Proposal: AIP-1.1 - Lockup, Budget, Transparency

Proposals Finalized AIPs
45

(Posting on behalf of P2P.org)

Overall, we find this proposal to be much clearer and more detailed than the previous one. This is a considerable step in the right direction, and we want to congratulate the team for their agile response in drafting this new proposal. That being said, we would still like to see some further improvements and clarifications.

We do not have any major concerns about the amount allocated to the administrative budget. We believe that a well-funded and robust DAO is necessary to compete in the rapidly developing crypto ecosystem. Our concerns lie mainly with the low level of transparency and vagueness on how the budget spending will be reported to the community.

We vote yes.

1. Smart Contract Lockup

Although many community members have suggested implementing a lockup schedule, we believe this is not the ideal solution. In fact, it may be harmful and counterproductive to the goals of this proposal and the development of the DAO, particularly with regard to the section highlighted below.

The Administrative Budget Wallet will be used for covering ongoing administrative and operational costs of The Arbitrum Foundation, payment of service providers, and for the purpose of fostering the growth and development of the Arbitrum ecosystem.

A lockup schedule may only serve as a ā€œfeel goodā€ mechanism, while also limiting some of the Foundationā€™s stated goals. However, concerns about how the Foundation handles spending could be alleviated through the proper implementation of Transparency reports (more on that below).

2. Operating Budget
Once again our concerns here are not with the total but with the lack of transparency and vagueness of each budget category.

To address these concerns, it is ideal to break down each budget category into more granular detail. This will make it easier to understand how funds are being allocated and identify any potential discrepancies. We recognize that there may be limitations to doing this at this stage, but these should be communicated and the reasons outlined. For reference, please check out Lidoā€™s budget proposal.

This operating budget presents best-faith estimates of the Foundationā€™s anticipated budgetary needs which may be subject to change.

Furthermore, if the budget was created with best-faith estimates, it should be possible to describe the process used to determine these values. Providing this level of detail will increase transparency and accountability within the budgeting process, ensuring all stakeholders are informed and engaged in the Foundationā€™s financial decisions.

3. Ecosystem Growth Initiatives

No opposition to the use of funds for this purpose as long as proper oversight and transparency protocols are in place.

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.

This will help to build trust and confidence with the community and ensure that the Foundation is operating in the best interests of all stakeholders.

We would like to see a properly formalized report for each Ecosystem Growth Initiatives spending conducted. Here are some key elements:

  • A set time limit for the presentation of a transparency report following each special grant admission by the Foundation. (60 days sound like a reasonable amount of time)
  • Goals of the grant
  • Proposed OKRs used to evaluate the success of each grant
7 Likes
46

Blockworks Research will vote in favor of AIP-1.1

We believe the revisions are satisfactory with our ā€œpath forwardā€ suggestions and that this proposal will be overall beneficial to the DAO and protocol. Our main requests were that the foundation:

  1. Provide a detailed budget breakdown to justify the 750M ARB.
  2. Create a DAO-controlled vesting contract for the tokens.

Both conditions have been appropriately met. As we have already stated, we believe a Foundation focused on creating a vibrant and sustainable ecosystem is advantageous to the success of Arbitrum. It is our opinion that the 7.5% allocation is fair. Though we do not foresee it occurring, we are happy the DAO will maintain the ability to discontinue the stream of these funds at any time if the newly introduced bi-annual transparency reports show the Foundation is not meeting its KPIs. Additionally, we appreciate the division of the original AIP-1 into more easily digestible and discussable smaller initiatives.

While we recognize the teamā€™s misstep, we also criticize the resulting ā€œwitch-huntā€ that has taken over the narrative over the last week. The Blockworks Research team remains optimistic about the future of Arbitrum, and we look forward to being a steward in its continued success.

26 Likes
47

I have found this post rather confusing. 175 Million ARB is going to be unlocked of the 750 Million taken (50 million spent), for the next 4 years. But the operating budget is 36 million. So the remaining money, each year goes where?

This is much more transparent and open than I have ever seen, so I do support this. I just feel like 129 Million extra tokens is notable.

