[SIP] Establish an Annual Budget for the RareDAO Foundation

Governance Proposals Approved
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  • Authors: Brennan Mulligan (DAO Program Manager @ SuperRare Labs), John Crain (CEO @ SuperRare Labs), Jonathan Perkins (CPO @ SuperRare Labs)
  • Status: Approved :white_check_mark:
  • Type: Treasury Management
  • Implementer: RareDAO Governance Council & RareDAO Foundation
  • Sponsor(s): @flakoubay
  • Link to Request for Comment: [RFC] Expanding the RareDAO Vision
  • Link to Temperature Check Poll: Discord
  • Created Date: 12/01/2023

Note: This proposal is a followup to [RFC] Expanding the RareDAO Vision, which we recently posted. It contains an outline of what we believe the DAO can and should focus on, as well as some short term steps we can take to get there. There are two other proposals stemming from the request for comment: [SIP] 2024 Governance Council Compensation and [SIP] Consolidate Branding of the Protocol and DAO.

Each of these proposals will be open for public comment until December 13th, at which point amendments will be made based on feedback. Each proposal which receives council sponsorship will go to Snapshot for voting starting on December 15th and ending on December 22nd.

Background & Motivation

In addition to forming the council at the DAO’s inception, the RareDAO Foundation was created to serve as a legal entity for the DAO, ensuring regulatory compliance and liability protection for token holders and DAO contributors alike. As we have developed processes which gradually offload responsibility from SuperRare Labs onto the Council and DAO contributors, the importance of the Foundation’s role as a vehicle for progressive decentralization has increased. A key theme over the course of the last year has been developing “operational sovereignty”, that is, the ability of the RareDAO Foundatoin to operate with greater independence of SuperRare Labs and opening the door for decentralization opportunities through things like the grants committee and expanding role of the DAO council. A logical continuation of this is for the Foundation to have its own independent budget, which increases transparency in overhead and staffing costs, and allows for DAO-dedicated resources within SRL to begin a gradual transition into full-time work directly for the DAO.

Details about the rules that govern the relationship between the RareDAO Foundation, the community, and the governance council can be found in the community approved by-laws. Further insight into specific steps the DAO Council, Foundation, and SuperRare Labs have taken to increase operational sovereignty can be found in the public log of internal council decisions.

Specification

We propose that an annual budget be established for the Foundation, which will give its Director and the DAO Council more autonomy to perform work independent of SuperRare Labs. A primary initial focus will be identifying work currently being performed within SRL that primarily concerns DAO Operations and transferring it to the foundation, making the areas of responsibility for each entity clearer, and opening the door for further decentralization. In addition, this will create more transparency around existing overhead such as corporate costs and operational expenses. The Foundation Director’s recommendation for the first annual budget, which will be accompanied by a 6-month transparency report, is provided in the below table. Upon passage of this proposal, the funds required for this budget will be transferred in a lump sum to the Foundation’s existing operating expense account multi-sig from the DAO treasury. This multisig is composed of the DAO Council (serving as a single signer), the foundation director, the foundation accountant, and one appointed representative of the council (currently Brennan Mulligan, DAO Program Manager @ SRL).

Category Amount
Corporate Expenses (Director, Annual Fees, Supervisor) $50,000
Employees / Contractors (DAO Ops & Protocol Development) $150,000
Employees / Contractors (Marketing & Community Management) $150,000
OpEx & Service Providers (Gsuite, Slack, Hats Protocol) $50,000
Total $400,000

Benefits

Currently, the foundation pays many of its expenses through the MSA with SuperRare Labs. This is a convoluted process which increases the Foundation’s dependence on a centralized entity, rather than having a more direct relationship with the DAO Council. Since establishing the Foundation expense account, this has improved, but that account cannot accommodate anything more than de minimis transactions. Passing this proposal will allow for a more direct and all encompassing relationship between the DAO Council and RareDAO Foundation, allowing them to effectively operate without oversight or involvement from SuperRare Labs. Removing this operational overhead from the relationship between SRL and the DAO will increase opportunities for real collaboration while decreasing unnecessary cost and effort in maintaining a suboptimal process. Allowing the Foundation to directly engage a small number of full time contributors will further amplify this by creating the possibility for work to be consistently and reliably be performed outside of SRL, increasing the censorship resistance and credible neutrality of Foundation and DAO Council operations.

Drawbacks

While there is significant efficiency to be gained by allowing a degree of discretionary spending within the Foundation, this does introduce the need for transparency and accountability. In many DAOs, Foundation spending can quickly grow out of control and it can often be difficult for the community to track where the money is going and maintain oversight.

Maintaining tight feedback loops between the foundation and DAO council during monthly meetings (the agendas for which are publicly available, including any resolutions made during / in-between those meetings) goes a long way towards mitigating this. The council will have ample opportunity to inquire into Foundation decision making and object to transactions which they feel are out of scope or problematic. Additionally, the Foundation Director has committed to releasing a 6-month transparency report to update the community half-way through the year, demonstrating progress and rate of spend against that year’s budget.

