by the doctor specialized in Creating Decentralized Autonomous Communities and Ecosystems DAO Dr.
Ritesh kakkad.

DaoFin Draft: Decentralizing XDC’s Ecosystem Development

xdc

dao

blockchain

ethereum

Introduction

Blockchain is synonymous with decentralization. But while the XDC Network is and always has been a decentralized network, with hundreds of validators from all four corners of the globe participating in consensus, ecosystem development was for a while spearheaded by various groups of key stakeholders and community leaders.

This was necessary, for a time. Tokens—that is, voting power—had to be distributed ever more widely before genuinely democratic governance could become a real possibility. Only if XDC changed hands again and again would whales become few and small enough to mitigate the risk of a plutocracy masquerading as a democracy. Moreover, before accepting responsibility for ecosystem development, the community had to grow, not only in size, but also in maturity, loyalty, and knowledge. Finally, it was necessary to think through, with great care, what form a DAO on XDC should take. But now, at long last, all of the above conditions have been met: the pool of potential voters is big and diverse enough; the community is ready; and we, for our part, have devised a highly sophisticated, original, hybrid DAO, tailored to the XDC community, which should be free from the defects that continue to plague other DAOs. Since, for all of these reasons, the time has come to take the next, big step toward the decentralization of ecosystem development on XDC, we would like to submit the following plan to the community for review.

Beginning today, February 15th, there will be a 30 day community and public comment period, during which we hope that you—the community—will share your positive and negative feedback with us on XDC.dev. After the public comment period ends, on March 15th, we will take another 30 days to revise the plan in light of the feedback we’ve received, before sharing a final draft with the community on May 1st for 15 days and implementing the plan and launching the proprietary or available on-chain voting dApp shortly thereafter. The community is welcome, at this stage, to provide feedback on features they’d like to see in the dApp as well.

Please note, finally, that there are a number of important details that we can’t be sure of prior to testing and dry runs of the voting system, which will be necessary to gauge the quantity and quality of participation we can expect to see when the voting dApp is live. All such things, which remain TBD, have been affixed with an asterix (*).

DaoFin

10B XDC was originally allocated to the XDC ecosystem development fund. Every year, 250M of that 10B XDC unlocks to support the network.

Going forward, the unlocked funds will be distributed with the advice and guidance of the community in an increasingly decentralized, democratic way.

During 2023, 90M XDC will be set aside for core protocol development and support. The remaining 160M XDC, however, will be released quarterly, in tranches of 40M, to fund projects deemed worthy of support by the community.

From 2024 on, the community will bear responsibility for distributing the full 250M XDC—again, quarterly, in tranches of 62.5M.

Checks and Balances
Governing bodies, like the Ethereum Foundation, in which small panels of experts and community leaders assess proposals have the distinct advantage of being able to make highly informed decisions on the basis of in-depth knowledge of the relevant fields and careful consideration of their strategic priorities. However, they lack transparency and, since only a small number of people can participate in them, they fall short of the democratic ideals necessary for decentralization.

At the same time, simple majoritarian governance structures in which “1 token = 1 vote” have failed time and time again to empower communities to act in their best interest: their treasuries have been drained and/or their communities left disenfranchised. Such majoritarian governance structures are subject to manipulation on the part of exchanges, large capital funds, including VCs, and bad actors who acquire tokens to increase their voting power only to dump them immediately after achieving their goals. These allegedly pure democracies are usually, in fact, plutocracies.

Attempts have been made to mitigate the risk of manipulation, on the one hand, and to combine expertise with democratic governance, on the other, by allowing voters to delegate their voting power to a small panel of loyal experts. But while better than the alternatives, nothing prevents whales from colluding to vote their own delegates into power. Furthermore, such “representative” governance structures have the tendency to devolve into a small panel of experts, acting without sufficient transparency or accountability, owing to the voter apathy they presuppose and even cultivate in the community more broadly.

Given the deep structural problems plaguing most, if not all, DAOs currently in existence, a new kind of DAO is needed.

Additionally, when creating a DAO to develop the XDC ecosystem further, we are not starting from square one. The XDC community already exists, as a whole with various parts: sub-communities, constituencies, and interest groups. A DAO on XDC must therefore take into account the already existing constituencies–like the 250 or so masternode holders, on the one hand, and the numberless XDC holders, on the other–without under- or over-representing any of them.

Thus, like modern constitutional governments, DaoFin (as we are provisionally calling it) relies on a system of divided government or checks and balances to limit the risk of manipulation, all the while rewarding large stakeholders with their fair share of governance and incorporating a deliberative body, ultimately responsible to the community, to ensure that the process remains sufficiently thoughtful, diligent, and rules-based throughout.

