Proposal: Transfer the Aragon Project Funds to an Aragon DAO Governed by (Delegated) ANT

[mlphresearch]

I think the budget should be sufficient for a merged entity but curious to get @joeycharlesworth thoughts on this.

[AClay]

Adding the thread for charter changes to keep this focused on the Macro discussions: Charter Updates - Discussion

[Sixto5]

@lee0007

We have the fantastic Aragon manifesto but imo a key part of the decentralisation process should be to raise awareness and facilitate discussion about the MVV for the DAO. I see MVV as something that should seek input from every community member - sure it is a massive undertaking - but worth it for it’s ability to build collective consensus and shared understanding of the DAO’s raison d’etre. Is this the type of learning and experimentation that @Sixto5 might be interested in leading?

Thanks @lee0007 for the input.

Certainly, this is a potential and tangible scenario where we might iterate the MVV with the community to build and strengthen their governance knowledge and confidence. A fascinating context where, we could learn from each other while we put the community at the centre, we could collaborate with Commons Stack and @GriffGreen as already mentioned in the proposal.

And this proposal could mark a proven step towards a real decentralisation.

[lee0007]

@fartunov

This seems like the right forum for such a conversation. While alternatives might have slightly higher convenience factor, they would go against the aspirations for transparency and inclusion mentioned through the thread

I would disagree, this forum thread is for discussion of this proposal. I am interested in discussing with @GriffGreen the early ideation of alternative/complementary community governance proposals as they relate to use by AN DAO of the CommonsConfig and TAO Voting tooling - which although they could apply here if already implemented, they are not, and currently beyond the scope of this proposal.

[fartunov]

Maybe, not this thread, but this forum is the place to have this discussion.

While the way you framed it, it sounds like some small early-stage experiment, the discussion so far leans towards exploring this is as the main governance mechanism for $300m treasury. Furthermore, there is another proposal directly relating to this one, which envisions the discussion of TAO Voting in the Charter.

Proposal 4 : Voting (July 22)

1. Addition of Delegate Voting [2]
2. Delegate voting rules [3]
3. Staked ANT Voting Future [18]
4. TAO voting [new]

[daniel-ospina]

It would be fantastic to see a ragequit mechanism included in this and similar proposals.

[Joan_Arus]

In the current situation, in which the market cap of ANT is lower than the treasury, wouldn’t this be super risky?

[joeycharlesworth]

One of the improvement opportunities that we’ve detected so far is that we should improve the communication between the Aragon Association (AA) /Aragon Labs (AL) contributors and the wider community. Considering the importance of this thread discussion, and for the sake of providing context regarding the current situation within AA / AL, it’s important to highlight the following:

• The team members of AL and AA are currently undergoing a merge in order to achieve greater product, tech and growth focus, improved overall team coordination and single alignment around ANT.
• Consent between both AA/AL teams has been achieved in terms of Product, Tech and GTM as highlighted in the following:
  • https://blog.aragon.org/rebuilding-aragons-foundations-for-the-future/
  • https://aragon.org/aragon-app
  • Technical Presentation
• Merged squads have already been assembled and are actively working on Aragon App (the new frontend application), new Core Smart Contracts, a new SDK, and the open voting protocol.
• This merger and eventual transition to AN DAO is being advised upon by HoolaHoop, whom I have invited to partake in this discussion as this proposal has important outcomes for the success of this merger.
• Aragon Labs is a Swiss AG, in other words, a for-profit limited liability entity with shareholders. The majority of the contributors currently sit under Aragon Association and do not have shares in Aragon Labs. Aragon Association owns 51% of the shares in Aragon Labs AG.
• Under Swiss law, it’s impossible for any company type (AG or GMBH) to not have an economic share class. This obviously creates misalignment of governance interests with ANT. Associations by contrast can have ANT staking mechanisms built into the General Assembly (it’s most powerful body with the ability to elect the committee) and have decisions subject to ANT holder votes.

