I think it makes a lot of sense for Lido - and especially for Lido. I’d want Lido to be the trailblazer. Unlike many other projects we’re much closer to that base layer and are benefitting directly from the work done in it.
I’d want to open up a discussion on that. Not that I would expect a quick resolution, but the idea needs to be put on the table. There’s a number of open question we have to find the answers to.
Should Lido distribute part of the treasury to base layer developers and researchers?
What part of the treasury it should be? What base layers do we cover?
How exactly to handle distribution to dozens of teams and hundreds of individuals?
How to make it clear it’s done in a good faith, and not as a strings-attached bribe?
I have my own opinions on that but will hold them, for now, to kick off discussion without seeding it with preconceptions.
Should Lido distribute part of the treasury to base layer developers and researchers? Yes, but prudently. For that to be effective research should be done on how/how_much they are funded currently and what are the metrics of actual work done by the “independent” researchers.
What part of the treasury it should be? What base layers do we cover? Research first
How exactly to handle distribution to dozens of teams and hundreds of individuals? This might be too big an overhead for the single DAO and an inefficient one. Possibly might be better to partner with several DAOs and form a committee to share the load and expertise.
How to make it clear it’s done in a good faith, and not as a strings-attached bribe? Not sure how it is relevant. Can you elaborate on that? DAOs are not non-profit organizations.
I’m (unsurprisingly) very supportive of this direction. Closing these ‘funding loops’ will be better for everyone in the long term.
Re:4, might be valuable to abstract away decision-making around exactly who is funded and how much to a group like https://ethstaker.cc/ or using a quadratic voting thing. Removes some of the relationship Lido will optically have with specific protocol researchers/decisionmakers.
As you can probably imagine, I strongly support this. Speaking from an Ethereum PoV, I think we are (luckily!) at a point where most teams are well-funded enough to sustain basic operations, but the big problem to solve for is incentive/opportunity cost.
We want the smartest people to work on supporting the protocol which serves all applications, but the risk/reward calculus of doing such work isn’t great. On one hand, you can either support the protocol and get a fair salary + some indirect upside in whatever company you are employed by (e.g. nethermind, consensys, lighthouse, etc.). OTOH, you can start/join a project for the opportunity of large financial upside.
Obviously, starting/joining an early project is farther along the risk curve than doing protocol work, but with basically 0 upside to protocol work, it ends up being -EV to do it. If we can provide some upside to these folks, via DAOs contributing a share of their treasury (in a native token, some of which will appreciate), then we can create a diversified “upside fund” for these contributors. I believe this would help recruit + retain smart people who want to do this work and make it an “EV neutral” decision to work on the protocol (less reward than starting/joining a single project, but also less risk).
As for the specific questions:
I’m biased here, but I think if we can get most DAOs to put in 1% of their native asset in treasuries, we could have a very viable fund for contributors. When thinking about what base layers, I’d suggest looking at whether teams supporting these have strong incentives or not.
I’m hoping to be able to share more on this , but I think, at least for Ethereum, we could have a community-supported mechanism where a distribution is put together and Lido could just sanity check it and then send funds to a single splitter/vesting contract.
I think not being involved in the actual distribution weighting is a good step. It’s a hard line to balance, but trusting the community to come with a weighting and sanity checking it means you “buy in” the terms of the community and aren’t trying to nudge things. Very curious about others’ thoughts on this point!
I think Danny’s Twitter post and most of the thread so far presume that any contribution to developers should be out of a protocol’s native token. Would it be worth considering paying into a dev fund from protocol revenues similar to the mechanism for insurance funds?
I think benefits would be:
simplifying some of the knock-on effects of granting LDO to outside organizations where incentives may not be aligned and could create conflicts of interest (or appearance of such)
An ongoing relationship would be easier to manage and adjust down the road if needed
would also be an easier model to replicate for other projects who don’t have native tokens
The upside for devs is obviously different than contributing LDO, but I think still it provides the right incentives in the sense that contributions to developers would grow with more use of the protocol. And rather than determining contribution amounts at an early point, this would be a more market-oriented way of rewarding development in proportion to that protocol’s value to Lido.
Just some initial thoughts. Very open to other perspectives.
I’m pro this approach in general but against it tactically. The revenue/expenses stream for Lido is not clear enough yet so I would feel comfortable committing a portion of revenue in perpetuity just yet, when we don’t really know what we can and can’t afford.
I guess that was my point though, that ongoing contributions can be adjusted whereas a onetime grant of LDO supply probably can’t be revoked or returned. I agree that it’s not in line with a growth mindset to take cash flow out of the protocol, but in general I think that treasury funds are more valuable. There are levers to pull within the protocol to raise or free up money, but not so with LDO supply, and of the two options paying out of revenue seems to me to be less of a perpetual commitment.
I’m sure I’m not as familiar with how protocol contributors would feel about this. It would be good to hear from people on that side on what they would find most valuable (DeFi tokens vs something more cash-like).
You’re right; I realized that I’m too averse to taking continuous obligations but don’t value future optionality enough. I’m still in favor of keeping protocol revenues in the protocol for now, but you make a good case. Maybe we should do that instead/in addition to LDO grants.
Agree that this would set an important precedent. Granted that Ethereum does not benefit from a community treasury like other systems do, it falls onto the protocols that operate on it to support base layer work and maintenance.
Re: distribution; while doing that through a third party that takes on the organizational overhead would be better, this party does not exist at the moment and could take several months until set-up for the effort to become executable.
I would be in favour of getting this organized through a Lido committee, and perhaps start small and iterate thereon–re: due process.
Danny (in this thread) also touched on some vesting schedule applied to the distribution of these types of grants, which I think is appropriate. Were Lido to go down that route, then executing the grant disbursement via the Treasury Diversification sale contract becomes an interesting option (e.g. via a nominal 1USDC “purchase”), although I don’t understand the classification of transfer and tax implications of that route all that well.