Accordingly, in DaoFin, there will be three governing bodies or branches of government:

The Masternode Senate, where each masternode address will have 1 vote.

The People’s House, where addresses staking XDC in the governance pool will have voting power proportional to their token holdings (“1 token = 1 vote”).

Voters will be able to stake 100,000, 250,000, 500,000, or 1,000,000 XDC in the governance pool.

XDC staked in the governance pool will eventually earn rewards proportional to the stake paid out from the ecosystem development fund. Specifics about the rewards will be determined after testing of the voting dApp has established the levels of participation that we can expect to see.

To incentivize participation and increase voter turnout, participating regularly in elections and keeping the XDC locked in the governance pool will further increase the share of rewards stakers can receive, leading in effect to “a raise” for good behavior. Failure to participate in an election or removing XDC from the pool, on the other hand, will result in losing the raises earned over time, setting the reward-multiplier back to square one.

The Judiciary Committee, where 5* highly dedicated community leaders will have 1 vote each.

For the time being, the Committee will be a diverse group made up of tried-and-true community members, without any conflicts of interest, specially appointed by the Founders. In the future, as the decentralization process unfolds, the Committee will be voted in by the Senate and the House in annual elections, using quadratic voting to determine the winners.

In addition to the 5 core members, there will be 2* alternates on standby prepared to step up in the event that one or more members of the Committee is unable or unwilling to participate.

All members should KYC and be doxed to the Masternode Senate and the Founders, where they will also make financial disclosures to the Founders bearing on any conflicts of interest that might prevent them from serving impartially on the Committee. Committee members should recuse themselves from decisions if and when there are any conflicts of interest, however small.

In the event that a masternode holder becomes a member of the Judiciary Committee he/she will not be able to vote in the Masternode Senate during his/her term. Members of the Judiciary Committee should not vote in the House either. Nor should they discuss proposals with community members not on the Committee except in the public discussion forum (XDC.dev) where all can see and participate equally. Finally, Judiciary Committee members shall not invest in any projects seeking or receiving grant funding from the ecosystem development fund.

Breaking any of these rules will result in expulsion from the Committee.

Election Week
The last week of each fiscal quarter will be “election week,” during which the community will vote on submitted grant proposals. The vote will be held on-chain, using a proprietary or available public voting dApp, which will include space for the Senate, the House, and the Judiciary, while discussion and debate should take place chiefly on XDC.dev.

Quarterly elections were decided upon (a) to foster healthy competition between bounty/grant seekers, (b) to reduce first mover advantage and ensure that the process is deliberative and fair, rather than “first come, first served,” and (c) to allow the community to assess proposals, not only in light of one another, but also in light of the budget and its constraints. Throughout this process, community members should encourage high quality projects to submit proposals. Competition is healthy!

Any funds left over once the quarter ends rollover into the next quarter. So the community need not feel obliged to award funds to proposals lacking in quality—on the contrary, they can in that case keep the funds in reserve for other, better proposals! A rejected proposal is money saved to accept a future proposal. Moreover, every accepted grant proposal increases the amount of XDC in circulation. It’s in the community’s interest to fund high quality proposals or none at all, since projects that don’t add sufficient value to the network dilute the supply in addition to adding little or no value.

Grant/Bounty/Reward Proposals

The XDC community grants DAO—DaoFin—will solicit grant proposals from entrepreneurs, developers, innovators, and community members across at least the following seven subject areas:

Protocol development
Applications and layer 2s
Developer tooling
Code audits
Committees, sub-committees, and DAOs that serve the XDC ecosystem
Community service (marketing and education)
Events and hackathons

There will be, in total, three grant tiers:

Tier 1 grants are small grants, under 250,000 XDC. To submit a small grant proposal,
500 XDC must be burned.

Tier 2 grants are medium grants, between 250,000 and 1,000,000 XDC. To submit a
medium grant proposal, 500 XDC must be burned.

Tier 3 grants are large grants, over 1,000,000 XDC. To submit a large grant proposal,
1000 XDC must be burned.

Small Grants
Small grants should be submitted at least one week prior to the start of election week to allow for community discussion. (Grants not submitted in time will be considered the next quarterly cycle.)

Small grant proposals that receive support from a majority of the House, the Senate, and the Judiciary will be accepted and funded.

Small grant proposals that fail to receive majority support from one branch, whether it be the Senate, the House, or the Judiciary, will still be accepted if they received supermajority (66%*) support from either or both of the remaining branches.