With this in mind, I would propose that all contributors across AA and AL are transferred into a new Swiss Association (lets call it NewCo for now) with a designated purpose to execute on the existing product development, go-to-market and tech strategies. This will provide the core team with much-needed stability and focus. The proposed funds should be sufficient for the merged team to prove the value of their contributions to the Aragon community and recruit new contributors, including through AN DAO. After these funds have been depleted, this entity would need to apply to AN DAO for further funds.

Under this proposal, Aragon Association would continue to exist with limited funds to manage access to centralised tools and services that may need to be accessed by multiple teams in the network (Discord, Twitter, Aragon Website and so forth). The Aragon Association could simply sub-contract administrative access to these services to the AN DAO or one of it’s guilds to ensure access neutrality across the network. As mentioned on a previous post, I believe the Aragon Association should ultimately be controlled by ANT holders forming the General Assembly.

[AClay]

Just a quick clarification question @mlphresearch in the proposal you have said “DAO treasury” do you see this as a Multisig or another structure which will manage the treasury.

If a multisig, do you see this as an election process and if so how many signers. I would think a 7/13 for safety of the treasury.

[eaglelex]

Another important legal implication that seems worth to mention is that the approval of the proposal - in granting to the DAO a substantive governance power over the entire treasury - would probably modify the nature of the ANT token: from utility to something more similar to a security.

[Joan_Arus]

Hi there!

First of all, sorry for participating late in the conversation. It’s been quite overwhelming for me to keep up with all the most recent and important conversations happening in the Forum (I believe this is a shared feeling among other contributors within AA/AL too).

To put myself in context: I’m currently acting as co-CEO of Aragon Labs, the Swiss AG for-profit company that was set up between Aragon Association and the Vocdoni team after joining forces back in December 2020 with the objective of bringing decentralized voting tech to mainstream.

I believe that I speak on behalf of many AL team members when I say this:

1. We are happy to change the current setup if that can increase incentive alignment towards ANT, and we feel comfortable with switching to a non-profit legal entity that unifies all core contributors. Vocdoni’s roots have always been tied to a non-profit / public good ethos, and we’ve historically used “for-profit” entities as a vehicle for fund-raising only.
2. We welcome the initiative of decentralizing Aragon, and we believe it’s a step in the right direction. Considering the significance of the process, we feel that process should be safe to try from a governance perspective. A gradual roll-out with clear milestones would be our preferred approach so that we can fail small (I’m sure there will be failures, and we should welcome them. We just need them not to be fatal). On a personal note, I fully trust in the capacity and outstanding work that community members such as @lee0007, @fartunov, @AClay, @daniel-ospina @b3n are spearheading, and I hope I can contribute positively to this conversation too.
3. We believe that the best way we can help bring value to Aragon is to ship innovative Product and Tech aligned with Aragon’s Manifesto, which we are using as our MVV. We are now focusing on the short term to reach operational excellence so we can ship at the speed that the industry requires, and we look forward to increase our engagement within the AN DAO with better communication and coordination with the community.
4. We welcome collaboration with other teams who also want to build products and tech that supports Aragon’s mission (1Hive, EVMCrispr, others).

Overall, feeling positive and excited towards this new phase for Aragon.

Joan

[joeycharlesworth]

Can you share more info please on this? in which jurisdiction(s)? To confirm, if ANT holders controlled the General Assembly of the AA and it’s funds via an appointed committee, assuming there was not a large scale transfer to the DAO, do you see that as better from a security risk standpoint?

Also tagging @ronald_k for input here.

[Joan_Arus]

Regarding this topic:

• There are several proposals for enhancing the utility of ANT that are related to securing components of the decentralized infrastructure of the Aragon Stack. If an increased utility is provided, wouldn’t this strengthen the utility classification of ANT?
• Why would granting the DAO power over the treasury modify the nature of the token towards a security? Shouldn’t this be the opposite, as we’re advancing towards “sufficient decentralization”?

Joan

[eaglelex]

Hi brother . I respond also to @joeycharlesworth

The law which is more important for us is the Swiss one. And of course @ronald_k has the last word on this topic.

The essence of the problem is that with the proposed setting the tokenholders could theoretically distribute the treasury among themselves, as a company that distributes the dividends or that goes into a liquidation procedure. This would make ANT an investment token in my opinion. Given the peculiar features of Aragon (big treasury compared to the marketcap), this is something that we have to bear in mind with particular attention.

