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SIP Title Author Status Track Created
0015
Sovryn Treasury Management
Edan Yago (@YagoBit)
Approved
Treasury
2021-03-22

SIP-0015: Sovryn Treasury Management

Uses of Sovryn Treasury

The Sovryn treasury (which includes BTC raised, the development fund, the ecosystem fund, and the adoption fund) is of critical importance for the success of the Sovryn project. It is most important now, in the bootstrapping phase of system development. Funds use may include, but is not limited to:

  • Provision of liquidity in the system
  • Provision of rewards for liquidity (liquidity mining)
  • Adoption and promotion of the protocol, including referral rewards, advertising and other marketing initiatives
  • Grants, bounties, partnerships and ecosystem development
  • Core team ongoing compensation

Each of these needs can change rapidly from day-to-day and effective deployment of funds requires that highly informed decision makers can make decisions rapidly. These types of decisions can not be made effectively by Bitocracy. If each decision must be voted on, there may easily need to be several votes per day, which is simply not practical. If we wish to make effective use of the protocol treasury, we need an alternative - in the long term and most certainly in the short term. We propose a Treasury Committee - hereafter referred to as the Exchequer in honor of the Bitcoin genesis block quote.

Exchequer Committee

Under this proposal, a seven-member (chancellors) Exchequer Committee is formed. The Exchequer Committee will work on the following:

  • Propose Exchequer budget to discuss and vote on
  • Define liquidity requirements based on budget
  • Decide asset allocation policy and review this policy allocation every month
  • Define policy for liquidity mining, token buybacks, salaries and vesting schedule of core contributors
  • Publish monthly / quarterly financial statements
  • Publish monthly / quarterly reports on how Exchequer is spent

We envision that in the near future the Exchequer Committee may transition from multisig governance to a formal trust/foundation entity subservient to the Bitocracy.

We will need to experiment to figure out the right balance between managerial effectiveness and community control. The primary benefit to having an Exchequer Committee is the ability to make treasury decisions and manage budget on a day-to-day basis. Attempting to manage day-to-day activity via the Bitocracy system would be impractical. A secondary benefit of the Exchequer Committee would be having a dedicated team, who are well informed, able to budget, monitor, audit and execute use of funds.

Initial Scope

Liquidity Provision and Balancing of Prices

The Exchequer Committee is to be given full latitude and discretion to make use of treasury funds within the Sovryn protocol for the purposes of liquidity provision and balancing for the Sovryn protocol. That is to say, the Exchequer Committee may freely move the funds in any way the committee sees fit between smart contracts that are part of Sovryn or multisig addresses approved by Bitocracy.

Further, the Exchequer Committee should have full discretion to transact up to 10% of the treasury funds with external systems for the purpose of arbitrage and balancing of prices within the Sovryn protocol.

Core Contributor Compensation and Operational Expenses

The Exchequer Committee will manage a quarterly budget that will include anticipated budgeting for core team contributors. The top-level amount will be approved by Bitocracy. The Exchequer Committee will have full discretion of distribution of those funds within the bounds of that budget. The committee will provide full transparency on the use of funds to the team level (eg. dev team) but will not provide transparency to the individual level due to privacy concerns. Due to the immediate necessity of availability of the funds outlined in this SIP, it is proposed that the Exchequer Committee have one month to present a 12 month budget for approval, and in the interim period, the Exchequer Committee will have the mandate to utilize up to 10 BTC from the Sovryn treasury for ongoing expenses. A full accounting of these expenses will be presented as part of the overall budget.

Paying contributors and other operational expenses via a multisig is not practical. There are potentially hundreds of transactions required every month. The overhead involved in managing this with multiple signatories cannot be managed. Currently, these payments are being made on behalf of the protocol by a UK Limited company (1A1Z Limited) of which I am a director. I propose that we continue to use this service to the extent possible, until such time as a trust/foundation can be set up (as described below).

SOV Treasury

The Exchequer Committee will have the mandate to allocate certain SOV holding as further described below. A full accounting of these holdings, their source and vesting schedule is detailed in Schedule A to this proposal and is based on the predefined emission schedule of SOV as outlined here.

  1. Adoption Fund
    The Adoption Fund has a predetermined vesting schedule. The SOV that vests will be distributed to the treasury. The Exchequer Committee will have discretion on use of these funds for the first quarter with the condition that any allocation of such funds be subject to the Adoption Fund vesting Schedule as defined in Schedule A, and will be responsible for developing a formalized or programmatic policy for the second quarter.

  2. Ecosystem Fund
    The Ecosystem fund has a total of 250,000 SOV available for distribution, which are not subject to a vesting schedule. The Exchequer Committee will have the mandate to allocate these funds in accordance with the commercial needs of the Sovryn protocol.

  3. Development Fund
    Like the Adoption Fund, the Development Fund has a predetermined vesting schedule. Similar to what has been proposed for the Adoption Fund, the Exchequer Committee will have discretion up to this limit for the first quarter, with the condition that any allocation of such funds be subject to the Adoption Fund vesting Schedule as defined in Schedule A.

