Tangle Community Treasury Grant Committee - Exhibit - V2 (Phase I Discussion)

Governance Proposals Shimmer & IOTA [Phase 1] Discussions
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First of all, I think it makes formal sense to separate the IOTA and the Shimmer Treasury into different organizational groups. Shimmer and IOTA however, are so closely linked that advancements or issues in one ecosystem directly impacts the other ecosystem, which makes me wonder whether or not it is the right way to do it, just because it “formally makes sense”.

There are many synergies between IOTA and Shimmer that could be explored with a united entity and there are many practical reasons for exploring it

  1. Both IOTA and Shimmer have similar and almost identical stakeholders, why should one go through the motions of separating it, if the target group is almost the same?

  2. IOTA and Shimmer have a largely overlapping vision and objectives - a unified approach will probably be more efficient, since it reduces administrative overhead and allows for unified decision-making and strategic planning.

  3. Combining both entities will probably reduce costs and allow for more flexibility in allocating resources and streamline communication.

Formality should never be the reason on why one organizational structure is chosen over the other, especially when there are economic arguments that stand against it.

If the separated approach is chosen however, we should clarify the separation of duties and roles in a more extensive (and maybe even potentially binding) manner. The different target areas in funding seem like a first good step in that direction.

A clear distinction in competencies by each committee will also reduce intercommittee competition over resources.

Shimmer Community Treasury: “If you benefit from it, the IOTA Community Treasury should pay for it”
IOTA Community Treasury: “But you are also benefitting from it, so if you don’t pay for it, we won’t pay either”

If however the solution is that they just co-fund everything 50/50? Why should one even go through the route of separating it?

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Deep_Sea and team, what you do is temporary. You are not supposed to be investment managers but to fund projects. You fail at the latter because
a) fund worthy projects merely exist
or
b) you don’t find them.

Of course you try to stay a float as long as possible. Instead of getting hands on more funds, what you actually should to do, is, cut costs and adjust to the ecosystem. That would mean shut down most or even all of your operations till your work is needed.

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The TLDR was in the intro, abstract, and motivation. However, the bullet points below are also an extreme summary of the proposed revisions. It is a very long document, and this is because it is a legally binding document that the LLC and committees must follow. We have also made 25 revisions, many due to integrating the IOTA community.

  • Update the name of the Treasury to Tangle Community Treasury and organization the structural process where the Tangle DAO LLC under the Marshall Islands gives legal liability protection and community operational governance over the Shimmer and IOTA committees, as well as any other purpose-bound entities the two communities may form.
  • Distinguish the Program Leads roles and responsibilities specific to the Tangle DAO LLC and then the committees.
  • Updates the committee’s roles and responsibilities, which adds the IOTA committee members.
  • Proposes and updates the committee’s terms to account for both network entities and proposes using 10 Ti for an IOTA grant funding committee.
  • Update the funding tiers to only one instead of Regular and Low.
  • Revises the grant evaluation matrix.
  • Proposes to allow the committee to create contract terms if they deem it necessary for specific grants.
  • Proposes to allow the committee to invest a portion of idle funds bound to the grant committee.
  • Updates the Budget to include IOTA’s community treasury and allocates 10 Ti to a grant committee.
  • Proposes how updates to the specification can be conducted.

Ultimately, it would be nice to meet inflation, which is currently 5%-7%, but we wouldn’t invest funds strictly for profits. Instead, we can support the ecosystem while earning yield on the idle assets. The recent Soon Labs is a good example. They have funds; however, the market has no liquidity as EVM hasn’t launched yet. They have done an extraordinary job being the most used Dapp, the only Dapp over the past year in our ecosystem. Whereas they strategically planned for an EVM launch last year that has now been delayed over a year, without that liquidity, they need some financial support. The Treasury was faced with a choice. Either a) not help them because they had already done a funding round and risk potentially stopping their development, or b) help them by being a liquidity buyer, support the only Dapp developing and being used, and support their endeavor to move to be fully open-sourced. We chose (B), where we helped the community members keep the only Dapp in the ecosystem going, and now they are fully open-sourced. Along with that, we have nearly doubled our initial investment. Though, of course, with EVM not live and no access to the actual liquidity markets, who knows what the price will be?

