from having a committee manage these funds on behalf of the community?”, to which the answer was “The ability to move quickly and give potential partners the assurances they need to start committing resources immediately.” On this note, we, Simply Staking, certainly started committing resources immediately, but as evident from the timeline of events, the assurances gradually dwindled over time.

Members from the Funding Committee were even considering investing in our project, which in May this year fell through due to a conflict of interest on their end, as according to one Committee member, “EntryPoint feels competitive with one of our existing portfolio companies” (see the chat excerpt titled May 22nd). From here on we were essentially ghosted by the Funding Committee, as shown in the screenshots above. It became apparent that this conflict of interest was also in place at the time our project was selected for Prop72, but this was in no way disclosed.

We find this conflict of interest particularly concerning given how it seemingly changed the responsiveness of the Committee members towards Simply Staking. Any potential conflicts of interest within the Funding Committee should have been disclosed in the initial forum post to avoid doubt in the integrity of the decisions taken by the Committee and certainly made clear during the selection process. I think it’s fair to ask why this wasn’t the case?

Given the financial commitment made to us as outlined above, we’re reasonably asking the Funding Committee to honour the responsibility that was entrusted to them and come forward, provide the rationale for their decision and be held accountable for their actions.

Furthermore, based on the fact that the committee was meant to select 3 projects, apart from Neutron which was given the funds based on Proposal 72 itself passing, and the fact that only one of these projects has received any of the allocated funds, there must be another project that was earmarked to receive these funds. We are asking the Funding Committee to also explain the decision around the lack of funding to the other team. If no such team was identified then they should explain why this was the case since they were appointed specifically to identify 3 projects.

Based on this experience, it is clear that verbal agreements involve counterparty risk and do not (always) work so should not be taken for what they are i.e. a risk in the funding process that needs to be fixed when it comes to funding proposals that utilise a multisig to distribute funds. We want to reduce the stress and anxiety for future projects contributing to the Cosmos Hub, so that they may never have to realise a loss of grant funding or have to dispute this with other community members. This is unfortunately the case even when the multisig counterparties are “trusted Cosmos OGs”, according to the Cosmos Hub Proposal 72: FAQ, and that “Each signer’s reputation is tied to the continued success of the Cosmos ecosystem.”

With that said, we’re asking the Cosmos Hub community to engage with the issue exposed in this forum post, and together help us devise a solution so that we in the future have a more trustless way of distributing grants.

Thank you for taking the time to read this post and hear our perspective. We remain committed to the Cosmos ecosystem and hope that our experiences can contribute to a more transparent and accountable future.

P.S. An invitation was made to the Funding Committee to address this matter themselves on the forum but this was declined.

DISCLAIMER This letter does not constitute investment advice, nor any promises, offers, guarantees, representations or warranties, and includes speculative forward-looking statements about potential post-launch capabilities of EntryPoint.

[jacobgadikian]

Hey man super great disclaimer at the bottom.

Really sorry to hear that things haven’t gone smoothly for you in this aspect of your work. I hope that we can set up a call to discuss.

Thanks so much.

[Garuda]

Im very curious to see how many other projects have been rugged - as a community we need to take a look at the processes carefully to determine how we can patch this weak link and avoid this happening again.

[serejandmyself]

And here is why the past 5 years I have been campaigning against multisig governance. Welcome to reality as they say =) Not trying to be an a-hole here, just stating the obvious. The reality is that ALL corruption happens due to the ability of the adversary to twitch accounting history in one way or another. The beauty of a verifiable and distributed consensus-based DB kinda removes that ability… unless… unless one starts having multisigs. The so called efficient decision makers that can manipulate the whole reason why we dont want to temper with accounting books.

[BlocksUnited]

Thank you for bringing this to the community’s attention. Can’t you just submit an onchain proposal like Neutron did with 819?
https://www.mintscan.io/cosmos/proposals/819

[MatthewSVC]

Indeed the current process has plenty of holes in it. We are engaging with other members of the community to come up with potential solutions to these. Would be very happy to discuss your views on such solutions.