This problem could be avoided with particular limitations concerning the DAO governance. But it is something that requires a proper assessment.

[Joan_Arus]

Thanks for the clarification

Seems to be that adding provisions on an amended Charter that prevent such scenarios would be a good way to prevent that security threat.

Looking forward to hear about Ronald’s feedback on this one!

[joeycharlesworth]

@eaglelex

This problem could be avoided with particular limitations concerning the DAO governance. But it is something that requires a proper assessment.

On this, the current charter already has a requirement for finance proposals to include a justification of why the proposal would be likely to increase the number of active Aragon DAOs. As such, it’s unlikely that anyone would be able to make a finance proposal for an ANT holder dividend payment and get it passed.

If that’s insufficient, we could simply add an immutable clause to the new charter that prohibits dividend payments to ANT holders.

[alex-kampa]

This is a joint statement by all of the Aragon Research team.

General comments:

• We fully support the idea of being part of a DAO, funds included. This is why we joined Aragon.
• However, we think this proposal must be amended to enable an in-depth debate on such a sensitive topic and thus requires:
  • The information provided must be more detailed to show the suitability of the proposal to achieve Aragon’s mission.
  • The time schedule is too tight to make the required amends and allocate enough time to include all stakeholders.

Specific comments on financial aspects:

• Given the total amount of funds, the transfer of assets should be implemented gradually through a number of iterations, according to a clear roadmap and subject to clear criteria. These criteria should include a measure of the maturity of the governance of the AN DAO.

Specific comments on governance aspects:

• We think that the proposed quorum and thresholds are too low.

• As is the case with most DAOs, the AN DAO suffers from a severe lack of engagement by ANT token holders (as already pointed out by Brent in a previous comment). As the AN DAO will eventually be managing a considerable treasury, it is crucial that it achieves functional maturity in terms of both governance structure and rules, as well as token holder engagement. To achieve this, the charter will need to be amended, most likely in several iterations. We may also consider adding some type of incentive for participating in governance and voting. This will take time. We note from empirical observations that delegated voting does not increase voter participation if the distribution is already highly non-uniform (see for example https://compound.finance/governance) or there is a cost to token delegation.

• The iterative process of improving the AN DAOs governance can be used to gradually add innovative features to the AN DAO (for example weighting votes for accounts linked to an identity protocol, anonymous voting using zk proofs, quadratic voting).

• In order to become natively delegatable, the ANT ERC20 contract would have to be updated by adding the [ERC20Votes extension](ERC 20 - OpenZeppelin Docs). This would open up the possibility to use it in bribery protocols/vote lending platforms.

  • Vote lending / bribery is forbidden per our charter (see chapter 4 “The Community Guidelines”, “Our standards”), but there is no technical measure to prevent the usage of bribery/vote lending protocols.
  • Assuming that holders lend their ANT, this makes DAO more vulnerable to governance attacks (see a recent governance attack being launched against Compound) as they become cheaper.

  The other option is to separate the delegation logic from the token so that it is part of a governance module, which might require a security audit.

Questions to the proposer:

• Is the proposer willing to agree to a gradual transfer of the funds given the risks pointed out, or are there arguments speaking against this?
• What is the motivation behind/benefit of using delegated voting given the concerns mentioned before?
• How is the accounting/operational side intended to work? How will the particularities of each team be taken into account? (e.g. in research, the working cycles are usually long, the outcomes are frequently intangible, and failures are not uncommon).

Thanks for the useful debate.

[mheuer]

I am in support of any actions taken to decentralize our governance sooner than later, and I am glad that this proposal speeds up our collective efforts.
However, we must be careful that the speed and effort does not lead to undesirable, intermediate centralization along the way.

For this reason and with both of my job roles as governance researcher and engineer, I am concerned with weaknesses of delegate voting that you will also read in the joint statement of the research team. The associated post is unfortunately not yet visible her because the posting account was automatically placed on hold, probably as a spam protection measure.
Here are my personal considerations:
If the delegation is achieved by extending the ERC-20 token with the ERC20Votes extension (Compound-type delegated voting), the usage of bribery/vote lending protocols increases the risk for governance attacks (as seen recently, for example, in Compound) and is hard to prevent technically. Furthermore, it should be noted that bribery/vote lending is prohibited by our charter (see ‘Community Guidelines’ and ‘Our Standards’ therein).

