Position of the IOTA Foundation
The IOTA Foundation supports the proposal at hand, as we think it would greatly benefit the overall ecosystem. The Foundation itself does not have the necessary funding, nor is its existing Ecosystem Development Fund legally capable of funding for-profit projects, DAOs or dApps. That means monetary incentives for integrations of 3rd party systems, service providers, exchanges, bridges, marketing activities or startups with commercial interests can not come from the IOTA Foundation.
Compared to some DLT networks that reserved hundreds of millions of dollars in tokens for themselves, sometimes even billions, the IOTA Foundation itself has little to no means to fund “typical” crypto projects. Any funding for these currently would have to come from external sources. This puts the Shimmer network into a disadvantage when competing about the best teams in the space against networks with big treasuries.
Ultimately, if no-one is capable of providing incentives for builders or funding for typical integrations in the Shimmer network, community members would have to bootstrap everything themselves, which simply takes more time than incentivizing professional teams to integrate existing tools and dApps.
A mild increase of the total supply of the network, allowing the community to fund whatever project they see fit could therefore make a vast difference in the adoption and the activity of users and applications in the Shimmer network. On those grounds, the IOTA Foundation favors the proposed supply increase, even though it would mean an overall dilution. Contrarily, as the total supply for Shimmer does not exist yet and therefore also has no value attached to it, it is questionable whether there would even be a dilution to the value of individual tokens. A larger, diluted supply would mean a lower percentage per individual token holder, but that does not automatically translate into less value per token.
Although it would be in favor of the proposal, the IOTA Foundation will try to remain impartial and not advertise for either choice.
When it comes to the community proposal details, many assumptions were made, and follow-up questions arose. As a vote in favor of the proposal would require the following actions of the IOTA Foundation, we, as a result of this, provide commentary on aspects that would involve the Foundation.
Potential supply increase technically
The total supply of the Shimmer network has been determined utilizing the total allocation of $SMR tokens of users staking IOTA tokens for 90 days. So far, the Shimmer network does not exist. The creation of the $SMR token supply, its genesis, has not yet happened, which would still allow changes to the total supply.
A later change of the token supply would require a transition of “old Shimmer tokens” into “new Shimmer tokens”. Having had a fair share of experience of facilitating token transitions in its past, including having to support years of reclaims, as well as the significant technical debt, ongoing technical support, and maintenance of legacy technology, as well as significant cost for KYC procedures, the IOTA Foundation would not assist with a token increase at any point after the genesis. If the total supply of the Shimmer network is to be increased, it has to happen at its genesis, which will happen very soon. If done later, the community would have to manage a later increase and the following migrations procedures by itself.
Custody of tokens in the absence of smart contracts
DAOs rely on the availability of smart contracts. As the Shimmer network with its “Stardust” upgrade will be the foundational building block to enable smart contract anchoring, handing over the proposed 10% to a DAO-governed community fund depends on the availability of those. As smart contracts will only become available with the release of the ShimmerEVM smart contract chain, community members have rightfully wondered how the proposed 10% could be made available to a community DAO, if a DAO can not yet be set up at network launch.
The IOTA Foundation is in the process of setting up a Swiss-based entity for an Ecosystem Development Fund, allowing for a broader application of ecosystem funding than the existing and strict german-based Ecosystem Development Fund.
It will allocate its own $SMR tokens, gained through staking the IOTA tokens of the German EDF, to the new Swiss EDF. An additional 10% of tokens allocated to the Ecosystem Development Fund, as suggested by the proposal, would also be allocated to the Swiss EDF, again allowing the Swiss EDF to operate on less strict grounds and also fund profit-seeking entities. Any IOTA tokens under the control of the German EDF can be transferred to the new Swiss entity, but would still have to adhere to the same, strict regulations and therefore not be used for commercial activities.
If the community wishes, the IOTA Foundation would be willing to take the proposed 10% Shimmer token allocation reserved for the community into the custody of its Swiss Ecosystem Fund until the community has established its own DAO and the tokens can be transferred to it.
Naturally, the IOTA Foundation would only safeguard, but not make use of the tokens intended for the Community DAO. The legal grounds will, either way, be available at the time of the token genesis and there is nothing hindering the IOTA Foundation to assist the community until a DAO has been formed. The choice is left to the community.
The initial proposal was published nearly two months ago with an update being published a week ago. As the Shimmer release is nearing, a vote (which itself takes 10 to 14 days) would have to be facilitated very soon. The initial proposal was received favorably, as was the follow-up refinement.
At the time of writing, the overwhelming majority is in favor of facilitating a community vote on the matter. As time is running out, and it is not in the interest of anyone to artificially delay the Shimmer release, the IOTA Foundation will monitor this forum poll for another 7 days and take the result as grounds to either dismiss the proposal or facilitate a Firefly-based community vote.