[MatthewSVC]

We can, but would first like to give the funding committee time to reply. David has indicated on Twitter that they plan to do so imminently.

[Kamikaza731]

This is terrible and highly unprofessional from the committe. Not only does this impact your business but it affects Cosmos Hub as a chain and whole Cosmos ecosystem.

Action like this will repel investors and builders if this continues like this. To paraphrase Zaki every validator should strive to operate at the highest excellence. The way I see here a validator did more than most by trying to contribute to the ecosystem and in a way got punished for trying to achive more.

To be clear I am not targeting Zaki, I am targeting every Committee out there. Action like this will cause miss trust from builder and investors, development of the ecosystem will be slowed down because the team didn’t recive the funds, and actions like this will repel any new builder.

If from validators is expected to run their node without ever missing the block window, there should also be some commitment from the people in the committee. If the team needs to drag this through social media in order to get response because at the moment it looks like the team got ghosted. Truly a disgraceful act from the whole committee.

To the team of Simply Staking i hope you haven’t given up on the project even with these setbacks.

[david_galileo]

Matt, first, on behalf of the Prop 72 committee, we want to thank you for bringing this to the attention of Cosmos Hub stakeholders.

Prop 72 was a novel experiment in leveraging Cosmos governance for on-chain funding. Like any experiment, we hit bumps along the road and, despite the net success of the effort, there were undoubtedly shortcomings.

The decision making process and communication surrounding whether to fund EntryPoint would fall into the latter category.

We wholeheartedly agree that on-chain / multisig governance leaves a lot to be desired, and that more rigorous decision-making and communication processes need be in place for future Community Pool funding efforts.

With respect to grant funding for EntryPoint, we acknowledge there could have been improvements in process / communication. For example, when we reached out to the EntryPoint team to ask for a detailed summary of EntryPoint’s value proposition so that Cosmos Hub stakeholders could review it and offer their feedback, we could’ve set a deadline and worked closer with your team to ensure this was followed through in a timely manner.

Unfortunately, as you pointed out, EntryPoint took ~9 months to share their plans with the Cosmos Hub stakeholders in which time the market and ecosystem had evolved.

Ultimately, after reviewing community feedback (here) and re-evaluating as a committee, we didn’t feel as though there was enough support for the EntryPoint proposal to warrant a 50K ATOM grant (~$500K USD). Additionally, we believe that there are teams better suited to evaluate, manage, and carry out funding efforts related to the betterment of the Cosmos Hub, including but not limited to the Atom Accelerator DAO.

It is possible that we misevaluated the opportunity. As such, ATOM stakeholders should leverage governance to course correct, and we strongly encourage the EntryPoint team to post an on-chain proposal requesting that the equivalent funds of the Prop72 grant be reallocated to EntryPoint.

Despite the hiccups we faced with this particular grant, the committee maintains that it successfully executed on the proposals objectives and believe Prop72 was a net positive for Cosmos Hub stakeholders.

Thank you again for bringing this matter to light. You and the broader SimplyVC team have been and continue to be wonderful stewards of the Cosmos Hub and ATOM stakeholders are lucky to have a team dedicated to improving governance and building a brighter future.

[LitBit]

Hi David

It is correct that many of the community wasn’t keen on the entry point proposal but that does not automatically mean that they were againsat the project itself and not an excuse to go back on agreements made on 72.

As per my question on twitter, why weren’t entry point given a tranche at the same time Fairblock were given one? fairblocks were far from ready to receive the grant which subsequently ended up being wasted.

[david_galileo]

Hi LitBit,

Thanks for the continued follow up.

“why weren’t entry point given a tranche at the same time Fairblock were given one?”

As part of the Committee’s due diligence, we requested (on 10/19/22) more supporting information in the form of a community forum post from the EntryPoint team.