The main focus, though, is the Treasury can be a positive lender / VC in our ecosystem. Where other VCs dump when profit margins are high, take hefty fees to fund their operations, and then take profits out of our ecosystem, the Treasury doesn’t have any of those negatives. We won’t dump on holders unless it is imminent to protect the community funds; we would take a smaller profit margin if it is better for the project and the holders. We don’t charge management fees, and any profits are returned to the ecosystem.

Most importantly, though, it would be done transparently. Whereas investing firms will not publish anything to the community, or if they do, they will be vague quarterly reports. With the Treasury, everything is transparent, and regularly interacts with the community through Thursday governance meetings.

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The biggest issue here is the voting communities. A community is designated by who can vote per the LLC and the Marshall Islands in our charter. So if we combine the two communities we would have to have some method to distinguish each communities votes. Even if we combined the votes, what would happen if one day one community wanted to leave and independently manage their own community funds? How do they vote? What binding document allows them to do this?

What this document states basically is that each community needs to vote on their committee. Yet, there is nothing that says a committee member can represent both communities. So, if both communities decide through governance votes, they can support one committee to manage both grant funds. This of course is most efficient and cost effective, but it has to be decided through electoral votes.

As to having competing funds and the statement, “If however the solution is that they just co-fund everything 50/50? Why should one even go through the route of separating it?”, why would “everything” be 50/50? The IOTA Foundation has stated that the two networks are two independent networks. Shimmer being DEFI / DeGen focused and IOTA being more corporate, government, and globally adopted focused. There is going to be many times where a grant is specific to the Shimmer network, and other times when grants are specific to the IOTA network. Even in the minority of times where a project may benefit both projects, the question in the grant will be, “what does the code support”. As the code needs to be open-sourced, is the code going to be written for the Shimmer or IOTA network? It will be very easy for the committee to distinguish what network the grant submission focuses on.

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Thank you for your comment. I do agree we don’t have many grants coming in right now yet this is mostly due to EVM being delayed. We have to deal with such delays as they come though. Shutting down operations unfortunately is not possible. Mainly for the program lead position which is a fulltime position. Myself, I have already given up my previous contracts in my previous career to focus on this. It’s just not realistic to have a Program Lead as a part-time position.

Saying the above, though we have not funded that much this quarter, we have been working for the past two months on liquidity provision grants. We are supporting the top three DEFI projects, and ultimately the entire DEFI / EVM launch. One of the main avenues of success for a DEFI network to launch is to have solid liquidity pools. We will be supporting the liquidity pools with $300,000 worth of Shimmer. Not only will it help the community, the network, but the Treasury will also gain LP tokens which we can add to our asset registry and stake for future passive income.

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Thanks for the reply. I warned about the lack of projects back in Nov, 22: Shimmer Community Treasury Grant Committee - Version 2 - #7 by schimpi
It is exactly what happened.

So what happened?

Most of your funding was for content creation when there actually was nothing to create content about.

One example would be the funding of Everything Tangle who created a video (https://twitter.com/allthingstangle/status/1663447536265478144)) about the amazing Firefly Wallet, when a few weeks later Firefly mobile was discontinued.

An alarming development that recently came to my attention is the endorsement of Coordinape for content creators (link: https://www.tangletreasury.org/proposal-detailed?recordId=rec63EFEcvAWD6BNP). This initiative has taken an unfortunate turn, leading to a perplexing cycle where only a handful of individuals seem to be rewarding each other with SMR consistently. This situation has resulted in minimal to no actual value being generated for the overall ecosystem, which is already facing stagnation. Compounding the issue is the indiscriminate dumping of SMR tokens onto us, the dedicated hodlers, further eroding the token’s value.
circlejerk

If I wanted to do a proposal, what would be the steps?

