CP58: Treasury Spending Agreement

Centrifuge Governance Proposals
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Uses component: CP4
Author(s): @cassidy
Contributor(s): @Kate_Bee
Technical/non-technical proposal: Non Technical
Impacts/modifies: CP2: https://github.com/centrifuge/cps/blob/main/cps/CP2/CP2.md
Date proposed: 2023-07-18

Short Summary

As block rewards begin to accumulate CFG into the on-chain Treasury for the first time, this proposal aims to establish a shared understanding and agreement of the Centrifuge DAO to conserve those funds as much as possible and to be cautious and conservative in spending given the current conditions of the Treasury and the market - that we should allow the Treasury to grow in size.

Background

The Centrifuge on-chain Treasury originated with no funding. After the implementation of CP6, block rewards will begin to accumulate CFG to the on-chain Treasury. Historically, DAOs have been too unorganized, unfocused, and unplanned in their Treasury spending.

There are many examples of poor DAO Treasury expenditure that we can learn from. Key patterns that can be observed are:

  • A rush on creating proposals that do not further the mission and goals of respective protocols
  • Misguided “resolve to spend” (just because CFG is accruing does not mean it should be spent).

Good governance means careful stewarding of collaborative funds. As a DAO we do not yet have the necessary expertise and contributors to actively manage the treasury well, we will need to have objectives for how to spend funds, active management and reviews. LIkely a specific mandated group like the GCG or the Credit Group is needed. We should avoid treasury spending until we have such a process in place.

High level objective

The objective of this proposal is to make the following agreements as a DAO:

  • We agree to be diligent and conservative in spending of CFG from the on-chain Treasury.
  • We agree to try to learn from the mistakes of other DAOs before us so that Centrifuge may spend its Treasury funds more wisely, and thereby give it a greater chance at succeeding in its mission.
  • We agree to not start a broader grants program at the current time.
  • We agree to raise the minimum quorum requirement to 66% of the council voting yes in order for treasury spending proposals to be passed.
    • This is an increase from the currently implemented 55% minimum quorum and should be added to the language in CP2.
    • This will need to be reassessed upon a possible move to Open Gov.

These agreements apply to all Centrifuge community members and those making proposals to the DAO treasury.

Spending wisely here means acknowledging the market conditions and agreeing to caution, both in making proposals and submitting them, and in governing such proposals.

Description of Activity

When submitting a proposal for Treasury funding from the DAO, proposers should:

  • Show your consideration of the balance of the Treasury
  • Illustrate how your proposal is the best possible use of funds
  • Demonstrate how your proposal follows this Treasury Spending Agreement

To potential treasury funding proposals this means that unfortunately many topics will be out of focus and treasury funding will have a higher hurdle at this time.

Centrifuge councilors that vote on Treasury funding requests should also take each of the above into account. In the future with a possible move to Open Gov or an update to this agreement, CFG holders that vote on treasury funding requests should continue to take the above into account when evaluating proposals.

This agreement should be re-visited at the latest six months from now, or as soon as an appropriate group could be formed in the DAO and we have the necessary skills in place, or upon a possible move to Open Gov.

Responsible

  • Anyone making a proposal for on-chain Treasury funding
  • Centrifuge councilors and any CFG holders that vote on Treasury funding requests

Alignment to the mission of Centrifuge DAO

The Centrifuge DAO needs access to adequate funding to have the greatest chance of succeeding in its mission. This proposal aims to reach an agreement as a DAO to be particularly conservative in the infancy of the on-chain Treasury to give it time to grow so that it may have the greatest impact.

UPDATE 14th August 20:21 CET

This proposal has been submitted to the proposal repository on GitHub as CP58 so it is now final and the OpenSquare snapshot has been created.

The OpenSquare snapshot will be open from 14th August 20:30 CET - 21st August 20:30 CET (7 days)

Link to proposal on GitHub: https://github.com/centrifuge/cps/blob/main/cps/CP58.md

Vote here: CP58: Treasury Spending Agreement

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Hear, hear, @cassidy :raised_hands:

I believe you make a number of salient points and the vision for the future of the Centrifuge DAO treasury is expertly laid out. In fact, @leemo was chatting about this to a degree yesterday on AAG when he was talking about how parachain teams should be careful when considering making the leap to OpenGov. By keeping to the current system, a thoughtful semi-centralized body can still ensure transparency while simultaneously cautiously controlling the spending of funds.

Great job all around to you and @Kate_Bee :handshake:

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Thanks for putting this together @cassidy. I definitely agree with all points made above. I think right now in the current market condition especially it is a good time to accrue liquidity rather than needlessly spend on things that don’t further the mission of Centrifuge.

In addition, I am happy to throw my hat in the ring to be a part of the group that helps over see treasury spending. As a fund operator in my current business UrbanGate Capital I am a capital allocator and while I have no experience for DAO treasury management I have strong experience with overall cash management for our business which I think helps.

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Hey fam!!

