Financial Proposal: Aragon <> Nation3 partnership & token swap

Summary

This proposal would establish a partnership between Aragon and Nation3, as a cornerstone to make DeLaw happen and superpower DAOs.

There is already significant ideological alignment and team alignment, and this proposal would take this a step forward by formalizing financial alignment as well. This proposal would also enable Aragon to superpower its offering to DAOs and DAO contributors with legally-binding agreements, while being able to remain laser-focused on DAO tooling and the DAO framework offerings.

Details

Introduction

When Jorge and I co-founded Aragon back in 2016, we had a vision to make on-chain organizations happen. We realized the potential of creating new kinds of entities that would be fully sovereign, highly efficient, and transparent (when needed).

As we realized over the years, we were too early. Many building blocks needed to be built. When we released Aragon to the public, Dai wasn’t even launched.

Today, DeFi allows DAOs to have access to even better tools for yield and treasury management than those of traditional corporations.

The second building block that we had envisioned for Aragon was a decentralized jurisdiction (think of it as DeLaw). After all, DAOs can run some operations on dry code (smart contracts), but a lot of the human interactions cannot be codified, and must run on wet code (legal contracts).

For that purpose we envisioned Aragon Court — a first-of-its-kind dispute resolution protocol.

We imagined that DAOs could leverage all the best of automation with smart contracts, while also enjoying the granularity of legal contracts collateralized by tokens. And, in the process, we thought we would build the world’s first digital jurisdiction where DAOs are first-class citizens.

Unfortunately, Aragon Court failed. Looking back, its failure was mainly attributed to four things:

  • First and foremost, building core infrastructure for DAOs is a huge undertaking by itself. We were stretched too thin and couldn’t focus on Aragon Court. Which I think was the right call — focusing on everything means focusing on nothing.
  • Second, dispute resolution cannot exist on its own without a system of law. Whoever is in charge of resolving disputes needs a clear framework to adhere to.
  • Third, no one wanted to rely on an anonymous jury (random people over the Internet staking tokens) to resolve their disputes. Everyone wanted legal professionals instead. Understandably so.
  • Fourth, making all agreeements and disputes public (even having to make sensitive evidence public) turned off potential users. No organization wants to make their disagreements public, and of course there’s a big privacy concern for individuals too.

Ultimately, I think there’s some potential in Aragon Court or Kleros-style dispute resolution protocols in the area of content moderation for public communities. After all, content moderation doesn’t require the intricacy of contractual law, and also content is public by default.

But when it comes to giving DAOs tools to create better agreements with each other or their contributors, a different set of tradeoffs was needed. We realized that a composable dispute resolution system with predictable guidelines and constraints (laws) and where participants can keep their privacy, was needed to onboard the next 10k DAOs.

Enter Nation3

After creating a vibrant community of Sovereign Individuals around Nation3, we asked ourselves: what’s the most fundamental service a cloud nation can provide?

Eventually we realized it is a system of law, which then enables a healthy economy and market environment to exist, in turn giving birth to more products and services that citizens can benefit from. Following that logic, we started working on Nation3 Court.

Now we are about to launch the Nation3 jurisdiction, including a fully functioning court system, a constitution and other checks and balances.

Nation3 will allow anyone, for the very first time, to enter legally-binding agreements over the Internet, with no need to ultimately rely on a traditional jurisdiction.

Aragon <> Nation3 integration

These are some of the opportunities that Nation3 can bring to Aragon:

  • Disputable voting: This was envisioned by Jorge and I and partly implemented by the Aragon One team. DAO token holders can deposit collateral and make a proposal to undergo a vote, but if such proposal contradicts the DAO’s charter, anyone can dispute it. This means only actions that align with the DAO’s charter and the law can pass — closing off countless attack vectors for DAOs.
  • Disputable streams: Imagine disputable Sablier/Superfluid streams. For example, enabling DAOs to enter an agreement with each guild, and then have their ops guild being able to oversee the work of a guild and pause the stream if needed. Any of the parties can open a dispute if they feel the agreement has been breached. This is unprecedented. Right now the status quo gives almost unparalleled power to the DAO (if payments are after work is delivered) or to the recipient (if payments are upfront, before work is delivered). This obviously hurts trust, in turn hurting efficiency and stability. Nation3 provides credibly neutral streams in which every party is equal before the law, once and for all removing the cat and mouse game of payment flow.
  • Trustless Aragon DAO: The current design of the Aragon DAO involves a trusted group of people that can veto changes over the Guardians, which are entrusted with the duty of ensuring that proposals adhere to the DAO’s charter. Unfortunately, this poses a centralization risk and a burden for the people in those positions. Using Nation3 would eliminate both. The DAO’s charter could define actions that are illegal, such as funding or undertaking any criminal activities, or paying out dividends. It would offer a higher level of legal certainty to all DAO participants.
  • Eventual legal recognition for DAOs in SEZ: Nation3 is cloud-first, land-last. Nation3 aims to prove that it can run an Internet-native jurisdiction and a system of law first, and then negotiate the creation of Special Economic Zones in traditional jurisdictions. Traditional jurisdictions, which aren’t Web3-native, need to resort to violence and coercion to enforce legal rulings over cryptoassets. On the other hand, Nation3 is a Web3-native jurisdiction where cryptoassets and DAOs are the default, and rulings over them are enforceable on-chain.