It was explicitly noted that the post was a prerequisite of being funded (We requested the same of Fairblock).

Fairblock made their post within a week. We received no substantive negative community feedback on that post, therefore funds were delivered.

The EntryPoint team took 9 months to deliver their post. During that time the ecosystem had evolved, and ultimately it seemed clear that there was a lack of community support for the project.

Community support (or lack thereof) is not only valid rationale in decision making, it should be heavily weighted as a determining factor for a committee elected by… the community. Therefore, we made the decision to forego the grant and return funds.

If you, or any other Cosmos Hub stakeholder, are dissatisfied with that outcome and/or believe that the committee made that decision in error, please take initiative in rectifying the issue by submitting an onchain proposal for funding.

[MatthewSVC]

Hi David,

Thank you for replying to some of our questions. I have gone through both of your answers and quite frankly I am appalled by your attempts to misinform, by your clear lack of understanding of the situation and the committee’s agreements with us and by your inclination to use two weights two measures on many aspects.

First of all, the success of Prop72 is very much wrongly attributed to the committee. In fact, the success of this proposal is only due to the successful launch of Neutron, which was directly addressed in the proposal itself and the committee did not need to make any type of selection in terms of fund recipients.

The committee’s purpose was to select 2-3 projects that could potentially use ICS and to subsequently fund their development team for 2-3 months. The committee had 100k ATOM allocated to this funding.

It allocated 32.5k ATOM to Fairblocks, 32.5k ATOM to Simply VC and if my maths is correct 35k ATOM to another team. I come to this conclusion based on our communication with members of the funding committee (see above) and the fact that Fairblocks was sent 16.25k as half of their funding commitment. This brings me to my first set of questions:

• Which was the other team selected as a grant recipient?
• How come they never got the money promised to them?
• If no such team was selected, how come the other two teams were not allocated 50k ATOM instead of 32.5k ATOM, since the funds requested from and allocated by the Cosmos Hub for these teams was 100k?

Secondly, it seems that your line of defence in all of this threads along the lines, “you took long to write a forum post and so we (the funding committee) changed our mind”. To defend this you attempt, amongst other things, to leverage the fact that Fairblocks wrote their forum post immediately and there was no negative sentiment around it.

Please note that that particular forum post does not have a single reply by the team to any of the questions posed by community members. It seems the team was quick to write up a forum post but was never much interested in engaging with the community’s questions. It took a twitter post on Jul 4 (https://twitter.com/luisqagt/status/1676068604121346048) for the community to learn that Fairblocks had no intention to use ICS at this point in time due to some undocumented issues with the ICS scheme.

In the time within which Fairblocks came to this conclusion and felt comfortable communicating that conclusion to the community in a twitter reply to a concerned community member, our team was also busy trying to understand the implications and nuances of building on shared security and integrating deeply in the AEZ. In fact, we published our forum post on Jun 30 (a few days before the Fairblocks reply on twitter), with enough detail on the system we built and how we envisioned a meaningful collaboration of the Cosmos Hub community within the EntryPoint project. Following this forum post, we took time to reply to each and every question and to conduct AMAs to explain our value proposition to the ecosystem.

In the 9 months that you point out passed between the award of funds and the forum post, we had regular meetings with all the members of the committee and our decision to delay the forum post writeup was never questioned. Nobody asked us to submit it quickly or risk losing funds. Nobody told us we were working in the wrong direction or gave even a single line of feedback (good or bad) on the forum post we wrote.

