SubDAO Treasury System for the Hub

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Hyperlink of Google Doc “SubDAO Treasury System for the Hub”

Introduction

With the passing of Prop 88, the Cosmos Hub increased the community pool tax, from 2% to 10%. With the Hub treasury now making meaningful revenues, it seems prudent to start funding projects and infrastructure, building on the Hub and in the Interchain. With this new revenue, the Hub has found itself in an interesting situation. Currently, any project, development team or infrastructure project has had to request funding from the treasury directly, meaning they have had to spend 14 days, deposit 250 ATOM and make their best attempt to convince the delegators that it is the right move to fund their project. No matter the scope of the project at hand, under the current treasury model, this is the only way to get funding, directly or indirectly from the Hub. This begs the question, is there a more efficient model, to allocate funding throughout the Cosmos?

What should the Hub treasury fund?

  • R&D
  • Open source developer tooling and general infrastructure for the Cosmos Hub and Interchain
  • Projects building on ICS, and potentially other projects building to give more utility to ATOM
  • Services helping to build out the Cosmos Hub and the Interchain

Cosmos Hub Governance Overview

The Hub has one of the most interesting and decentralized governance structures in all of crypto. A delegator/validator gated voting structure, such as the one in the Cosmos Hubs, is a great way to allow the mainstream token holders to contribute to the decentralization of the network. This process ensures that if any change is to be made to the network, it must be approved by the majority of voting power, which equates to the majority of tokens staked.

The framework of this Governance structure is as follows:

  • Proposer deposits 250 ATOM, to send their proposal on-chain

  • There is a 14 day voting period

  • In order for a proposal to pass governance, the first requirement is that it meets quorum, which means that 40% of the tokens staked, must vote on the proposal. This means that a vote of Yes, No, No with Veto or Abstain must be chosen by 40% of the staked tokens.

  • If a quorum is met, then, the next step for a proposal to pass would be a majority “Yes” vote, meaning over 50% of the staked tokens that voted, chose “Yes”.

  • This Governance model works fantastic in many aspects of Hub Governance. For example, when an upgrade is deemed appropriate, to take the next step towards development of the Cosmos Hub, this must receive a passing vote in governance. Meaning, the majority of the active network agrees that this upgrade is necessary.

Where the model breaks down in treasury Governance:

  • Delegators lack the general ability to do duty diligence, and may vote in opposition to a reasonable and beneficial funding opportunity.
  • Many delegators may lack technical sophistication, to the point that an R&D proposal may fall by the wayside if deemed too much of an ask by the Hub delegators.
  • Projects that may need funding, may ultimately skip going to the Hub treasury for Funding, in favor of going to get funding through other platforms. This could leave a large opportunity cost, to fund a project helping to build out the network effect for the Hub, but also, this is a general business opportunity as well. If a project seeks funding, the Hub needs entities that can negotiate and potentially draw up a legal framework to best benefit the Hub, which is nearly impossible in the current position of treasury funding.

Different models to help to alleviate these inefficiencies in the Hub treasury governance, as it currently stands.

  • SubDAO: SubDAO’s act as separate treasury fingers, with specific mandates and various forms of decentralized governance structures. These governance structures can be optimized, to best serve its mandated purpose. These subDAOs could have the ability for more specialized requests and negotiation, amendments to proposals and so on, with items like vesting contracts and subDAO specific tooling to help give meaningful value to the projects requesting funds. SubDAOs can also give better guarantees and more accountability on behalf of the community, that these projects are building what they say they are, or are doing what they requested the funds for.

  • Grant funds: Grant funds will be centrally controlled entities, not directly formed through the treasury. These are private entities, acting on behalf of the Hub, but are in full control of the funds. These funds should disclose activity to the community, at a rate that they see fit, in order to keep the delegators informed. This is in the grant funds best interest, as to keep the delegators motivated to want to give them more funds, when the grant fund requests it. These grant funds also add a coordination point, between the Hub and the projects being funded through Hub treasury funds. A centralized party such as a grant fund, also has the ability to draw up legal framework, to hold projects accountable, on behalf of the Hub, helping to ensure that projects aren’t funding a project and the project devs disappear with the funds.

  • Interchain Allocator funding model: As outlined in the ATOM 2.0 whitepaper. This is a DAO enabling the Hub to coordinate economic reciprocation, through equity funding between the Hub and other blockchains in the Cosmos ecosystem.

Governance of a subDAO could vary in:

  • Quorum

  • Voting period

  • Voting power (Validator voting exclusion, whale voting caps, etc.)

  • Elected council

This variance in governance structure can be a strength in the subDAO, achieving its mandate in as decentralized a manner as possible. For example, a subDAO mandated to fund ICS consumer chains, could likely find benefit with electing a council of well known, respected and resourceful community members. This council could take initiative in keeping in contact with these ICS projects, to help the project in any way necessary, and also provide status updates to the Hub delegators.

