In this post, we show a method for the DAO to agree on a Treasury budget. The solution is based on the idea that subDAOs (bounties & collectives) submit funding requests for a certain period together and the funding requests are negotiated simultaneously against the available amount of money for the period.
This research was made possible thanks to a Web3 Foundation grant for OpenGov.Watch under the Decentralized Futures Program.
Ingredients
Budgeting in OpenGov is typically seen as near-impossible. How should numerous stakeholders with vastly different agendas and still limited negotiation mechanisms agree? How could the open nature of OpenGov prevent that those agreements are not immediately broken again through the next ref? These answers questions were raised one year ago in response to Towards a Treasury Budget. The initial conclusion was that we need more data, prompting a series of Treasury reports (2023-Q3, 2023, 2024-H1, 2024-Q3).
Our intense research over the past year has paved the way to make Treasury Budgeting possible. We combine two building blocks:
- bottom-up budgeting, as presented in our BASED Budgeting concept (and supported by Theories of Treasury Management)
- Legislation through WFCs
How it works …
To understand how budgeting can become possible, consider the following thought experiment
- SubDAOs: Assume there is a set of subDAOs (bounties, collectives, etc…) that together fulfill all essential functions to keep Polkadot healthy and flourishing.
- Mandates: The subDAOs are equipped with a mandate through OpenGov. The mandate dictates the broad strokes of how each subDAO operates. Through the mandates, the responsibility to fulfill the essential function is delegated to the subDAOs.
- Funding Requests: To fulfill the duties, bounties regularly (e.g. quarterly or later yearly) submit funding requests to OpenGov. The funding requests are based on specified projects they want to run in the period. SubDAOs submit in a defined time window, e.g. minimum of 6 weeks in advance of the start of the period.
- Inflation is the available Budget: The “available budget” is defined through the amount of inflation for that period.
- Negotiation: Since the funding requests arrive in the same time window, they can be negotiated simultaneously. Either through “social negotiation” on the Forum and other media, and signal voting on OpenGov. Or through using an on-chain mechanism like Optimistic Project Funding.
In summary, subDAOs request funding, and OpenGov negotiates it and distributes it according to its conclusion.
… and how to enforce it
The natural reaction of some is to say that such a procedure is “unenforceable”. This has been disproven in theory and practice. Standards and practices are enforceable if a sufficient number of key stakeholders build a coalition that agrees to adhere to a set of standards and vote accordingly. This is comparable to how modern democracies form coalition agreements, which are loose social contracts that have a good probability of getting executed. We present some theory on how this also works in decentralized environments here. In practice, OpenGov has built executive bodies like the Events Bounty that process almost small event funding requests. This delegation of responsibility enjoys social consensus in Polkadot. It is reasonable to believe that similar things can be achieved on a larger scale.
To enforce a budgeting procedure as suggested above, we need to get a coalition of token holders to agree to enforce these standards through their means, which are nudging/social pressure to comply and disincentives (negative voting) for misbehaving parties as well as positive voting for complying parties. The idea is to establish Legislation through WFCs.
Below is a draft WFC to gather some first feedback. A future version of this draft will be posted on the WFC track to gauge support from token holders. If a sufficient number of tokens show interest in enforcing this behavior, it can be enacted. As explained in BASED Budgeting, this can happen in iterative steps to adapt to the developing shared mental model of stakeholders. Please also consider that the first building block in this direction is laid with [WFC Draft] Bounty Standards.
[WFC Draft]
Latest version here
Delegation of Responsibility
- SubDAOs that follow the following criteria shall be delegated responsibility to be the first responder to process proposals
- Follow the Bounty Compliance Standards AND
- Have a mandate defined through (which tracks?)
- Anyone who wants to submit a funding request that falls under the responsibility of a subDAO first has to do so through the subDAO.
- If anyone posts on the general voting tracks first, they shall be blanket NAYed
- If a subDAO rejects a proposal, the proposer can ask for a written explanation. After the proposal is rejected or after x time the proposer may propose to the general voting tracks
- within 3 weeks / or whatever is defined in the subDAO mandate?
Budgeting
- Definitions
- Available Budget: The amount of the Treasury income in a period
- Strategic Reserve: The free cash in the Treasury
- 10% of the budget is intended to not be used and to go to the strategic reserve
- An additional 10% is allocated as the free balance for unforeseen/unplanned requests
- x% go into OPF
- A budget shall be created quarterly and be composed of the individual bounty budget requests that have been submitted in time.
- Tapping into the strategic reserve requires a WFC/Treasurer vote.
- (A max of 25% of the strategic reserve per year shall be consumed if the track vote does not have more total votes/AYEs than this WFC)
Suggested WFC process
- Post a draft to the forum first
- Wait at least two weeks before posting to WFC
- Incorporate feedback or give reasoning as to why not
- Priority of WFCs
- The one with the higher votes wins;
- With a fall-off over time