1 Like
48

This is a fairly standard salary for a senior level engineer at a tech company. Highly specialized engineering fields are extremely competitive because talent pool is limited and skillset takes years to develop. There would be no incentive for someone to choose a job building the protocol vs. working at Google if comparable comp is not on the table.

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I hope everything is clean here. Otherwise, there may be regulatory problems in the future.

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(Posting on behalf of TreasureDAO as a member of its DAO council - Karel Vuong, Co-Founder.)

TreasureDAO will vote in favour of AIP-1.1.

As stated in our response to AIP-1, the issue for the Treasure community was never the proposed size of the Administrative Budget Wallet (ABW) nor did we have skepticism over Arbitrumā€™s intention in requesting this amount of ARB. We voted no and asked for a resubmitted proposal with more details about program types. Our rationale was ensuring that the earliest proposals enacted by ArbitrumDAO set a positive model for future governance. We believe AIP-1.1 creates a good example for governance best practices by providing more details on the ABW.

We believe $36 million is a reasonable operating budget over the next 12 months. Arbitrum is currently the leading L2 and competing with highly-capitalized organizations to maintain this spot. Arbitrumā€™s competitiveness hinges on further development of One, Nova, and Orbit, extensive business development to bring in the best projects, continued R&D in a space that is rapidly evolving, and so on.

This proposal offers sufficient clarification on the types of programs that would be supported by the ABW. Given the speed at which the industry is evolving, requesting further granularity than provided here would be unwise as it provides bad faith or uninformed actors a way through governance to prevent the Foundation from adapting allocations as necessary to remain technologically competitive. As we stated previously, the community should not have too much input into how funds are allocated towards technical or procurement programs. Holding ARB does not automatically qualify one to speak up about the costs or practicalities of blockchain development or even service provider relationships. Moreover, the vesting clause in this proposal is a sufficient safeguard and an improvement over AIP-1.

10 Likes
51

Looking forward to the voting, Iā€™m going with a FOR

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52

ChainLinkGod will vote in favor for AIP-1.1.

I originally made four points of feedback on the original AIP-1 proposal, which echoed many of the concerns others had raised. I believe these points of feedback have been adequately addressed.

Splitting Up The Proposals

The original omnibus structure of AIP-1 contained too many non-contentious and contentious items packaged together into a single vote. With the transparency report on the initial Foundation setup, AIP-1.1 focused on the Foundationā€™s 750M allocation, and AIP-1.2 focused on amendments, the scope of what the community is voting on is far more manageable and sets a better precedent.

Administrative Budget Wallet

I was always supportive of the creation and funding of the Arbitrum Foundation, however felt there was too little information to how the assets were going to be used . The budget proposed in this proposal looks to be reasonable and the transparency report provided the much needed context on the Foundation directorsā€™ backgrounds.

The smart contract enforced vesting of Foundation funds is also a nice addition, providing greater accountability over fund usage. While I believe the vesting schedule to be too conservative, creating a risk that the Foundation may miss out on key deals, given that the Foundation can propose to accelerate vesting, and the DAO having the ultimate ability to change the vesting speed, I support this move.

Retroactive Voting

My biggest concern with AIP-1 was having the DAO vote retroactively on actions that have already taken place. Therefore, Iā€™m aligned with the decision to move initial foundation setup decisions to the transparency report and have it out of scope of what the DAO is actually voting on (future votes can always be made on additional changes). While I still believe the original communications around the allotment of the 750M ARB and its partial usage was poor, I do not believe the Foundation had/has any malicious intent. I believe it is in the best interests of the Arbitrum community to move forward and place the funds in the vesting smart contract, where the DAO has oversight.

Voting Threshold

Will comment on this on the AIP-1.2 proposal, TL;DR Iā€™m aligned.

8 Likes
53

Weā€™re glad to see that the communityā€™s feedback has been taken into consideration in a very comprehensive manner!

We feel that transparency through verifiable on-chain actions, encouraging sufficient funding within good reason and the emphasis on actual DAO governance power are all present in this proposal, whereas they were glaringly absent in AIP-1. We would ideally want to see more diligent and detailed budgeting transparency for the funds - as also pointed out by our community members sneddles and dmetreeohs. Current structure is still rather high-level, although an improvement from the original AIP.

To us, AIP 1.1 and 1.2 represent a transparent and honest presentation for setting up the Foundation and its key parameters, after which we can all get back to building!

