Dapp Treasury Management

[Eric]

Following todays governance call, I wanted to follow through by kicking off a conversation about what the dapp treasury is, its context, how it can be used, and direction towards its future management. My goal through this discussion is to lead to a signaling proposal ratifying whatever we jointly come up with.

To prevent gamification of ARCH rewards, the protocol is meant to ensure that developers can not earn more in rewards than is spent on Gas. Since a fixed percentage (currently 25%) of inflation is reserved for developer remuneration, should there not be enough Gas spent, the additional inflation has to go somewhere. Thus gave birth to the Dapp Treasury, first mentioned in the economic paper at the bottom of page 12, https://archway.io/assets/archway-economics.pdf.

With the economics paper primarily referencing a temporarily impossible to build out ‘ideal model’, Archway is unable to track and pay out remuneration for the inflation part of dev rewards in real time, thus to maintain safety, pays the minimum possible payment which assumes 100% of blockspace is full, or 300M gas/block. Since very little of the payments are actually given to the devs, almost all of the 25% of inflation reserved for developers has been accruing to the dapp treasury since mainnet launch July 3.

There is currently no direct precedent on how to use these funds. Many have assumed that rewards would be disbursed retroactively until dynamic tracking is made possible, but this has not been clearly enumerated or ratified. Additionally, management of the dapp treasury has not been clearly enumerated. As a module wallet it is not technically handled by governance in the way the community pool is. Should it be governed by the community? Should it be governed by a separate DAO that has a higher representation by dapps? I honestly don’t have a very strong opinion in either direction currently, as both, and other solutions all have unique pros and cons, hence the need for this discussion.

I DO believe that whatever does go forward should be ratified on governance through a signaling proposal. I DO believe that current applications should receive retroactive remuneration from launch date, and in continuity until dynamic processing is live, and intend to enumerate this in a signaling proposal following this discussion. I also believe that the overall dapp treasury doesn’t solely belong to current applications, but the existence of it both proves and emphasizes that the current applications are falling short of the blockspace sales inflection point denoted as the “Optimal Fill Percentage”, and as such, much of these funds should go towards grants, hackathons, and acquisition of more applications and developers that should lead to further the future sales of blockspace.

Please respond with feedback on my intended proposal, but also your philosophical vision and ethos for what the dapp treasury should be, how it should be handled and managed, etc.

[Kryptic]

Thank you for raising this important discussion on the management and vision for the dapp treasury. I appreciate you outlining a potential path forward with retroactive rewards for current dapps, as well as allocating funds to grow the ecosystem further.

My view aligns with the hybrid approach outlined in the GitHub discussion - leveraging both data-driven allocation and community oversight through a specialized DAO direction the allocation.

The ideal scenario would be an algorithmic distribution mechanism that is adjustable in real-time by a DAO composed of diverse ecosystem stakeholders. This combines fairness through metrics-based allocation with flexibility through community oversight.

However, given current technical constraints, a pragmatic approach could be establishing a DAO committee focused on managing the treasury distribution. This DAO should still leverage clear metrics to guide allocation decisions, avoiding pure subjective judgment. The selection process for DAO members is critical - rules and procedures need to be established upfront to ensure no single interest group dominates.

As DAO adoption increases across networks, following this model of specialized DAOs handling targeted governance makes sense. However, care should be taken to avoid duplicating the pitfalls of legacy governance systems. Procedural transparency and regular rotation of DAO members will be important to maintain credibility.

Overall I think a data-driven DAO with diverse representation, following clear operational processes, provides a balanced mechanism for managing the dapp treasury until an adjustable algorithmic approach becomes technically feasible. The DAO should be empowered but also held accountable through its design and governance.

While retroactive rewards help kickstart current dapps, I believe the treasury should take a long-term outlook. The goal is sustaining an innovative and collaborative ecosystem, not maximizing short-term rewards.

[Eric]

Cool, then ya this week let’s keep ideating on this DAO idea.

As for thinking long-term rather than short term I agree… but in 2.5 months the Dapp Treasury has already accumulated like 5M ARCH. Full remuneration for current devs I believe would be less than 100k ARCH. It won’t be conflicting, we’re consistently well underneath the OFP.

[theconnnectooor]

Thanks @Eric and @Kryptic for your thoughtful contributions here.

@Eric

I DO believe that current applications should receive retroactive remuneration from launch date, and in continuity until dynamic processing is live…

Agreed, for the following reasons:

• These funds would represent an insignificant portion of the overall Dapp Treasury
• These funds would make a significant impact to protocols currently working on bootstrapping the initial versions of their product
• These funds would help to increase the liquidity of an application layer that is largely illiquid in its current state
• These funds were part of the original ‘pitch’ to builders on Archway

@Eric

I also believe that the overall dapp treasury doesn’t solely belong to current applications, but the existence of it both proves and emphasizes that the current applications are falling short of the blockspace sales inflection point denoted as the “Optimal Fill Percentage”, and as such, much of these funds should go towards grants, hackathons, and acquisition of more applications and developers that should lead to further the future sales of blockspace.

I agree with this as well.

Dapp Treasury funds should be specifically utilized for the incubation and growth of the Archway application layer and it’s broader ecosystem. ‘Growing the pie’ should be the main priority, which would indirectly result in greater long-term benefits for current applications.

@Kryptic

The ideal scenario would be an algorithmic distribution mechanism that is adjustable in real-time by a DAO composed of diverse ecosystem stakeholders. This combines fairness through metrics-based allocation with flexibility through community oversight.

I agree with this direction of an ideal scenario for the Dapp Treasury, but believe this is likely something that should happen in the distant future and rather act as a ‘northstar’.