This council can also provide much needed inquiry and due diligence, about each project seeking funding. This due diligence could be expressed to the delegators in a report of each project, outlining the project, its goals, roadmap and any other material facts about the project. Lastly, this council could also have some level of legal agreement with these projects, that ensures that these projects launch on ICS, so as to not risk the community being rug pulled out of ATOMs, with no ability to coordinate legal action.

Another potential nuance between this type of subDAO and others, may be a longer voting period, to allow the delegators time to do their research, as well as time for the projects to make themselves and their project known to the community, with appropriate time to scrutinize whatever the community feels is necessary.

This is only one type of subDAO as well. There could also be subDAOs that are fully decentralized, with no council, that are where existing projects or infrastructure projects (example being Confio) can go to seek additional funds for business development and so on. These subDAO’s can have subtle differences in quorum, voting period or whatever else would make each subDAO more efficient than having to go through a full Hub governance proposal process. With these subDAOs ultimately being accountable to the main Hub governance process, for additional funds to divvy out in whatever fashion the subDAO deems necessary. If a subDAO doesn’t perform, then the subDAO does not get funding.

Grant funds: As stated previously, grant funds will be centrally controlled entities, not directly formed through the treasury, but potentially funded though Hub governance or a subDAO directly mandated to fund a variety of grant funds. I am of the opinion that grant funds will provide much benefit to the Hub, as they can do business development in a much quicker and more efficient way than a subDAO. However, these grant funds should be held accountable in as many ways as possible, without stifling their ability to work. It could be wise, in the case of a subDAO which funds, grant funds or in a standard Hub treasury funding of a grant fund, that a vesting schedule be mandated for each grant fund. This is not to tie the hands of a fund, but to make sure that they are held accountable in the rate of funding.

In the case of grant fund accountability, it should be standard practice to make pre-scheduled disclosures to the community with information of what the fund has funded and follow up documents with these projects that have been funded. Full disclosure is the best way to be accountable to the community, and a fund who is not communicating to the community, could find their vested funds clawed back to the treasury or subDAO.

Interchain Allocator: The Interchain Allocator is a DAO concept that was introduced in the ATOM 2.0 Whitepaper. This Allocator is a governance system that coordinates the economic development of interchain projects. This is achieved through the ability for the Cosmos Hub to essentially gain an equity position in various different chains, looking to be incentivized while in development. This equity can be rebalanced as deemed necessary, through Governance, or potentially through automatic weighting adjustments. To my knowledge, this idea did not have a fully formed model, so this is my rough estimation of the allocator as written in the whitepaper. This idea brings the idea of treasury funding, through equity holding, to the table. The concept could eliminate the zero sum game from interchain funding, allowing the Hub to profit from its investments made in the interchain.

Conclusion:

In my opinion, it would be beneficial for the Hub to begin transitioning toward more of a subDAO model of treasury funding. The level of specification that is enabled by subDAOs, grant funds and the interchain allocator, could lead to a much more productive Hub, with less need for total community involvement with every decision made. This distribution of funding from the treasury could make the Cosmos Hub extremely efficient in terms of capital allocation, yet very decentralized, with the delegators ultimately choosing which entities to fund.

As a community, we do not want to bar projects from requesting funds, for valuable projects, nor do we want to intimidate projects out of attempting to request funds, simply because they do not want to go through the Governance process. Small to medium sized funding should likely come from grant funds and subDAO’s. This could make the process much easier and more seamless for those requesting funds, with the subDAOs and grant funds, still remaining accountable to Hub Governance.

In this system, we may be able to create a hyper efficient Hub treasury through various subDAOs and grant funds, with additional revenue generation and use case through the Interchain Allocator. Expanding out the Cosmos Hub and the Interchain ecosystem, while still retaining the overarching decentralized grandeur that we appreciate about the Cosmos Hub.

Please let me know any thoughts you have around this subDAO treasury system. I would love to get the conversation started on what the next steps may be, to improve treasury governance.

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I will definitely think on this and come back with some actually helpful thoughts and insights, but just wanted to say I love where your head is at and cannot agree more that this model is ABSOLUTELY at least worth exploring in a serious capacity.

Thanks for the write up!

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Hello, it need to be developped.

If i understand right. Voting will change right.

Like prop 101(aid earthquake) and 104 (fund notional) #prop 155 will no pass since there is less than 50% of yes if we count only yes vote.

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I think that this proposal needs a full rewrite and that it contains certain trigger words and phrases that endanger the hub.

I’m very happy to jump in on the rewrite.

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What trigger words and phrases…?

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For sure, I would be happy to assist in a rewrite that would be better phrased, and a system more viable for the Hub to adopt! I know some of my phrasing isn’t ideal for the system at hand, and the concept itself needs ironed out. So I would love the opportunity to iron out some details!