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This is a good principle to give some financial slack to the Foundation for small expenditure.
It was also good to browse through the Foundation-By-Laws which is very informative for the Council role but which does not say much about the Foundation. Few questions/remarks overall :

  • How many directors are there currently in the Foundation ?
  • Would it be useful to enrich this page with a couple of lines about the Foundation ? Actors / Stakeholders - The SuperRare Network
  • How this discretionary budget, if validated, impact this By-Laws article “The Council must approve transactions exceeding $100,000 USD per year” ?
  • I am not sure to understand the a 6-month transparency report, why would we not have a yearly accounting report as a basis ?
    Enjoy your week-end !
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:thermometer: We’re taking a Community Temperature Check over in Discord.

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Hey @Upzeart! Thanks for the great questions and for digging into the bylaws. I’ve tried to answer each of your questions as comprehensively as I can, while providing context which you may already have come across in your reading to bridge the gap for other readers below :slight_smile:

1. Number of Directors
The foundation currently has one director. However, the directorship company that we work with has contingency plans (additional directors available) were that director to become inaccessible / in case of emergency. Even so, the director and I have discussed the possibility of adding an additional director or directorship provider for increased resilience at some point once the new council is settled in.

2. Updating existing docs to include more info about the Foundation.
This is a great callout, I’ve just pushed a light update with information about the Foundation, grants committee, and DAO Ops Stewards. As an aside, this document is a great example of why [SIP] Consolidate Branding of the Protocol and DAO is sorely needed, with the DAO being referred to both as “SuperRare DAO” and “RareDAO” in the same document!

I should also note that the Foundation Director and I are currently working on more comprehensive documentation of the DAO’s org structure in conjunction with the team at Hats Protocol (where I am a also governance steward). Our goal is to have this released along with the council election details so that candidates have an up to date understanding of each entity involved in the DAO. If you’re interested in providing early feedback on this documentation, feel free to shoot me a dm on twitter @bmulligan56. We should be ready to start circulating in the next couple of weeks with a targeted release later this month as part of a broader “Foundation Update”

3. Implications for Council’s authority to authorize up to $100k in de minimis txs per year
This is a great question. Thank you for taking the time to dive this deep into the by-laws! This authority for de minimis spending went relatively unused until we passed [SCP-8] Create and Top Up an Operating Expense Account for the Foundation, which delegated the authority to execute de minimis transactions to a 3-of-4 multi-sig composed of the DAO Council, Foundation director, Foundation accountant, and myself. The council still has the right to object to any transactions, but we (the other signers) have more autonomy in using that allowance. This has allowed us to process reimbursements for things like google workspace, pay the accountant, and engage Hats Protocol in a lightweight service agreement (as alluded to earlier).

My intention with this SIP is to leave Section 8.A of the bylaws relatively unchanged, still allowing the council to authorize some de minimus spending without a community vote (which may, for example, be useful for gas reimbursements on council multi-sig transactions - which is not included in this SIP). Rather, this SIP precludes the need for us to tap into this allowance for topping up the operating account and allows Foundation spending to exceed $100k per annum, which is sufficient for engaging most service providers but is insufficient for the compensation of more than a couple part time contributors, or even a single full-time contributor. This limit ultimately increases our dependence on SuperRare Labs as the DAO’s de facto home for talent retention, which may serve as a powerful vector for centralization through access to information and relationships if left unchecked over the long term.

As part of the implementation plan that will need to be authorized by the Council if this SIP passes, I would likely recommend that we update the bylaws to include information about the Foundation’s authorities and obligations in regards to this (potential) new annual budget - though its tough to provide those exact changes at this point because the Foundation’s outside council would be heavily involved in ensuring any updates are maximally compliant with Cayman Islands law and do not create any unintended consequences down the line.

4. Role of the 6-month transparency report
The intent of the 6-month transparency report is to tighten the feedback loop between the Council / Foundation and the community. Many DAOs run workstream budgets on a quarterly or semiannual basis, which we feel is inefficient as the budget preparation and voting process typically eat into at least a month of that. However, this higher cadence also increases accountability and transparency. Providing a semiannual report of operations and expenditures, on top of annual accounting as part of any request to renew the budget, is our attempt to tighten these feedback loops and increase transparency, while decreasing the governance overhead required just to keep the lights on by 50%.

It also helps that the Council has some “checks and balances” over the Foundation, as laid out both in the bylaws and in this SIP, which ensures additional accountability on top of annual budget requests and semi-annual reporting.

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Thanks for the very comprehensive answer Brennan, this is all clear for me and a great addition to the wiki you made ! :pray:

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As a pendent to the RareDAO vision extension ([SIP] Consolidate Branding of the Protocol and DAO - #5 by flakoubay), I am excited to also sponsor this SIP as a RareDAO council member. A budget for the RareDAO foundation will allow the team to implement the vision of the community and coordinate some matters to move things forward without depending on Superrare Labs.

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This SIP is live for community voting :point_right: [SIP-19] Proposal to Establish an Annual Budget for the RareDAO Foundation.

:clap: We encourage everyone to please vote!

:spiral_calendar: Start Date: December 16 12PM ET
:stop_sign: End Date: December 23 12PM ET

Please also check out our other live SIP: :point_right: [SIP-18][DAO Operations] Proposal to Compensate DAO Council Members

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Update: Community voting for the [SIP-19][DAO Operations] Proposal to Establish an Annual Budget for the RareDAO Foundation has met quorum and closed in favored for moving the proposal forward.