6 Likes
54

Yea with vested stock options maybeā€¦

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The proposed amendments are satisfactory.

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We are glad to see that the proposals are becoming more transparent and open, and already contain far fewer voting questions. We think this is a great step in the right direction for the formation of the DAO and its described goals in the constitution.
We also recognize the need for the Arbitrum Foundation, we agree with the stated goals of the foundation, and we recognize that significant funds are needed to be competitive.

But we do have some comments and questions about the proposal.

On March 16, 2023, the Arbitrum networks (Arbitrum One and Arbitrum Nova) were decentralized and given to the newly formed Arbitrum DAO. Included in this transition were:

  • Control of the upgradeability and technical future of the chains
  • Control over the DAO treasury
  • Control over net fee revenue - i.e. the net difference between fees collected by on-chain operations and L1 fees paid by the Sequencer
  • All Arbitrum social media platforms and accounts
  • Ability to elect and, if deemed appropriate, remove the Security Council and Directors
    ā€¦

We absolutely disagree with this formulation. On March 16, there was no transition to the DAO, the architecture of the DAO and the way decisions are made were never approved by a vote.

Going over the points:

Control of the upgradeability and technical future of the chains - It is false. Right now the Arbitrum DAO has no access to the keys that allow you to upgrade or modify chains.

Control over the DAO treasury - It is false, weā€™ve all seen that through the two transaction, where 40M and 10M ARB were made on March 21 and 24 respectively without any approval from the DAO.

All Arbitrum social media platforms and accounts - As far as weā€™re concerned itā€™s a false. At this point, the admin rights of neither twitter, discord nor telegram have been transferred to any degree to the DAO as far as I know. At least Twitter continues to tweet without any DAO approval, and discord administrators have not changed and are under the control of Offchain Labs.

Ability to elect and, if deemed appropriate, remove the Security Council and Directors - Itā€™s a false. Despite the procedure described in AIP-1 for selecting security council members in the future, also in AIP-1 we were asked not to let the first security council members be selected, but already asked to ratify the decision already made.

Despite the general agreement with the proposal, we find it another dangerous precedent to vote FOR the proposal when it contains such blatant falsehoods, and a vote in favor could be seen as agreeing that it is true.

Our suggestion: Remove these paragraphs entirely from the proposal.

  1. About Operating Budget

While we are aware of the high cost of legal services, as are some of the other delegates we find it odd to see such high costs in the ā€œGeneral and Administrativeā€ category, and would like to see a breakdown of the categories into more detail. We really find this description with the lack of transparency and vagueness of each budget category.

Also, we are opposed to the bureaucratic category of ā€œGeneral and Administrativeā€ being larger than the sum of the ā€œR&Dā€ and ā€œTechnical Infrastructureā€ categories, as this in our view contradicts the stated priorities of the Foundation.

Thus, we suggest either reducing the size of ā€œGeneral and Administrativeā€, or, if this is not possible (which we will see in a more detailed categories), increasing the amount allocated to R&D.

  1. 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).

  1. Exchange of ARB to USD

Given the described need to pay for services in dollars rather than in ARB, we believe that it is necessary to describe in more detail the general principles of the procedure, responsibilities, terms, etc. for the exchange of ARB tokens for dollars. We understand that this information cannot be completely open, so as not to have a problem with different type of attacks, such as frontrun and others, but we believe that DAO need to know the general rules and principles of this procedure.

Conclusion: as we described above, we find this proposal to be well-developed and have only minor changes and more details. We would be willing to vote FOR if it were not for the problems we described in the first point.

Given the acceptance of our vote FOR as a ratification of the false, we are forced to vote ā€œAbstainā€ for this proposal.

3 Likes
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TRUST is the bedrock of any organisation. COMMON GOALS is the motivator behind the actions of each one in Arbitrum. No matter what the use cases may be, no matter how breakthrough or incremental our unique ideas to improve the blockchain ecosystem is, it is imperative that we follow common established practices and promote transparency and consensus.
The long-term success of the project cannot become victim to short-term needs of a group of people, or fluctuations in the crypto industry. Letā€™s put all $ARB back in our piggy bank and respect the long term value it offers to millions of retail and corporate stakeholders.
Thank you.