Financials

To formalize this partnership, the following token swaps would happen:

  • 1k NATION for 300k ANT.
  • 1k NATION for 1m USDC/DAI.

All NATION and ANT will be subject to 1-year linear vesting.

For Nation3, 2k NATION represents ~5% of the total supply. For Aragon, 300k ANT represents ~0.69% of the total supply, and $1m represents ~0.5% of the treasury.

Aragon gets a unique chance to seed the world’s first Internet-native jurisdiction, and Nation3 gets a unique chance to achieve distribution to the world’s top DAOs.

Risks

  • External factors (like a regulatory crackdown taking the industry unprepared) might decrease DAO usage, slowing down the adoption of Nation3 agreeements. The Nation3 jurisdiction really flourishes with Web3-native use cases.
  • Tokens can be volatile in their value and both sides might face economic losses.
  • Smart contract bugs in aragonOS (both used by Aragon DAO and Nation3 DAO) can result in economic loses.

Proposal execution

  1. First of all, both DAOs need to vote on the proposal with their respective governance processes.
  2. After votes pass, since this proposal requires asynchronous execution for both parties, both parties can enter a commitment agreement within the Nation3 jurisdiction (it’s great dogfooding). Draft here. Both DAOs can designate a committee to enter such agreement in behalf of the DAO (e.g. Budget DAO for Aragon, Meta Guild multisig for Nation3). Aragon can join with 33,333 ANT, Nation3 can join with 100 NATION. All tokens will be able to be withdrawn after the swap has been executed. It’s as easy as clicking Join in here: Nation3 Agreements and here Nation3 Agreements
  3. Two 1-year vesting smart contracts will be deployed, with the start day of the vesting being the 10th of March of 2023.
  4. The Aragon DAO and the Nation3 DAO will deposit 300k ANT and 2k NATION in each contract, respectively.
  5. The Aragon DAO will send 1M USDC to the Nation3 DAO.
16 Likes

Thanks for the proposal, @luis. I think a partnership between Aragon and Nation3 has the potential to be mutually beneficial for all. I see the proposal split into two parts: 1) Partnership token swap and 2) Request for USDC to implement integrations.

I am in agreement with the first point regarding a token swap, as I think it can be a great alignment tool for both projects, especially with Nation3’s token economics.

Regarding the second point, I would appreciate more information on the timeline and roadmap for the integrations you’ve listed. A clear timeline for the completion of these integrations would give us a better understanding of when they will be available for the Aragon DAO. Additionally, I would like to know if all of these integrations and opportunities will be completed with the requested stable funds.

Furthermore, can you let us know who Nation3 is also partnering with and what the unlock schedule is for the circulating supply of Nation, which is currently around 2000 from what I can see (I may be wrong on this). Also, could you provide an estimate of what the circulation of Nation will be in 1 year?

Thank you again for sharing the proposal.

5 Likes

Thanks for your message Alex!

I’d like to point out it’s not a grant/services agreement to deliver specific goods or services. Aragon DAO would get NATION out of its USDC contribution — that would be the nature of that part of the agreement, and not disbursing capital related to a list of deliverables.

I do think grant/services agreements work reasonably well for implementing very scoped products or features. But what I’m proposing in this case is 100% incentive alignment.

Regarding roadmap, we have some immediate items here: https://forum.nation3.org/t/formation-of-the-solar-guild-roadmap-proposal/803. Nation3 is still early stage, and one learning I took from Aragon was that solidifying roadmaps too much is never a good idea at the early stages. My intuition, however, is that the Solar Guild (one of the guilds at Nation3 that I’m part of) will focus on:

  • Killer apps for Nation3 agreements, e.g. disputable voting and disputable streams.
  • Court v2, with better UX and better collateral efficiency, e.g. one collateral vault for multiple agreements.
  • Streamlining the citizenship experience and releasing the standard passports.
4 Likes

Thanks, Luis. This overall makes sense.

The point confusing me is that the USDC is not being streamed like the ANT and Nation. Generally, for an upfront transfer of USDC, it would be more of an investment or grant that would have some time horizon/roadmap. Appreciate this roadmap may not be defined yet or fluid. The Solar Guild looks great and love the work you are proposing and would have no issue with USDC being spent there. Is this where the USDC will be focused?

Keep in mind those would not be streamed by a passable stream — they would be linearly unlocked. So basically while the Nation3 DAO gets the USDC upfront, the Aragon DAO will get the NATION block by block and there’s no way for no one to stop it from vesting. AKA an irrevocable stream.

In terms of spending, Solar Guild will make a governance proposal to receive the vast majority of that funding in stables to cover runway for a focused team to work during 12-18 months. Other guilds now mainly use NATION to reward contributors, but I’m also not opposed to other guilds trying to attract outside funding and stables to fund themselves.