SOV for Programmatic Sale

Approximately 2.1M SOV are currently held by the Protocol for programmatic sales. At this point I believe that the Bitocracy, and not the Exchequer Committee, should manage use of these funds.

Operation of the Exchequer Committee

The initial membership of the Exchequer Committee will be comprised of:

Project Founders

  • Ororo Munroe
  • Armando Munoz

Core Team Leadership

  • Slider
  • Stefan

Early Funders and Advisors

  • Max Shapiro
  • Jascha Samadi

Pre-doxxed Participant

  • Edan Yago

I see these as currently the most involved and informed members of the community. I am confident that they will not abuse (to the extent it might prove possible) the limited remit that membership in the Exchequer Committee entrusts them with.

I propose myself, since early on I decided to make my involvement publicly known and have my reputation on the line. I think I am well informed as to the state and needs of the project.

Exchequer Committee meetings should be behind closed doors as they may often need to deal with sensitive information. Committee meetings should be recorded and transcripts released at the end of each quarter. Any information that may remain sensitive, in particular, information that may doxx a participant, should be redacted.

A Legal Trust

This should remain the structure until such time as a legal trust or foundation - legally subservient to the Bitocracy - may be established. It is expected that this may take 2-3 months. At such time, the Exchequer Committee should be reconstituted under the auspices of the trust/foundation.

I will not go into detail here about the benefits of a trust/foundation. Suffice to say that it will allow more transparency and easier interaction with the non-decentralized world. However, this is a question that can be examined in more detail in the future.

Possible Objections

I anticipate that there may be several objections that can be leveled at this proposal. Here I attempt to address these concerns.

Objection: This goes against the idea of users having Sovryn control of funds.
Response: The funds the Committee will manage are not user funds. They do not belong to any person and are the endowment of the protocol itself.

Objection: This structure is not decentralized enough.
Response: Decentralization is not a goal. It is a tool. The purpose of decentralization is to create a censorship resistant protocol. The Committee will have no powers of censorship, except over the treasury itself. This is a worthwhile sacrifice, as having all control require Bitocracy will lead to inadvertent censorship of treasury use, since the Bitcoracy cannot scale to the level of day-to-day involvement required for the projects success.

Objection: This proposal requires a high degree of trust in the Committee.
Response: I think it is easy to overstate the degree of trust required.

  • Funds will be held in Bitocracy approved multi-sigs
  • A high degree of transparency will keep the community informed
  • At all times the committee, its decision and membership remain subservient to Bitocracy and its decisions may be changed or reversed by Bitocracy.

Objection: This proposal does not provide enough checks and balances.
Response: It is hard to say what amount of checks are "enough". What is clear is that more checks mean less dynamism. With that in mind, I suspect that the reality is that there are too many checks and balances. Sovryn has taken a much more radical approach to decentralization than almost any other peer project. We must acknowledge that in the short-term, this places Sovryn at a disadvantage. There is no leadership that can unilaterally make decisions. There is no equivalent to Binance's CZ. This proposal seeks to strike a balance between competitiveness and pure Bitocracy. The best way to learn how to improve this balance is to learn by doing.

Resolved

  • Bitocracy delegates to the Exchequer Committee the authority to direct the use of treasury funds held in all multisig wallets approved by Bitocracy under the following conditions:

    • Up to 10% of the treasury balance may be transferred to external systems as needed for liquidity provision and price balancing.
    • All other transfers can only be made between Sovryn protocol smart contracts and multisig wallets approved by Bitocracy.
    • Bitocracy reserves the right to revoke this authority at any time.

  • An operations budget of 5,639,130.56 SOV shall be available to the Exchequer Committee subject to the vesting outlined in Schedule A, for a period of three months from the date of the approval of the SIP.

  • The Exchequer Committee shall present a 12 month budget to Bitocracy within one month from the passing of this SIP. The Exchequer Committee may expend up to 10 BTC until the budget is approved by Bitocracy.

  • The Exchequer Committee will publish high level monthly and detailed quarterly reports detailing the use of funds.

  • The Exchequer Committee will publish transcripts from its meetings at the end of each quarter. These transcripts may be redacted to protect sensitive information.

Schedule A: SOV Available to the Exchequer Committee

Contract Name Contract Address Vesting Month 1 Month 2 Month 3
Adoption Fund
GovernorVaultAdmin 0x51C754330c6cD04B810014E769Dab0343E31409E No vesting 800,000.00 - -
Exchequer Multisig 0x924f5ad34698Fd20c90Fe5D5A8A0abd3b42dc711 No vesting 30,046.79 - -
AdoptionFund 0x0f31cfd6aAb4d378668Ad74DeFa89d3f4DB26633 10 months 1,240,741.33 1,240,741.33 1,240,741.33
Ecosystem Fund
GovernorVaultAdmin 0x51C754330c6cD04B810014E769Dab0343E31409E No vesting 250,000.00 - -
Development Fund
DevelopmentFund 0x617866cC4a089c3653ddC31a618b078291839AeB 24 months 278,953.26 278,953.26 278,953.26

Changes described to Adoption Fund, Developer Fund and GovernorAdmin Fund will be executed as separate SIPs.

More information about the Sovryn contracts can be found here.