1 Like
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Blockworks Research has put AIP-1.1 live on Snapshot:
https://snapshot.org/#/arbitrumfoundation.eth/proposal/0x7203289844e807781e8d2ec110d4b97a79a29944cae06a52dbe315a16381a2ae

5 Likes
59

Thank you for the clarification on the sequencer fees!

Iā€™m not sure that being competitive with other foundations bank rolls should be the goal here, but rather an internally derived number that the arbitrum foundation would like to spend on strategic partnerships in the coming years.

To clarify, I want to support the Arbitrum Foundations strategic partnership initiatives to a reasonable degree as the arbitrum foundation is the best positioned team to do so and have shown ability to execute well.

However, it looks as if $800 million is allocated to this over 4 years and I just donā€™t think that could be effectively distributed in the best interest of the $ARB holders.

3 Likes
60

The operator should return the tokens and then re-propose the proposal, so as to comply with the legality of the procedure and respect for justice; instead of adding regulations to the tokens that have been illegally transferred as it is now.

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At L2BEAT, we havenā€™t made our decision yet about how we are going to vote on AIP-1.1. We are leaning towards voting FOR, but weā€™d like to have more discussion around it. Weā€™ll be having a community call on Wednesday, 12.04 at 12 PM ET, 16:00 UTC. We encourage all interested parties, especially those who have delegated their tokens to L2BEAT, to join the discussion; weā€™ll go through each AIP currently being discussed and will explain how we are going to vote and the reasoning behind our decisions.

We will post the link to the discussion later in this thread (weā€™re still considering which platform to use), and we will also post a short summary of the discussion here afterwards.

As for this proposal, we generally like the presented approach.

1. Smart Contract Lockup
We definitely support the idea of having the ā€œAdministrative Budget Walletā€ funds locked in a vesting vault controlled by the DAO. In our opinion, this serves two purposes:

  1. It provides the Foundation with a significant budget, positioning it well in the blockchain landscape against similar organizations behind other chains.
  2. It grants the DAO authority over these funds, allowing the DAO to clawback them if necessary.

However, we would like to note that itā€™s impossible to assess how this solution will work in practice right now, as there are no details about the smart contracts for the said vesting vault and its configuration parameters. Ideally, it would be best to know those details (or at least some broad technical vision) before the vote happens.

2. Operating Budget
We support this overall budget structure, although we echo some other commentersā€™ remarks that it could have been a bit more detailed. We think itā€™s a good starting point, and we should work together with the Foundation to establish an expected level of budgeting details for the future.

3. Ecosystem Growth Initiatives
We support the idea of the Foundation having a dedicated budget for sponsoring ecosystem growth initiatives. In our opinion, this could be mirrored by a similar grants program run by the DAO in a more open and transparent ashion. However, this should be a subject of separate debate.

4. Transparency Reports
We support the plan to provide transparency to the Foundationā€™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.

That being said, weā€™re still open to discussing all of these issues. We encourage all of you to join us for the community call if you think weā€™re missing something.

5 Likes
62

I think it would be about time to bring more clarity and transparency when it comes to the concept of business ethics based on this statement:

The DAO is also tasked with fostering and developing the Arbitrum ecosystem, where the DAO may seek to partner with companies or organizations that either cannot or will not publicly negotiate collaborations or partnerships due to confidentiality and other operational requirements. Often, large enterprises negotiate partnership opportunities in private without public processes, where these relationships can only be disclosed after they are agreed upon. Having a well-funded Foundation empowered to represent the DAO in this arena, alongside peer foundations, is in the best interests of the DAO to further develop the growth of the Arbitrum ecosystem.

It might be that the better way forward would be to demand more openness within some kind of set circumstances to optimize decision making for the benefit of all.
Although I comprehend the fundamentals of competition and confidentiality, but it can be optimal to proceed with new strategies for the new era of open source information and collaboration. In the end, we are all in the same boat and we live in a world of abundance.

1 Like
63

Looking good. It a yes from me.

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64

Can someone with the knowledge provide some insight into this? This budget appears inexplicably large.

What will these 20 full time people (plus contractors) be working on?

This is difficult to support without further details.

3 Likes