2 Likes

That makes sense thanks for the comments Luis! Look forward to seeing the partnership and hearing others’ thoughts.

Thanks!

2 Likes

I like this and I think it would be a smart strategic investment for Aragon.

It really resonates with the original vision of the Aragon Network being the first internet-native jurisdiction in which DAOs would thrive. Aragon has since focused more sharply given how large a challenge just making DAOs work is. But even if out of Aragon’s scope, this is really important work that can impact DAOs very positively (on top of the potential upside from the investment).

I also think that structuring as an investment instead of a grant is the correct thing to do. Grants can alienate some great teams by remove autonomy to make the best decisions as things change by having very concrete and rigid milestones or deliverables.

9 Likes

Thanks for the kind words Jorge! :metal:

3 Likes

Very much looking forward to a deeper partnership with Nation3 and to see what the team can produce so that Aragon can focus on its core products!

4 Likes

Thanks for outlining the extra steps @luis defiantly in agreement to enter into an agreement.

3 Likes

Prisma will vote “yes” on this proposal. We are excited about Nation3’s broader vision of a decentralized jurisdiction, and in particular the new court system. We fully agree with Luis’s assessment that this partnership with Nation3 is aligned with Aragon’s interest and thus DAOs more broadly. Our members have hands-on experience in designing dispute mechanisms to enforce wet code for the Aragon DAO and believe that Nation3’s solution, if well executed, is more fitting. To be clear, the current guardian system is specifically designed as a stop gap solution prior to using an adequate court or similar. While the current guardian system serves as a temporary solution, we acknowledge that Aragon does not need to build everything itself (delivering a new court as a dispute resolution mechanism is nowhere in the strategy that Prisma endorses).

This proposal marks the first token swap and investment for the Aragon DAO and we recognize that the processes and templates may not have been fully developed. While we do hope to see some procedural improvements for these kinds of proposals, we believe that the steps outlined in the Proposal Execution are sufficient for now.

We are confident in this partnership and look forward to a closer collaboration.

2 Likes

Update and next steps

We are stoked that the proposal passed on Aragon DAO and Nation3 DAO with 100% support on both!

As detailed in the original proposal, there are two token swap commitment agreements (same terms, but different tokens, NATION and ANT) that Nation3’s Meta Guild and Aragon’s Budget DAO will enter. After that, both parties can execute the token swap. Stoked! It turned out that this step was too complicated for bureaucratic reasons, so there’s no need for it now.

3 Likes

There is a governance proposal up now to do a Nation3 <> Baseflow merger and pivot into becoming an OS for sovereign individuals and getting to the endgoal of building a Special Economic Zone faster. The change in direction means immediate changes (targeting sovereign individuals and helping them acquire residencies and citizenships), but the ultimate goal of creating a Web3-enabled network state remains unchanged. We realized there were fundamental flaws in sustainability and security to continue with the vision to create the internet’s legal system. I’ve written about them on Nation3’s #agora on Discord.

If this proposal passes, we’ll get in touch with the representatives of Aragon Ecosystem Association to issue the corresponding shares in the new legal entity (which will be a Swiss entity too). No action is needed otherwise.

Honestly Luis Please can you take a pause on this action. Honestly This cant be right for you to put this proposal up on a friday when hardly anyone is looking and create such a proposal of such magnitude and not give anyone time to respond. Nation3 has 0.6% of the entire ANT supply, the token swap was clearly voted on by the Aragon community to build the Nation3 court and provide value to the wider Aragon ecosystem.

1 Like

It was a token swap, not a grant to build something. Startups/early stage projects pivot, it’s normal. We proposed this because we believe the current path won’t generate value for the involved parties — including AEA, which will get shares in NewCo and get to be in the front seat of actually building a Special Economic Zone where DAOs will be first-class citizens, instead of pushing forth something that turned out to be a house of cards.

Thanks for the update Luis.

Is the share value we receive equal to the dollar value that the DAO invested on the day of the token swap?

Is the remaining ANT set up in the stream for Nation, the new co, or does it get cancelled?

The merged entity is $10m Baseflow + $42.069m Nation3 (so there’s like 20% dilution from the N3 side), but yeah, AEA will get the whole value of the swap (USDC + ANT) in shares at the price of the token swap.

The ANT/NATION streams will continue, we are converting to shares the whole amount (USDC + ANT).

We also need some point of contact to sign documents from AEA and receive investor updates!

1 Like

well then clearly this is now null and void. Baseflow is not building the cornerstone of DeLaw nor are they doing anything to supercharge DAOs. There is a community At Nation3 who are prepared to carry on that mission however if this is not to be then the funds should go back to Aragon and baseflow can make a new proposal. That seems fair and sensible

just being super clear, Luis Quende is not Nation3, Baseflow is not making DeLaw happen nor are they supercharging DAOs, nor is there “significant ideological alignment” between Baseflow and Aragon, and most importantly Nobody voted to fund a company that helps rich people tax arbitrage

5 Likes