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Agreement vault is not "transparent" | rhythm research about mechanism design series 2

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This paper hopes to arouse people's attention and thinking about the agreement Treasury

Protocol Treasury can be said to be the most critical part of the protocol. The on-chain Treasury mechanism makes many platforms and companies in the Web2.0 era have the value of protocol. Blockchain technology makes everything that happens inside the protocol vault "transparent" and untampered with, and then this "transparent" information is not transparent to most people because the information on the chain is too "visible". Without proper incentives, protocol developers or protocol politicians would not want to proactively filter and present this information to protocol holders. The contract holder may have limited capacity to obtain "transparent" information. At the same time, the matching and cooperation between the on-chain and off-chain information also face great challenges, especially the credibility of the off-chain information.

This article from theShreyas HariharanShreyas is the founder of Llama, a visual aggregation tool for protocol vaults. In this paper, the author summarizes many open problems faced by protocol vaults and protocol governance today. BlockBeats translated the original text, hoping to arouse people's attention and thinking about the protocol Treasury.

Community crypto vault

While it is widely accepted that crypto vaults are open and transparent to community members, is merely being transparent enough? Community members still had to spend hours hunting through Etherscan, Snapshot and Discourse to get a monthly summary of the vault's financial activities.

The community Crypto vault houses crypto assets held in a wallet owned and operated by the community. It's like a community savings account, except the assets in the account are cryptocurrencies instead of legal tender, they're held in a multi-signature wallet instead of a bank account, they're managed by the community instead of the CFO or CEO, and they're publicly available to everyone, not private like a regular bank account.

Accounting work

The archiving work of cryptographic vault is just starting, and there are still many problems. At present, it still takes a lot of time for finance personnel or operation personnel to classify project income and expenditure, which is difficult to complete effectively. Not only that, there are new proposals coming out every day or week, but it's hard to keep track of them right now. Moreover, the real-time and readability of information disclosure in the community crypto vault is still insufficient, which also makes community members vote or issue proposals without full understanding.

Unsolved problems in crypto vault:

- How can accountants quickly classify transactions to produce a financial statement?

- How can community members quickly find transaction details for a payment made five months ago?

- How can community members view a summary of financial activity for a particular historical month?

- How do community members filter all the bounty money that has come out of the vault since its inception?

- How do community members view the average salary paid to community managers across all cryptocurrency projects?

- For a vc project like Uniswap, how do we combine off-chain spending in VC with on-chain income?

- How do we produce real-time income statements, cash flow statements, and balance sheets for community members, contributors, investors, and outsiders to see?

- How can we make the reports in different encryption projects adopt the same standard as 10K reports of listed companies?

- How do we evaluate the financial health of the vault?

- For DAOs or other items registered as legal entities, how can we make statements that are easy for accountants and tax people to use?

We now need a full stack solution to help communities manage their vaults (the crypto equivalent)Stripe treasury) and facilitate disclosure (the on-chain equivalent of SEC Edgar). Cryptographic communities include & NBSP; DeFi protocol, DAO, and social token communities, Llama is the control panel for the vault management of these crypto communities. I'm working on fixing some of the issues with Llama to make it better serve the crypto community.

YFI was one of a group of agreements that self-disclosed their financial statements in December 2020. While this is a feat for YFI community members, the verification of these reports is difficult to accomplish. But it should be easy for every community to produce financial statements that can be audited externally. In addition, the community should be able to keep vault details confidential.

Management work

As Fred Ehrsam points out, while we emphasize the importance of governance minimization, Treasury management still needs governance for at least the next few years because the allocation of funds is not yet fully automated.

Monetary policy in crypto protocols has been one of the hottest topics, but nobody cares about fiscal policy. In the next few years, however, that will change and fiscal policy will be on the agenda. Here are some key fiscal policy issues in a decentralized community:

- How should the budget be approved?

- Who approves the expenditure of the vault?

- How should grants and bounties be distributed?

- How much should core contributors be paid? Which share vesting plan is better?

- How much money should be allocated for mobile mining? (This is a question of both fiscal and monetary policy.)

- How should the vault be constructed? Should they last, like university endowments, or dissolve after a certain number of years, like the Gates Foundation?

- How should the liquidity of the vault be managed? What percentage of assets should be in native protocol tokens, Ether versus Bitcoin, and stablesoins like DAI and USDC?

The average token holder cannot be expected to vote on small transactions in the vault. Uniswap has responded to this issue by publishing a proposal for appropriations that is well laid out and provides a good model for setting fiscal policy for other agreements. The proposal is to form a six-member committee that will be responsible for the Uniswap quarterly grant, which will be capped at $750,000 while maintaining the Uniswap ecosystem. The council is up for re-election every two quarters, and budget amounts and funding caps are reviewed every six months.

Synthetix recently formed the Spartan Board, which is elected by SNX token holders to approve changes to the Synthetix agreement. Elections are held every three months so that day-to-day decisions can be left to councils, freeing up communities to deal with large project budgets.

In some cases, governance proposals and invoices in the crypto world work the same way. We'll use the payment proposal for Michael Arnold, who developed the site for JAMM's social token, as an example to illustrate this phenomenon. The proposal contains almost the same information as the invoice, including not only the proposer's name and contact information, but also the seller's name and contact information, as well as the invoice date, service description, seller's payment details and payment terms.

Filing is important because it not only helps finance staff and other community members, but also plays an important role in future audits and scoring.

Audit and scoring work

Accounting involves keeping records and making statements, while auditing examines and evaluates statements. External auditors must be able to effortlessly look at any transaction in the community coffers and verify that it is legitimate.

Each transaction should have a corresponding governance proposal, transaction hash, budget category, and other instructions. Auditors need to be able to trace transactions that occurred a year ago and examine them for financial fraud. So, like smart contracts, transactions that take place in a vault need to be checked by an auditor. In the future, we will also introduce a scoring system to assess the financial health of different crypto vaults, but first we need to deal with the raw data.

conclusion

Crypto vaults offer the potential for transparency and community empowerment, but taking this to the next level requires not only tools and frameworks to manage vault data, produce real-time financial statements and audits, but also to score the financial health of the vault.