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So I do agree that funding content creation in April/May was a bit pointless when looking in hindsight. Yet, even the IF planned to do the Treasures of Shimmer campaign thinking that EVM was ready and going to launch there after. There was a positive and negative consequence. On the positive the campaign showed a network weakness which was great to find out “before” officially launching EVM. On the down side all the marketing and users that came for the campaign was lost due to the delay and momentum dropping out. Yet this is simply operating in crypto where things change quickly.

Saying the above, we made a decision to more simply give some love to our community content creators that have been creating content for years for free.

Yes, we did create an incentive program for the content creators where anyone can come join. This is also a test to see if the community can govern themselves in Web3. As the IF gives more control to the community it is important that we test different systems as how the community is going to govern, “and”, manage paying themselves. We can not depend on the IF forever, but we also can’t go from A-to-Z over night. These decentralized groups are going to have to find what works and what doesn’t. If this works, this will lead to a moderators group, a dev group, a marketing group, etc. The days of the community just working for free should and can come to an end “if” good processes are established. The Shimmer community treasury has always been a method to test things out to learn what works, what doesn’t, and then can port what works to the IOTA mainnet.

As in cost, this also saves cost for the committee because we aren’t reviewing and declining numerous content creation grant proposals. The committee is under budget and I believe even with the $SMR dropped to this group the operating budget will still be met. I analyzed this when considering funding this grant.

For submitting a proposal, please follow this link How to Create a [Phase I] Discussion Proposal, or you can create a counter proposals The Shimmer Governance Framework (Phase I - Discussion) 4.7 Counter Proposals.

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Just want to point out, the Incentives Content Creator group has already produced 61 activities, meaning, There have been 61 content posts that are (twitter (X) threads), Youtube videos, Medium articles, etc. So already the cost per content is way cheaper in this group then having content creators apply to the grant committee while saving on grant committee admin costs because the group practice decentralized governance and group management.

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After the first three months I will create a report on this. Again, it is a test case so we can learn and grow as a community that governance itself and not depend on the IOTA Foundation.

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There is a difference IMO between treasury management (investing in T-bills) and making investments in projects that generate a return.

If the committee is moving in the direction of the latter, I think we should split “grants” from “investments”. What would be useful to understand is how we would plan to do portfolio construction or risk management. Statements like this “We won’t dump on holders unless it is imminent to protect the community funds; we would take a smaller profit margin if it is better for the project and the holders” sound nice, but I’m not sure makes sense. How do we define smaller profit margins? How will you know when to liquidate?

If you look at the best university endowments, there’s a reason that they take performance fees. It aligns the fund manager with the performance of the fund. It works in the best interest of everyone.

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We can create a structured, rigid, and granular framework for investing idle funds; however, we just found from operating the treasury that having a rigid, structured, and granular framework is inefficient and causes challenges. Does this mean we propose revising the committee framework to be non-transparent and free with no oversight or repercussions? No, it gives a bit of freedom to the committee to work in the changing environment and some flexibility, but always maintains 100% transparency.

Let’s look at managing funds as the incentive of performance. Three Arrows Capital was a hedge fund that provided risk-adjusted returns, and then there is Alameda Research. Both were accredited, trusted, high-end, multi-billion dollar funds that incentivized positive performance. Standard & Poor’s states that nearly 90% of fund managers fail to beat the market. Several research studies have shown mutual funds (which endowment funds often use) regularly lose against index funds and charge exorbitant fees. Index funds match the market and charge about 75% to 95% less management fees than mutual and hedge funds. Yet why are mutual funds and hedge funds used? It’s not from sound financial management and the basis of the individual or endowment; it is because traditional finance is broken. Though these hedge funds and mutual funds regularly do not beat the market or index funds, somehow they make hundreds of $billions of dollars in profits. That’s not from the success of their client’s funds; that is a broken traditional financial system.

Regarding the specific questions of having the committee invest, we could ask the same detailed questions to the committee when it comes to approving grants. How could a grant committee make sound judgments to fund projects they are not experts on? We could also farm our grant committee out to a VC company and pay them hefty fees if we wanted to. Yet, a VC firm would not conduct extensive research within our community or operate transparently.