Examples of unacceptable behaviour include:

• Selling or renting votes.
  […]

Assuming that people use ANT on vote lending/bribery protocols, this can centralize the decision-making process. In this context, it should be mentioned that bribery can generally also happen outside of bribery protocols, but coordination is usually much harder in this case. If delegation is achieved by additional means outside the ERC-20 token, it becomes technically more difficult to use them in bribery/vote lending protocols. A mitigation might be to deny known bribery/vote lending protocol / vote staking pools addresses from voting. All the connected issues should be carefully considered.

I would like to hear the assessment of the Tech Committee Sub-DAO (@nivida, @voronchuk, @p4u) on the points above in line with their responsibilities outlined in the charter (chapter 6, section 3.a.i.1 to 4).

a. Responsibilities
i. In particular, the Tech Committee DAO has the following responsibilities:

1. Review technical proposals in the Main DAO and Sub-DAOss to assess them from a technical risk perspective.
2. Remove technical proposals in the Main DAO and Sub-DAOs that represent a material technical risk to the project.
3. Approve technical proposals they believe would be beneficial to the Aragon project and DO NOT require a 3rd party technical security audit due to being low risk.
4. Suspend technical proposals they believe would be beneficial to the Aragon project, pending the completion of a 3rd party technical security audit.
   […]

However, I strongly agree that we shouldn’t find technical excuses to not decentralize our governance, and we could, for example, put conviction and TAO voting up for discussion, that have more security measures in place.

Background information

Vote Lending:

HOW ARE VOTING MARKETS CREATED?!
Paladin can integrate into any governance system that utilizes delegation mechanisms. As of now the team is hand picking select protocols with the goal of later simplifying this process.
(source: https://www.paladin.vote/)

Staking Pools:

VOTER EXTRACTABLE VALUE (VEV)
VEV is the protocol-agnostic use case for voting from Bribe. VEV allows anyone to lease the voting power of their governance tokens by staking them in the Bribe pool for their specified DAO. Highly incentivized users then bid on specific governance decisions they want to approve or reject related to the protocol using the power of the staked votes.
(source: Voter Extractable Value (VEV) - Bribe)

[mlphresearch]

@ramon

regarding the 0.5% threshold - Although this is the current threshold on the Aragon Network DAO chart, wouldn’t this create a fairly large risk that one of the largest shareholders could make decisions with their votes directly?

Yes, that’s by design in all token-weighted voting systems. But note that anyone in the community could acquire delegated voting power through merit and reputation.

@ramon

Would it be fair to say that we might need more distribution of the largest token holders?

Given that ANT is freely tradable, the distribution of token-weighted voting power can’t be arbitrarily forced. An argument can certainly be made that a higher distribution is better but I would also claim that, in practice (assuming similar objectives, first and foremost the broad adoption of Aragon tools), the distribution of decision-making power is of secondary importance compared to the quality of decision-making. That’s why it’s crucial to have an open proposal process in which the best ideas can surface and be voted upon, ideally by a sufficiently diverse community of delegates who vote with the best interests of the DAO as a whole in mind.

@ramon

That being said, having a runaway of around 2 years for Aragon Labs looks like a good compromise between having skin in the game and personal safety, but might still be perceived by some contributors as a deadline that doesn’t have clear goals on how to be extended. How do the proposers see this potential issue (losing motivation, knowledge, etc) if the proposal passes? Are there some interesting previous examples that we could rely on?

I’m not sure I understand why contributors would lose motivation and knowledge if the DAO treasury is governed through a delegated voting system. It’s standard practice in many DAOs out there to use tokenized voting to ratify budgetary decisions. Indeed, it is one of the most essential features of DAOs.

@ramon

Could we have an intermediate state for this decentralization process where an initial part of the funds is transferred for the current AN DAO, and the rest when we have the final setup of the DAO as required? Or could we delay the process for a few months, and get the current ANDAO to help build the required features?