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other than software upgrades, this is false:

your assertions are contradicted by the obvious lack of due diligence or possibly corruption of validators apparent when voting history is scrutinized. Validators voted to pass prop101, awarding 20k ATOM to an initiative entirely unrelated to neither the cosmos nor ATOM, as well as 1800 ATOM paid to a fellow validator for videos on a channel with no views.

delegators dont make the decisions in the cosmos, the top 25 validators do.

further evidence of validator’s inability to do due diligence and/or corrupt funding practices through kickbacks to validator’s friends can be seen in gravity bridge prop108, where top validators in the ATOM active set like P2P voted to use community funds to pay off their own validator’s carbon debt.

centralizing the treasury further around a few validator installed gate keepers being paid to administer funds to themselves is not a tenable solution if decentralization is a goal of the Hub.

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Thanks for the feedback!

Validators have certainly contributed to treasury mismanagement, due to lack of due diligence. However, assuming this system inherently centralizes around validators is incorrect. Would you propose that we blacklist validator wallets from some of the subDAO’s created? That should be considered. Anything is considered. The entire point of what I wrote is that I would like to transition to a more efficient model, that has different levels of decentralization where necessary.

However, it would not be wise to blacklist validators from every subDAO. I do not blame all of our Governance inefficiencies on Validators. The Props you mentioned, were all pretty niche, and while they spent money, that money has already been minted back into existance. Validators play a crucial role, and are more technical than most delegators, which means on technical funding initiatives, they should have the option to have an opinion and a vote. But like I said previously, the goal is not to centralize around validators being able to spend endlessly, the goal is to create different systems of governance with different mandates and parameters to stick too.

I would love to hear feedback on which specifically mandated subDAO’s, the community is interested in creating and how they should be governed. Validator wallet blacklisting from certain subDAO’s doesn’t seem too out of line, if this is expressly disclosed in the governance process of subDAO creation. This subDAO would also have to be approved and funded via governance, as any subDAO would be.

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Funding can be made transparent, predictable, accessible, decentralized and eliminate the need to pay treasury managers using existing governance mechanisms to direct the chain by market forces.

Starting with an annual governance vote to assign a budget as a % of the community pool or $ amount of development funds to be distributed across general categories of funding like infrastructure 40%, innovation 20%, marketing 10%, ecosystem 30% as an example,
projects that want community pool funding then campaign for their project to the community to support their project in a semi-annual ranked choice voting where the top 3 or 10% or other is granted a vested award allowing funds to be revoked through a confirmation vote before the next round of funding is voted for. *could also distribute additional vested awards if you move up significantly in rank from one award to distribution vote or other incentive structure.

This makes the funds validators will inevitably pay themselves through governance predictable in their regular governance distribution, transparent and goes to someone with a strong reputation in the community. this system incentivizes community growth through outreach to get the best funding.

Half the annual allocation of CP funds could be converted into a stable coin over 6 months to reduce price impact on ATOM

The funds would be available to anyone who applies and vested funds are awarded based on the top ranked teams in their class.

If devs and validators want to be funded well from the community pool, they should have to work for it.

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I agree that having more tooling to allocate resources would be highly beneficial.

With that in mind, it’s worth considering:

  • How does replicated security affect what the Hub treasury funds?
  • What tooling and infrastructure will consumer chains bring to the table that can solve some of these issues?

I am personally of the mind that now that the ATOM accelerator DAO exists to address from the Cosmos Hub’s particular point of view

The Hub should hyper-focus all of its common resources and policies on strengthening the ATOM economic zone via attracting consumer chains that will add value to the Hub, and building strong relationships with those chains via economic alignment and support.

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I would agree, a large portion of funding from the Hub should be directed at replicated security. However, I believe that even in the scenario that we only spend for items regarding RS, we have multiple different subDAO options. I know Informal largely works on the Hub and and RS, but a more centrally controlled subDAO dedicated to funding bug bounties and audits for consumer chains, before they launch. One subDAO dedicated to the on-boarding of consumer chains.

On a side not, one idea I’ve been thinking about, is around, if the community wants to keep the Hub minimal and not put CosmWasm in the Hub. If this is the case, then there is potentially an opportunity to put together a permissionless CosmWasm enabled ATOM sidechain, that is a Consumer chain from the Hub. This chain would use ATOM as its main utility token and be governed by the Hub. This would leave a new area for a subDAO to come in and fund projects to develop on the chain.

I feel like we will find many different ways to be able to utilize different mandated subDAO’s, going forward.

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I discussed this exact model in the ATOMZone discussions last week on a Twitter Space and believe the SubDAO model is 100% the way to go. Not every proposal needs to be voted on by the entire community and the Hub needs to figure out a way to remain decentralized while being transparent and more effective.