With a slight tweak, my ideal scenario would be:

An algorithmic distribution mechanism that rewards smart contracts proportionally for their respective amount of blockspace filled. This algoritmic distribution could be adjustable by a small group of diverse ecosystem stakeholders, but should only be modified in extreme cases. This small group of diverse ecosystem stakeholders would also be in charge of the excess Treasury funds and their distribution.

@Kryptic

Overall I think a data-driven DAO with diverse representation, following clear operational processes, provides a balanced mechanism for managing the dapp treasury until an adjustable algorithmic approach becomes technically feasible. The DAO should be empowered but also held accountable through its design and governance.

However, where I respectfully disagree with Kryptic is what to do in the interim. My recommendation would be for the Phi Labs and/or Archway Foundation team(s) to be in control of the Dapp Treasury in the interim.

I think the core development team is the logical choice for steering the majority of ecosystem initiatives, as well as for the management of its funds this early in the Archway ecosystem. Phi Labs has undoubtedly been working on the protocol the longest and has the largest incentive to see it succeed. I think handing over responsibility to new ecosystem stakeholders, where clear longterm incentive-alignment may not be established yet, would be a misstep.

One of my favorite posts on this topic which explains my overall thought process is ‘https://fehrsam.xyz/blog/governance-minimization#:~:text=Governance%20minimization%20means%20reducing%20the%20power%20and%20reliance%20on%20governance%20wherever%20possible’

Credible neutrality is dependability. It means a stakeholder (e.g a user or a developer) can use or build on a protocol with confidence it will not change against their interests.

• Phi Labs was the original designer of the Archway vision and economic model. Builders on Archway should have confidence that the original vision will be executed on and will in large part be static
• Consistently changing how the Value Capture Engine works would be a net negative to the overall ecosystem as it would likely ruin the original economic models of protocols building on top of Archway

Governance can also be extremely time and energy consuming.

• I believe the majority of governance ‘debates’ are largely unproductive and should be avoided whenever possible. Rather, early ecosystem stakeholders should focus on community, growth and building

This agility (‘speed of evolution’) can be attributed to a combination of tight knit communities, lower systemic importance, and high levels of trust in core development teams.

• The last point here is the most important to me. I believe we need to place high levels of trust in Phi Labs to execute on their original vision, and that they will listen to feedback from their community + builders to further improve the protocol

Governance minimization enables faster ecosystem-wide evolution
Most importantly, dependable individual protocols enable faster ecosystem-wide evolution because developers can use these building blocks with confidence.

• Self-explanatory

Areas where governance is likely required include:

• Treasury management. Governance is likely required for the foreseeable future: deciding how to allocate funds is a hard problem to automate.

• It’s likely that some entity(ies) will always need to be in charge of how to distribute excess Dapp Treasury funds for things such as grants, hackathons, etc
• In the future, I think we could see a more diverse set of stakeholders take over this responsibility but as I’ve already mentioned above I think Phi Labs is the best team for the job for the foreseeable future

---

---

Overall, my main points are:

1. Archway DIT rewards should be distributed retroactively and in continuity (based the original intent) until dynamic processing is live
2. The Phi Labs and/or Archway Foundation team(s) should be in charge of the Dapp Treasury in the interim
3. The ‘northstar’ of the Dapp Treasury should be “governance minimization” through an algorithmic distribution mechanism, which can modified by a small group of diverse ecosystem stakeholders

---

For reference (if applicable), I spent the previous two years working alongside the ICON Foundation to help grow the ICON ecosystem, and led the formation of it’s decentralized grant system

[Eric]

I 100% agree with everything you put here. I’d so much as like to hold off on DAO discussions until at least after the network upgrade that automates remuneration.

[Eric]

Following up with today’s governance call, I would like to see Phi Labs put forward a Network Upgrade Proposal, that gives Phi Labs, or the Archway Foundation, access to send Dapp Treasury funds.

Then I’d like to follow @theconnnectooor’s advice, and let them remunerate and control it for now, and revisit the governance discussion once we’re properly upgraded, and have grown the network and community to a more robust network of applications. This should both prevent current bureaucratic slowdowns, as well as enable better decentralization and representation in the future.

[OhadBachner]

Hey Guys let ne add my approach from the GitHub:
To ensure endless trust in the SubDAO overseeing the Dapp Treasury in Archway, we recommend integrating our Product Bloc, the Mini DAO V2. As detailed in our article, the Mini DAO V2 offers:

Simplified Governance: Streamlined proposal and voting mechanisms, making it easier for members to participate.
Flexible Role Assignments: Dynamic role-based access control, allowing for a variety of governance structures.
Transparent Decision-making: All actions and decisions are recorded on-chain, ensuring full transparency.
Efficient Fund Management: Built-in mechanisms for fund allocation, distribution, and management, tailored for community-driven projects.
Modular Control: The most significant advantage is its modular design. The main DAO retains overarching control, allowing it to intervene in the Mini DAO’s decisions when necessary. This includes the ability to cancel proposals or refund the treasury, ensuring a safety net against any potential mismanagement.
By adapting the Mini DAO V2’s EVM-ready code to be compatible with CosmWasm and Archway, we can leverage these features to ensure a decentralized and trustless management system for the Dapp Treasury. This will not only empower the Archway developer community but also instill greater confidence in the governance process, knowing that there’s a mechanism for oversight and intervention when needed.
Let me know what do you think

Ohad

[Eric]

It’s been 2.5 months. Would still love follow through with this from Phi Labs.

[Eric]

It’s been 11 months now. Would still like follow up on this. By our estimates Astrovault has missed out on 150,000 ARCH in rewards, much of which was earned at significantly higher prices.

[flynnjameson]

Let’s not forget that I requested the receipts proving the funds had been distributed, from Phi Labs, more than a month ago.

Radio Silence. No transparency with why those funds are not distributed fully

[Eric]

It’s been… ya. Oh well.