Yet this is what the community grant committee representatives do. We operate fully transparently and in collaboration with the community. For example, particularly for TCT-12 Identity Wallet by Impierce. No committee member is experienced in Digital Identity, given its niche and specialized market. We didn’t simply make an uninformed and un-analyzed decision, though. Instead, we spent weeks discussing with Identity experts in and out of the IOTA Foundation, small and large global projects that work with digital identity, and also community identity experts and non-experts. We then aggregated all these subject-matter-experts information and community non-expert advice and reviewed all the relevant information to decide. This same collaborative and transparent process seeking experts and non-experts would be the decision-making process.

Another more financially related example is the treasury currently working with DEFI projects to support liquidity pools, specifically, the DEFI space take-off. This venture has been over four months of research, talking with DEFI subject matter experts, project owners, IF and non-IF members, and community members. We asked all these parties what risks could arise with this grant, what positives and negatives may occur, how to mitigate risks, and what is best for the community ecosystem to expand it positively. The results were:

→ Ecosystem Expansion: There are many ways to support DEFI take-off; however, the most important way to support this growth, agreed by nearly everyone, was simply a good liquidity pool.
→ Positive: A focused, safe liquidity pool that will support the DEFI eco-space and expand to a point where it grows organically. The treasury will also gain some yield and additional LP token assets.
→ Negative: The treasuries assets used in these liquidity pools will lose value and or not support the growth of the DEFI ecosystem because the liquidity is not large enough.

→ What Risks Are There:

  • There is a risk of losing a significant valuation due to impermanent loss.
  • There are risks of the DEFI platform having no use, being rugged, or the platform’s loss of funds.
  • Platforms Smart-Contract error that losses liquidity pool funds.
  • Tether company rumors becoming true and USD backing not being actual as reported, such as the USDT token de-pegging.
    → How to mitigate these Risks:
  • Hold token pairs that maintain the least risk, which includes ($SMR:USDT/USDC & $IOTA:USDT/USDC), and or, if there is not a USDT/USDC, allocate fewer funds.
  • Allocate funds to projects with a strong community history, are Dox’ed, and have a solid positive reputation.
  • Ensure each platform uses SCs that have been audited and tested thoroughly on the Beta, Alpha, and community testnet.
  • Use USDC as a pair and USDT to mitigate the risk of de-pegging.

Again, the main point is that the committee doesn’t take these decisions lightly or make them independent of the community. We make these decisions openly and transparently.

Look at where the crypto industry is today, precisely due to the lack of transparency and the “trust” that was put into so-called “experts/fund managers” like Celsius, Alameda, FTX, etc. Any of those trad-fi companies, “if” they were transparent, everyone would have seen the corruption and pulled their assets out. The point is that due to transparency, those trade-fi fund managers couldn’t have made those corrupt and irresponsible financial moves with customer funds. It was only because of the lack of transparency that such corruption occurred. Though guaranteed, when markets fall into a bear market, all those fund managers seek customer portfolio increases and thus large bonuses. For that, they took extreme risks and made corrupt decisions.

I enjoyed the old comparisons of a decentralized network to bees. Bees make collective decisions that help them address various challenges and community infrastructure decisions. The adage of two minds is better than one. All these principles work in asset management companies but fail due to the lack of transparency and corruption. The Shimmer and IOTA community has some of the most talented individuals. It collectively can manage their community funds together, or at a bare minimum, should be given a chance to. The days of corrupt hedge and mutual funds should be over, and we have an opportunity to show how.

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I don’t think I ever suggested that we shouldn’t be transparent. We absolutely should be. I also have no problem with using funds for treasury management.

I think I’m reacting to this part where the Grant Committee wants to start making VC-like investments:

“Funding in exchange for equity or other terms defined by the committee.”

I understand we want to use some of the funds to stimulate and incentivize network activity, which is good. I agree that using the funds to maximize profits doesn’t make sense because we’re not going to try and negotiate deals that benefit LPs but harm the community/businesses that we want to stimulate. It wouldn’t make sense.