I do not have much to add here besides agreeing with the approach. It is hard to make a business case for most things in this market. We can tread lightly at a comfortable pace as the market unravels.

on the other-hand, I do caution that too much conservatism could prevent ecosystem actors from submitting proposal and engaging in DAO business.

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In 2018, I worked in a DAO that spent about $25K USD each month via treasury proposals. Because we had not passed a strong shared mission, every community member was operating off of their own sense of what was best for the protocol.

People became engaged in popularity contests and semi-hostile public battles to get proposals passed, and the whole activity of the DAO seemed to pivot to be about ‘spending the money’ rather than building or growth, needless to say this DAO did not succeed.

In 2020 I advised a DAO that had conflict over money. The community were stuck on different interpretations of good expenditure, or, which amongst competing proposals and scarce resources, was the highest priority. The lack of alignment on priorities and lack of ability to ‘do governance’ (i.e. have an idea, get input, actually discuss, go back n forth, change parts of the idea, reproprose it with improvements, accept the outcome if the idea is not supported), were key factors.

In retrospect, in both these DAOs ‘resources’, i.e money, emerged as a proxy for a deeper misalignment.

Key lessons were:

  • The shared mission and a overarching strategy of the protocol must be communicated regularly and interpreted into a strategy for spending and resource management. In my experience there can be an allergy of ‘having a strategy’ which this RFC seeks to work around, key to this is building on the growth of Mandated Groups at Centrifuge.

  • It’s better if people have skin in the game when managing resources (i…e advising how to spend money when don’t ‘own’ some of it) can result in cavalier attitudes

  • The stronger the culture and the ability to debate and have discussion (without resorting to hostility or rudeness) the better the proposals will be

  • Rigorous analysis of proposals is crucial: avoiding things like overinflated rates, or unexplainable costs

  • Reporting and impact assessment is key, grantees, or those funded must be able to clearly show the ROI on their funding, and keep showing this over time.

  • People must do the work to fully understand the shared mission and priorities of Centrifuge, reposting proposals that have been funded via other Treasuries and changing key words should not fly here :duck:

I believe we have done a lot to get aligned at Centrifuge and we build the alignment muscle constantly: via the Founding Documents, via Active Contributor Calls, via Governance Calls, via the sharing of information from Daily Contributors to Active Contributors and outwards from there.

The End of Austerity
While cautiousness and austerity is welcome while we grow the treasury and hopefully move into improved market conditions, spending is obviously important. There are many ideas and developments that will further our shared mission, and when the time is right we should be able to assess these and fund them!

Treasury Management
The other side of spending (which comes with a list of administrative tasks that we must design and execute, like reporting standards, swapping practices etc) is management. We have world of opportunities to grow the treasury and further spending potential and CFG value… hey, we could even dogfood!

In conclusion, I think this proposal sets out the foundations for good governance of the Treasury and we collectively need to build on top of it. Mandated Groups have been working well, and the energy to form another one around Resources sounds promising. This community is doing well to see that expertise is important, and steering functions (like opinions on proposals) from Mandated Groups can help community members bridge the alignment gap (i.e. what we think we’re doing vs what we actually do).

Super keen to keep talking with others who care about the subject of decentralized resource allocation and treasury management! :disguised_face: :crystal_ball:

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Good day

Thank you @cassidy @Kate_Bee for this proposal.

I do believe that this proposal is very important. I was not involved in any DAO Treasury spending before, but i saw what happened with Kusama Treasury and Polkadot Treasury. The funds were used in not appropriate ways without any kind of accountability, the amounts requested in Treasury proposals were unbelievably enormous.
As a result, the Treasury was considered “Free money” and everyone tried to get them (Why not?..). The situation changed and rotated 180 degrees once the Treasury was drained enough and now most of all requests are rejected and very hard to pass.

In order to avoid a situation like this i fully support this proposal.

The Treasury for the Future of CFG DAO plays one of the important roles. Because give the infinite possibility of growing (New partnerships, new investment, developments, marketing and etc).
But in order to have good management of the Treasury and allow the Treasury to grow in size the DAO needs to have a group with specific skills and expertise who will take care of this.

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Thanks everyone for the supportive comments!

Many of you made similar observations like ImdioR’s here:

I think having such a group is a crucial next step for the Centrifuge DAO and I’m looking forward to see this form to both inform the DAO’s decisions (like @Kate_Bee said: “reporting standards, swapping practices etc”) and also to grow our knowledge as a community about best practices for DAO treasury management so that we can hold these skills across the DAO and not only rely on one group either.

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This proposal has moved on to an OpenSquare snapshot.

The vote will be open from 14th August 20:30 CET - 21st August 20:30 CET.

:ballot_box: Vote here: CP58: Treasury Spending Agreement

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Good day, Community!
The proposal has successfully passed.

Results:
Voted 8.69M CFG
Voters 113

  • Yes 8.69M CFG

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image1095×753 94.3 KB

Thanks, everyone.

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Thank you for sharing! All votes were Aye. Great to see the community aligned with the vision that Centrifuge DAO needs to adequate treasury spending to have the best chance of succeeding in its mission.

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