For a “yes” vote to be considered valid, the minimum participation threshold for small grants in each branch is as follows:

Senate … 25%*
House … 45%*
Judiciary … 100%*

Otherwise, the vote will count as a “no,” owing to lack of participation. Proposals that fail owing to lack of voter participation may be resubmitted the next quarter—proposals that fail with adequate voter participation may not be resubmitted.

Medium Grants
Medium grants should be submitted at least two weeks prior to the start of election week to allow for community discussion. (Grants not submitted in time will be considered the next quarterly cycle.)

Medium grant proposals that receive support from a majority of the Judiciary, a majority of either the Senate or the House, and a supermajority (66%*) of the remaining branch, whether it be the Senate or the House, will be accepted and funded.

Medium grant proposals that fail to receive majority support from the Judiciary and either the Senate or House, or a supermajority from either the Senate or House, will be rejected.

For a “yes” vote to be considered valid, the minimum participation threshold for medium grants in each branch is as follows:

Senate … 30%*
House … 50%*
Judiciary … 100%*

Otherwise, the vote will count as a “no,” owing to lack of participation. Proposals that fail owing to lack of voter participation may be resubmitted the next quarter—proposals that fail with adequate voter participation may not be resubmitted.

Large Grants
Large grants should be submitted at least three weeks prior to the start of election week to allow for community discussion. Prior to submission, it is highly advisable to visit with the Judiciary Committee in “office hours” to receive initial feedback, ask questions, and ensure compliance with the guidelines. (Grants not submitted in time will be considered the next quarterly cycle.)

Large grant proposals that receive support from 80%* of the Judiciary, and a supermajority (66%*) of both the Senate and the House will be accepted and funded.

For a “yes” vote to be considered valid, the minimum participation threshold for large grants in each branch is as follows:

Senate … 35%*
House … 55%*
Judiciary … 100%*

Otherwise, the vote will count as a “no,” owing to lack of participation. Proposals that fail owing to lack of voter participation may be resubmitted the next quarter—proposals that fail with adequate voter participation may not be resubmitted.

In the case of large grants, one week prior to the start of election week the Judiciary Committee will publish its feedback on large grant proposals. The Committee’s assessment is merely advisory to the larger community, which is free to accept or reject its analysis. In the event that the Committee’s opinion is not unanimous, the Committee will issue two opinions, one for, one against, to guide community discussion.

Large grant proposals should, as a rule, be broken up so that funds will be disbursed only as milestones, clearly identified in the proposal, are reached over time. Such projects will be funded incrementally, as they achieve key benchmarks and report on their progress to the Judiciary Committee at the designated time.

Projects should be careful to set realistic goals for themselves. The Judiciary may, in extreme cases, with a majority vote, deem projects that have not reached their milestones unworthy of additional funding. Moreover, a plurality (33%*) of the Masternode Senate can request a milestone report from the Judiciary after the fact and, if they are not satisfied with the progress being made by the project, they can trigger a vote during the subsequent election week to determine whether funding should be continued by notifying the Judiciary Committee. Funding will be suspended with a supermajority vote of the Senate.

Projects seeking large grants should not be starting from scratch. Ecosystem development funds should not be used to bootstrap significant projects with nothing to show for themselves; they are to be used to fund projects that have already begun their work and demonstrated that they have skin in the game, whether by having an MVP, or by deploying on chain, or by having assembled a working team with clear signs of progress made, or by some other means.

For the sake of full transparency, the Judiciary Committee will publish an annual report, aggregating all successful grant proposals, complete with all available on-chain data tracking fund movements end-to-end and vote tallies for all three branches of the DAO government.

Conclusion

Think of this as a first step toward decentralizing ecosystem development on XDC. There’ll be more to come, as the process unfolds gradually over the coming months and, together with the community, we learn what works and what doesn’t. The proposed plan seeks to empower the various stakeholders already active in the community, without giving too much power to any one single interest group. The system of transparent, divided government that we’ve proposed is intended to make it hard, if not impossible, for powerful interest groups or factions to collude while still leaving room for community members to cooperate with one another. The community should take the next 30 days to discuss the plan and to share their feedback, both positive and negative, on XDC.dev (as comments). Nothing is set in stone, and we fully expect to iterate over the coming weeks and months, in light of the discussions we have with one another, until we’ve reached a satisfactory result.

Remember, as you go about offering your constructive criticism, that we consider ourselves to be a DAO on a hill … the eyes of the world are upon us. The ultimate goal is to build a DAO worthy of the name, a DAO as decentralized as the XDC Network already is, and this is impossible without your input.
WeAreXDC

PS: Special thanks to Atul, XDC Foundation, XDC Community, XinFin, Dustin and Billy for helping to create the 1st draft for DAO.

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