The risk-free rate of return is 5.5% (and potentially climbing). Because of the risk associated with equity investing, one used to need to generate 20% +/- in order to justify it. When we start making equity investments, we can’t sell these positions, which will tie up funds. This is also not to say that Committee Members can’t do research and identify whether an individual grant or project is worth backing. As soon as the Committee needs to evaluate whether 10 Identity projects are investable, then portfolio construction and risk management matters because you need to spread the risk.

If the Committee moves in this direction of making equity investments my wish would be:

  1. Bring in an experienced expert to help manage this so we can avoid common pitfalls
  2. Separate the grant funding from the investments (equity, etc.) in its own vehicle so we can have better transparency into the investment portfolio
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50/50 Co-funding: My intent wasn’t to suggest a strict 50/50 split on all projects but rather to highlight potential inefficiencies if both communities co-fund projects without a clear separation of responsibilities, roles and duties. I fully recognize the distinct nature of both Shimmer and IOTA. However, in the scenarios where interests overlap, clarity in funding responsibilities will be vital. You also stated that IOTA is more focussed on institutional adoption, whereas Shimmer is more DeFi-Degen focussed, so why don’t we clearly separate the roles and responsibilities? I agree that many projects will clearly fall under one network or the other, however we also need to be aware that there are projects that are valuable to both networks, especially when considering stuff like developer tooling etc. There are governance and strategic decisions that affect both, because the stakeholders are almost the same.

Secession: In the hypothetical scenario where one community wishes to secede from the treasury, we should set clear guidelines beforehand that formally defines the secession process. For instance, a supermajority vote could be required for those decisions. By establishing these guidelines from the beginning, we can define a clear exit strategy.

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In my opinion, the core question hinges on the community’s desired direction. Are we leaning toward the traditional route of focusing solely on ROI, like many equity investment companies? Or do we see ourselves as a public-minded grant committee that just happens to accept a bit of token equity from grateful founders? To me, the Tangle Treasury isn’t about playing Wall Street games. (Even though I like to play them personally too.) It’s more about being a good neighbor and positive sum actor in our ecosystem, lifting up community projects, analyzing gaps in Web 3 and DeFi Legos, that can be found in other ecosystems and chipping in with funding. And if we’re giving out funds, it makes sense we’d need ways to keep our pot full—that’s just smart treasury management.

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Ya, for sure. Regarding 50/50 Co-funding the target areas, the distinction between the two is covered under 5.0 Funding Priorities with 5.1 IOTA Community Treasury and 5.2 Shimmer Community Treasury. There will always be certain things, particularly developing tooling, that is nearly the same on both networks. However, during these instances, it will be up to the Program Lead and committees to discuss these fringe instances and how to handle them. As always, everything is transparent, so a discussion can be ignited at that time if a community doesn’t agree with the committee’s decisions.

As for secession, issues regarding the LLC can be found in 3.2 The Tangle Community Treasury Grant Committee Term and 12.0 Changes to the framework. Section 3.2 discusses how if both communities in parallel vote to close the LLC or only their grant committee, then the Program and Co-Lead will ensure a smooth and legal shutdown of the grant committee and/or LLC. The defined exit strategy is written out clearly, but the document is long. Again, it is a legal document that becomes a bit long and detailed and sometimes it is hard to catch all these small things.

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Hey Richard, i think you may have misunderstood something.
The intention here is clear, we want to have one committee to handle Grants for both communities under one legal entity.
Still, as there are 2 different groups of voters and 2 different (though still very related) networks, we chose the path to enable potential changes of how Grants are operated for every Group of voters/network. So IF in the future, the IOTA Voters would like to change something specifically for IOTA (be it Funding Tiers, objectives, etc etc) it can be easily changed for only one network and still operated by the same set of Reviewers.
Funding of Grants that are only focussed on one of the networks must of course be separated. Lets say a proposal to deploy a bridge between IOTA and another network is approved. Such a thing must of course be 100% funded from the “IOTA” Pot, because there is no benefit in it for Shimmer.
A Video that explains and promotes only Shimmer and its features. Ecosystem etc would then rather be paid only from the Shimmer pot. Though you still could argue that IOTA “inderectly” benefits from that content, but it’s likely hard to tell and estmilate how much.
A third thing would be a tool that is funded - lets say “Create Node JS binding for the IOTA SDK” - This benefits both networks as the codebase is used in both networks. Such a thing would then be funded 50/50.