I don’t think an intermediate step is necessary but setting up both the technical and social infrastructure may certainly take some time.

@ramon

I got a little bit confused between steps 2 and 3. One is the setup of the DAO, and the other is about the treasury address and the flow - Does this mean that there is an initial flow of 10% from the current treasury to this new DAO, meaning, the remaining treasury still lives under the association? Or is it something else?

No, the whole treasury would be managed through a delegated voting system but, as a safety measure, there would be an annual spending cap of 10% of the starting value of the treasury. That number can be changed to whatever feels more appropriate, or according to the changing needs of the DAO.

@ramon

Adding delegation to Aragon Client - Although this can be an option, Aragon Client, although a battle-tested framework, has a lot of UX restrictions, which increases the probability of voter apathy (even having delegation implemented), which could be an obstacle to our objectives of progressive decentralization.

I don’t think it’s rational to expect that the vast majority of token holders will participate actively in the day-to-day governance process. The current experience with DAOs shows a strong tendency towards professionalization and delegation. Also, malicious and/or highly contentious votes are by far the exception rather than the rule, which supports the hypothesis that, in the vast majority of cases, higher turnout wouldn’t actually materially affect the outcome. That said, both direct and delegated voting should be made as easy as possible so that, whenever the need arises, the DAO can mobilize the decision-making power of its members as a whole.

@ramon

This is one of the reasons why we are investing in a new product that can bring a more human-centered approach to DAOs - The 1-hive app might be a good start (which I guess is the same that @GriffGreen mentioned), but could we instead use it as a base to create a new module for the new product?

I definitely think Aragon DAOs should have a delegation feature but I’m not the right person to comment on how it’s best implemented given the current product design and roadmap.

[mlphresearch]

@ronald_k

as pointed out by @eaglelex and @joeycharlesworth; the association can only transfer funds to third-parties if such transfer is fully justified by the purpose of the association.

How would you describe the purpose of the Association vis-à-vis the Aragon DAO as a whole and its mission to be a leading provider of DAO tooling?

@ronald_k

A DAO without any legal wrapper is likely deemed at least under Swiss law as simple partnership among the participants. It also means that the assets owned by the simple partnership will be taxed with the participants. In case of such a substantial amount, there is a risk that the tax authorities will go after participants of the DAO to have the funds of the DAO included pro-rata in tax statements of the participants;

I think it’s important to consider all relevant legal implications and inform the DAO’s members of the various risks and best ways to mitigate these risks. That said, the vast majority of DAOs are operating without a legal wrapper and instead have various functions/contributors housed in separate legal entities that handle compliance and protection for their members. This includes foundations for handling IP and private companies that employ DAO contributors or serve as delegates. While it is certainly experimental/innovative (the whole point of DAOs is organizational innovation), I don’t think it’s fair to say that these structures are completely untested.

@ronald_k

One of the main arguments of the proposal is to have a more decentralized structure. The Aragon association is designated in the proposal as centralized organization. This is only partially correct.

Any organization that involves more than a single person can be described as decentralized to a degree. In the context of DAOs as a novel form of organization, however, decentralization usually assumes independence from a single organization based in a particular legal jurisdiction. But of course, that doesn’t exclude a whole range of such entities contributing to the DAO in various ways.

@ronald_k

IN OTHER WORDS : if you want more decentralization, the proposal should request the acceptance of the ANT holders as members of the Aragaon assocaition. By this, a massive step to decentralization would be made, as the ANT holders would control the Aragon association and thus also the treasury of the association. In addition, the association provides protection by the legal wrapper and excludes the tax risk for the participants. If there is interest, I’ happy to organize an AMA-session on the beauty and possibilities of the association model.

That’s a very different path from the one envisioned by the current proposal. If there’s broad enough support for it, though, ANT holders could certainly be given a choice between the two options (or even additional ones, should they emerge).

EDIT: Based on what @joeycharlesworth wrote below, one option doesn’t necessarily exclude the other, although it would certainly be a very counterintuitive thing to do in light of how most DAOs have aspired to structure themselves in the past.