Proposal: AIP-1.1 - Lockup, Budget, Transparency

[tnorm]

Hi All,

Traver from the Messari Governor team here. Great to see an increase in transparency, which is an improvement over many Foundations in crypto today. As the vote stands currently, it appears AIP 1.1 will pass.

As the Foundation proceeds, we’d like to help expand the critiques of the Foundation into some proactive solutions that can improve the Arbitrum Foundation’s communication with the DAO.

1. Operation Budget

We agree with @jason3s that the operational costs ($36M over 12 months) require greater transparency which should be a prerequisite for distributing any DAO funds to any associated Foundation. The Arbitrum Foundation’s responsibilities break the mold of many comparable foundations (which usually function as a financial and legal wrapper for the DAO, oversee operations, and distribute funding).

DAO	Foundation	Funding	Ops Funding (Annual)	FTE	Scope
Uniswap	Uniswap Foundation	$74M	$4.67M	14	Distribute Grants and advocate for the protocol.
Balancer	Balancer Foundation	$500K	$500K	4	Manage service providers and financial maintenance costs.
Starknet	Starknet Foundation	50% Tokens	N/A	N/A	Maintaining StarkNet as a public good, continued network development, and developers’ support.
Optimism	Optimism Foundation	30% Tokens	N/A	N/A	Legal wrapper and early-governance steward, allocator of treasury assets to fund public goods.

The Arbitrum Foundation’s scope expands to include responsibilities for operating Arbitrum’s rollups, including “operations, blockchain operation, infrastructure, service contracts, and ongoing improvements to the Arbitrum ecosystem.” Further, the initial budget includes $9M for research alone. Understanding the scope of work (SoW) for the Foundation’s technical development and operations assignments would be valuable, considering this is generally outside a typical Foundation’s purview. In most cases, R&D is done by a separate labs team (Optimism Labs, Uniswap Labs, etc.) or otherwise supplemented by grants. If both Offchain Labs and the Arbitrum Foundation conduct R&D, clarifying each research team’s specific overlap and objectives would align the DAO with the ask and even help justify the budget.

The DAO would benefit from the opinion of others with more DAO budgeting experience (re: @gfxlabs) on evaluating this framework, given the Foundation’s scope. However, we note the vote of confidence from delegates such as @karelvuong and @krst.

2. Ecosystem Growth Initiatives

The ecosystem growth initiative also needs to be more specific. To be clear, we’re not against the delegated distribution of grants funding to the Foundation, and delegated grants programs will presumably be a more effective strategy than token-voting due to voter fatigue, varying stakeholder interests, and near-term biases. That being said, it must be paired with:

• A clear indication of the method the Foundation will use for grant decisions;

• The process for grant selection;

• The KPIs and goals grantees will be held too;

• Infrastructure to track the accountability of grantees;

• The amount and schedule of fund distribution (rather than just a mention of the fact that these will exist).

@Arbitrum

The Mission Statement in the Foundation’s bylaws highlights the varied nature of the opportunities the Foundation intends to pursue and a set of KPIs that can track all of these opportunities being developed.

The KPIs referenced in the bylaws should be expanded dramatically. See Optimism’s recently revamped efforts here for their incentive program (launched after backlash following the misallocation of funds and the misuse of allocated funds).

Grants can be an especially pernicious avenue for favoritism, corruption, and misallocation. The DAO should solicit greater transparency around Foundation distributions and set high standards for measuring the ROI and impact of distributed grants.

3. Transparency Reports

@krst

4. Transparency Reports

We support the plan to provide transparency to the Foundation’s operation through Transparency Reports. We think that the first transparency report that has been presented is a good starting point, although we believe that in the future the information presented there could be more detailed. The structure and scope of future transparency reports should be discussed with the community and outlined later on.

@cp287

3. Transparency Reports

Annual and semi-annual progress reports are not enough. We also believe that given the enormous cost of the administrative costs category, reports should be made as often as possible, ideally in real time, but the maximum acceptable period for such reports should not exceed 3 months (a quarter).

@John_P2P.org

4. Transparency Reports

Annual reports and semi-annual progress updates are not enough. If possible we should create a real-time progress reporting system. This can be very time-consuming to build but it can be outsourced to the community with a grant. Additionally, this would be a groundbreaking proposal that would set the standard for transparency and accountability not only for DAO governance but any type of organization. In the meantime, we recommend that the Foundation provide quarterly updates on budget spending, as well as regular updates on any major initiatives or developments.

Transparency Reports should include estimating the roles/titles the Foundation aims to employ along with their associated personnel costs, articulating the amount of funding dedicated to R&D initiatives and their objectives, and a more granular budget breakdown for marketing campaigns and events budgets. In addition, the Foundation should be able to share fixed overhead costs for technical and non-technical operations. The transparency reports should resemble more numbers and less text, akin to a spending audit with specific line items and initiatives (beyond a single $9M chunk of funding). While real-time reporting may be too heavy a lift, I don’t see any reason not to publish on a quarterly basis (at a minimum).

Further, these details inform how the DAO can approach its role in operating around the Foundation’s initiatives. As proposals explore new funding avenues for the DAO, the clearer the Foundation can articulate its scope, the more helpful the DAO can be in achieving our collective goals

Lastly, we’d expect the DAO to pursue a further proposal to define future transparency and reporting standards for the Foundation to abide by. We’re happy to collaborate with the Foundation and the DAO to set an agreeable and professional standard.