I was also first for the complete separation of both networks, Specifications (would have basically created a copy of the SMR specifications for IOTA and adjusted it slightly), but in the discussions through our meetings it became clear that this would likely be overkill for now.
Lets start with this combined approach. If things get more busy and more complex we can always extend and even completely separate and create 2 individual committees, but i don’t think this is necessary in the near future.
You guys have done a good job and gained the needed experience to handle this for now.
In March next year we will have the next chance to adjust something based on the learnings of the next months and then also both communities will vote for the new committee members. We will see if there is a need to adjust this further until then.

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A bit of background can also be given to the larger vision. It is also difficult to articulate four months of weekly discussions into a single post.

The proposal is only for the interim period between now and March 2024. This will align community voting yearly in February/March. The grant submission rate is currently low and will be after EVM. So, at present, the current committee can manage both communities.

However, come February 2024, we all must campaign and be elected for the positions. At this point, the community can decide if they want a whole other committee, how many committee members, and if they want a second program lead and incur that cost. Personally, I could use a few more reviewers in the IOTA committee specifically, preferably someone with a crypto investing background. Still, we don’t need two program leads just yet.

It may be March next year, or it may be March 2025. However, I fully hope our treasuries will be worth multi-millions in $USD valuation. At that point, we will need community team leads, and the program lead will move up to be an LLC manager. With the review teams, that individual can determine the fringe circumstances when grants actually fall within two communities and how they get decided. Other than that, the LLC manager would manage the payments with the multi-sig signers, contracts, and all financial record keeping while maintaining everything public on the website.

As I said, this is “if” things scale, and who knows what happens between now and then? Everything could change, and the scaling solution could completely differ from what we picture today. Yet, for the next five months, this gives a guideline and revisions of how to run the committees and incorporate the IOTA Community treasury. The next step will be forming and electing the IOTA committee and the second set of elections for the Shimmer community treasury.

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In the German Stammtisch today, we had a discussion about the future of the treasury:

We found that there should be a scoring for impact. While relevance and the idea of a proposal are definitely not irrelevant, it is the impact on the ecosystem that plays a big role. Essentially measuring the “what if it all works”-scenario and measuring the gain for the network.

Also, there was a rather large consensus, that the treasury should not fund for-profit projects that already had an ICO with a developer allocation unless they allocate a part of their tokens. The reason for this was, that the treasury should focus on projects that don’t already have a big source of inflow and not give out “cheap money” to projects that already earned a lot.

In terms of strategy, the treasury should create a strategy what it wants to fund, but deviate from it as soon as there is an interesting idea.

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I just want to thank everyone for thier comments and discussions. This is exactly what governance in action is all about. It will be rare that someone puts up a Phase I proposal and immediately has community consensus on approval.

Based on summaries from the German Stammtisch, comments here, and other community group discussions, I have created a Rev2 proposal. I tried to make a better summary to shorten the length of the proposal and changed the terminology of, “invest”, to, “use idle funds to support the ecosystem”.

I would like to be clear that this proposal in no way tries to allow the committee to become some type of VC or investment firm. The treasury is a grant program at its core and should always be. A draft proposal of Rev.2 of the proposal can be found here Proposal V.2. If there are no more major revisions required I will aim to resubmit this version two on Sunday.

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This reads much smoother. Great job on taking in the feedback and rolling it into the v2 proposal. I guess you will create a new thread here?

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Yes, you need to reach the 50 likes again after changing the proposal (except for stuff like typos or broken links).

This is just to give the community a preview, so we don’t need a third iteration. Haven’t been able to check it yet, maybe I will propose some more changes.

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