The below response reflects the views of L2BEAT’s governance team, composed of @krst and @Sinkas, and it’s based on the combined research, fact-checking, and ideation of the two.
This post is way overdue as we ended up discussing its contents too long instead of just publishing it. Therefore we’re not expecting any action on it, but we’ll just leave it as feedback that might be useful for the next Transparency Report.
The only thing that we want to propose at this point is that for the next Transparency Report and the ones after it, we should have a process to ratify it by the DAO (for example via a simple Snapshot vote), to make sure that delegates read the report and don’t have any significant issues with its contents.
Intro
The goal of the Transparency Report is to provide delegates with the necessary information so they can carry out their responsibility of overseeing the Foundation. The reason for the transparency is so delegates can answer one simple question; should we, as a DAO, request any changes in the Foundation functioning and/or reassess the funding schedule for the Foundation?
In the AIP-1.2, it is mentioned that:
The Foundation understands and agrees that the community should have oversight across how these funds are being utilized to gain comfort that spending is in the interest of the community. In furtherance of this goal, the Foundation is committed to providing a comprehensive annual report and a semi-annual progress update. This will provide the community with a better understanding of the Foundation’s expenditures, balance sheet and its pursuit of ecosystem growth opportunities alongside partnership developments, as well as the various internal and external committees and stakeholders that are involved in the decision making process.
Overview
After reading through the report, the impression we were left with was that it was more of a report about what has happened in the DAO and overall Arbitrum ecosystem and less of a report on what the Foundation has been up to. To be clear - we appreciate and value the DAO coverage in the report, we think it’s a very useful overview of DAO activities and it perfectly shows the role of the Foundation as a facilitator rather than the manager for the DAO. However, we would like to see the structure and activities of the Foundation covered in the same level of detail as those of the DAO, and in that regard we find the current report lacking.
We believe that wasn’t done in a conscious attempt to hide or obscure information, but rather as an oversight. While we appreciate the Foundation’s intention behind creating a transparency report, we want to take the opportunity to offer our feedback as active delegates in Arbitrum’s governance on how to make the report more useful.
Operations
There are a lot of things that could use more communication and transparency on the Foundation’s side, including the Ambassadors program, events during conferences, and even R&D that the Foundation is carrying out. Citing again the AIP-1.2 fragment mentioned above:
This will provide the community with a better understanding of … the various internal and external committees and stakeholders that are involved in the decision making process.
Delegates should be aware of what the Foundation is working on, and not just hear about it after the fact. Not just for the sake of transparency, but more importantly to be able to help the Foundation in its efforts and amplify the results.
If the DAO had a better view of the Foundation’s internal structure and operational processes, it would be easier for the DAO to support the Foundation’s efforts. Moreover, it might be useful to have a communication channel/procedure with a point of contact on the Foundation’s side for each domain (like growth, Orbit chains, ambassador program, grants, etc.) so that DAO contributors know with whom and how to coordinate their DAO efforts.
Finances
While the report published does offer information on how the Foundation’s funds are being utilized, we think it is merely scratching the surface and doesn’t offer any actual transparency of how the foundation carries out its mission.
Specifically, out of 47 pages, there’s only 1(!) page that covers finances, and it does so through a small table that offers information on the amount of money spent on 5 vague buckets. While some degree of confidentiality is expected around the financials that pertain to sensitive topics (e.g. specific employee salaries), we find the ‘Finances’ section of the report severely lacking.
There should be a more comprehensive breakdown of the Foundation’s finances and not just a high-level overview of the categories in which the funds were spent. Each category outlined in the report should be broken down even further and offer an insight into what the specific expenses in each category were to the degree that is possible.
While we don’t need to dig deep into the specific amounts being spent, we do need to understand the justification for the level of spending. The budget should also include some kind of a forecast of what is planned to be spent in the next period (6 months) so that we can check in the future if the spending is going according to the plan.
There should also be a clear distinction between categories of spending. For example, if the ‘General and Administrative’ category includes employee salaries, and 1 FTC is working on Research, is there any overlap with the amount spent on ‘R&D’? We theorize that there isn’t, but this isn’t readily apparent with the information currently available in the report.
Foundation Grants Program
While there is a list of the grants the Foundation has given, there are no details for each grant other than the project’s name, the category it belongs to (NFT, DeFi, etc), and the date the grant was approved.
There’s no information on the amount of funding each project received, the milestones they have in place to receive the funding, their current metrics (where applicable), or their current status. There’s no way for delegates to review the value of the Foundation’s grants with the information that is currently available.
As mentioned above, some degree of confidentiality is expected, but we need to find a good balance between the DAO’s need for transparency and the Foundation’s need for confidentiality to efficiently grow the ecosystem with grants.
Some additional information that we’d like to see in the transparency report that pertains to the Foundation’s Grant program include:
- The Arbitrum Foundation Grants Team
We understand that the identities of the team members should not necessarily be made public (unless the team members choose to reveal their roles). However, the DAO should have an understanding of the size of the grants team and have a clear point of contact and communication channel with the grants team to coordinate programs on the DAO side.
- Application Pipeline
Is there an outreach strategy that’s used to grow the grants pipeline? If yes, what does the strategy include? How can the DAO help with it?
- Operational Procedures of the Grants Team
What are the internal procedures that the grants team uses to assess each grant application?
- Relevant Metrics
What are the metrics that the grants team is using to assess the impact of the Foundation’s grant program on the Arbitrum ecosystem? Is there information on how many applications are coming in every month, how many get accepted, what is the max/median/min and average time to process an application, a compilation of the reasons applications are being rejected, and how many rejected applications reapply?
- High-level goals
What are the current (we understand they might change based on market shifts), high-level goals of the Foundation’s grants team? What is the area of focus and what kind of projects is the team looking to fund?
- Individual Grant Info
What is the overall scope of each individual grant funded and when can we expect the results for each? What are the milestones set in place and where can we track progress? In case of confidential grants, perhaps there should be information to make the DAO aware of its existence without breaking the confidential nature, but allowing the DAO to track
- Splitting work between the Foundation and the DAO
Most importantly, and the reason why the DAO should have access to the information mentioned above, is so we can determine how we can best split the responsibilities between the DAO and the Foundation to make sure we complement each other’s work and do not unintentionally compete or undermine each other’s efforts.
Conclusion
Overall, we found that the report published contains a lot of information that is useful to anyone looking to understand what has happened in the DAO over the past few months, but there’s a space for improvement on the following, as quoted in AIP-1:
The financial element of these transparency reports will include a breakdown of operational costs incurred while running the Foundation, including infrastructure spending for the Arbitrum chains, events, community building efforts, grants, etc.
We suggest that next time Foundation should include more comprehensive operational and financial data, more information on what they’re working on, and what their plans are for the future.
Lastly, there should be a specific date we can expect the next Transparency Report, as this one was way overdue by the time it was published for no apparent (to us) reason.