The above thoughts lead to the following questions:

• Why is it OK for Fairblocks to require 9 months of research on ICS integration before concluding that it is not currently possible for them to make use of this technology, while it is not OK for EntryPoint to take 9 months to investigate the nuances and intricacies of using the technology and come up with a product structure designed to leverage it?
• Why should funds, allocated to a team to perform research suddenly be pulled back because the funding committee is not happy with the result of this research? (I suspect so myself given the lack of direct feedback on this point)
• Why did the funding committee never indicate that the funds would not be provided unless a forum post was issued quickly?
• Why did the funding committee not provide feedback on the research, even though we had multiple calls and plenty of time for such feedback to be provided?
• How did you come to the conclusion that community support exists for Fairblocks but not for EntryPoint?
• How did community support even become a criteria for such funding, with no disclosure to our team of these changing criteria?

Thirdly, I would like to point to your clear lack of understanding of what we have been asking for and what we were promised, i.e. the disbursement by the committee of the 16.5k ATOM that was allocated to our project to help with research and product building. We were not expecting 50k ATOM, since we were not even promised 50k ATOM but only 32.5k ATOM, and we knew that the second half of these would only be provided following EntryPoint successful use of ICS.

• How come you took the decision without properly checking the terms agreed by the committee with Simply VC?
• If you somehow forgot or lost access to this information, how come you did not even bother to ask us what we were asking for in detail?

Finally, you are sneakily asking the community or the EntryPoint team to ask the Cosmos Hub community directly with regards to solving the problem you and the rest of the funding committee have created. I personally believe that everyone should be accountable for their actions and so when people make mistakes they should aim to rectify them themselves and not ask other people to rectify them for them. So my final set questions would be:

• Why doesn't the funding committee put up an on-chain proposal itself to rectify the mistakes they have made?
• If the committee feels that no mistakes were made, why is it not answering all the questions presented in the forum post?

As a concerned community member, I believe it is very important to receive these answers from committees who were so keen to ask for the community’s support to act on its behalf. It is only with transparency and accountability that the ecosystem can grow and build a Hub that can showcase the power of transparent on-chain governance as a counter to the opaque decision making structures in the real world. The current tech limitations of the system should not be used as an excuse to shy away from being responsible.

[Sturdy]

Thank you Matthew for the write up. I’m shocked and saddened to hear that this happened to you and wanted to share that something similar happened to us (Apollo DAO). In July of 2022 we were led to believe by Jelena that we had been selected as one of the projects for the prop 72 funding, until about two months later when we were told they had instead selected other projects. In our case this contributed to us delaying our fundraising attempts and ultimately requiring many of our team members to seek other employment after we ran low on funds. At the time I chalked this up as just an internal miss-communication within the prop 72 committee, but now learning that it has happened to other teams makes me think that the committee members seem to not have taken their role very seriously and not considered the possible negative consequences of their actions. I hope the committee members can learn from their mistakes and understand that making projects believe they will receive funding and then not following through can have real life negative consequences.

[Garuda]

Really sorry to hear about Apollo DAO’s experiences.

Starting up a project is incredibly challenging anyway, adding uncertainty to a project’s finances makes it even harder.
The promise of decentralised ecosystems was for an environment that moved away from transactions based on trust.

This situation has demonstrated the flaws in the Cosmos governance processes that many projects depend on. Its imperitive that project’s that have suffered due to financing committees such as that seen in this event, come forward.

Its only by working together, that we can help patch these flawed governance schemes and reduce the probability of this occuring again.

[Garuda]

Sentiment on the nature of the deal presented in the EntryPoint open letter doesn’t necessarily mean the community was against the idea of EntryPoint becoming a consumer chain.

Much of the feedback was centred around the valuation of the project, being too high. When a negotiation is underway it is very normal for the price of a product, in this case a valuation, to fluctuate until a deal is made.
It shouldn’t be conflated with a complete disregard for the product, which is evident in your reply.

[Ale]

Would be nice to see some more participation from the people mentioned in this post. Hopefully the conversation is not let to die by itself but the responsibles actually address the issue instead of just ignoring it. I feel like silence should be interpreted accordingly (as a clear lack of accountability and care for the ecosystem’ overall health and transparency). Cosmos should not only grow the teams that are fine for few.