I would love to see DAODAO have its own consumer chain where subDAOs dedicated to certain areas of expertise are led by core contributors voted on by the entire community.

First we would need to identify the subDAO categories. This isn’t an exhaustive list, but just off top of my head:

  1. R&D (IBC development, tokenomics, new Interchain services)
  2. Third-Party Auditing
  3. Developer Relations/Outreach
  4. Business Development (developing GTM strategy for ideas coming out of R&D and liaison with institutions inquiring about leveraging Cosmos stack)
  5. Marketing
  6. Budget Planning/Finance

The Hub needs a business and budget planning process:

  1. Strategy/Allocation (we have $X to spend, how do we want to spend that across each subDAO)
  2. SubDAO Business planning (what do they want to get done, whats a high-level estimate of cost to get it done, milestone planning, etc)
  3. Community re-adjusts budget based on subDAO business planning
  4. Community approves business plans
  5. Monthly/Quarterly Reporting by subDAOs to community on milestones
  6. Finish year, go back to Step 1

All funds should be streamed to each subDAO and the ability to control payment streaming should be held at the community-level.

Every community member should be able to join a subDAO (or multiple) that they’re interested in. SubDAO leads should have terms with limits that balance a cohesive strategy from year-to-year while also encouraging leadership churn to bring new ideas to the forefront.

Count me in to help developing this further. I did business and budget planning in my past life for a large corporation.

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This is a very interesting point of view, I think subDAO model of treasury funding can be helpful for the Hub and capital allocation, I also like the idea to keep it as decentralized as possible

Thank you for this idea, we definitely need to discuss this proposal more

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hey

even if i mostly agree with your points, i feel the hub should hyper-focus on strengthening the upcoming consumer chains (Neutron, Duality, etc) before even thinking of attracting new ones.

  1. i don’t think the hub needs to attract dozens of chains into its economic zone
  2. i believe 6 or 8 strong consumer chains with strong purposes and alignment is way better than 30 chains whose 20% of them are useless one year later
  3. i believe the hub shouldn’t underestimate the efforts that have to be made to minimize the costs w adding new chains for low ranked validators - and should work actively to keep their confidence

cheers

about what @effortcapital said, as often, it’s a massive +1 on my side

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i see a lot of opinions about how a subDAO treasury system should be used to centralize public funds to direct the future of the chain according to a few opinions, but no reasons to believe a centralized subDAO treasury system would be effective, more efficient, or positive for the hub verse a decentralized funding methodology.

A subDAO treasury system should at very minimum be able to clearly justify the overhead involved in centralizing public funds under a handful of administrators rather than keep funding decentralized and directed according to the desires of hub users

just as importantly, a detailed description of the subDAO Treasury system’s direction for the hub and its benefit is absent from the conversation.

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is it not the case that the hub should change slowly and deliberately based on cyclical market conditions where the hub funds experimental and innovative initiatives and once they successfully demonstrate their value the hub appropriates them into their hub and spoke model, given the open source nature of the hub and the public good centric mandate of the ICF in combination with ranked choice voting i roughly summarized previously to fund projects the community would most like to see without relying on the opinions and administration of a few funding gatekeepers on the communities dime?

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are u really aware of the capabilities of the DAODAO like subdaos in terms of vesting/funding allocations/transparency/accountability/etc ?

i’ve deleted my previous comment because i re-read your first explanation on how things should be made and i’ve just thought it was quite good and also quite feasible with a subdao model in a more effective way and also that your way of thinking would be so much more interesting and constructive without this “anti-centralizing-things” everywhere that often distorts realities.

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My argument against DAODAO/subDAO model pertains to its use as a systemic implementation. but yes, I understand and see the promise these tools and do not mean to discount their value as an innovative solution where there currently is none. I assume that within ranked-choice type funding model, many DAODAOs and subDAO’s would emerge as popular grant recipients and encourage this.

My rhetoric can sometimes lean hyperbolic when i feel valid criticisms are being entirely ignored within the discussion. I have a number of ideas and questions relating to DAODAO that i have withheld in general conversation because of concerns they may be persuasive and make advocating for a decentralized funding methodology more difficult.

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I’m not against ranked-choice voting, but I see that in the budget planning process at the community-level where we collectively decide what we want to spend our yearly budget on (which is then streamed to subDAOs with their own business plans and milestones that they need to report back to the entire community on on a period basis).

I don’t want to centralize Mgmt of the treasury, I want to compartmentalize strategy execution without developers having to come to the entire community for every spend proposal

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I appreciate from the both side of you all. Since we all know what’s on ground. I think we should work it out immediately. I support Stablecoin right from beginning and It’s be better for us to understand this project. Something good will come out from there. I believe we aren’t going to regret it’s.