JIP-17: Activate a Cryptoeconomics subDAO (The CSD)

JIP - Drafts
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JIP-17: Activate a Cryptoeconomics subDAO (The CSD)

Category: Treasury

Abstract

This proposal outlines an approach to realising a number of desired outcomes that have surfaced through the open discussions on the forum in response to the Jito Tokenomics Research Paper as well as during the Jito Tokenomics Roundtables (Part One, Part Two). It is clear that value accrual in the Jito token economy is complex and requires both technical and strategic decision making and coherent action to achieve maximum optimisation.

JIP-17 proposes to fund a Cryptoeconomics subDAO (the CSD), which will be controlled and governed by third party experts in the field with the mandate to activate a multi-threaded work stream and funded by a sub-treasury, authorized by this JIP. The subDAO will aim to transition the DAO towards a “multi-mechanism” approach to governing its token economy and connecting the economic bandwidth captured by the DAO to the JTO token.

Motivation

Jito DAO generates significant REV (Real Economic Value), with recent data indicating that the DAO is set to accrue roughly $30m in JitoSOL on an annual basis. However, the DAO in its current state does not have the ability to activate this capital in a meaningful way that will both advance the growth of the Jito Network and ensure that JTO accrues value optimally, including, but not limited to three tokenomic functions: buybacks, yield subsidy, and fee switch vaults.

The Cryptoeconomics subDAO, will have the mandate and a treasury to activate these goals, through the coordination of expertise, the formulation of a data-informed strategy and the creation of technological mechanisms. It seeks a broad mandate to facilitate the exploration and execution of a range of possible mechanisms and approaches, and to test them out in the market by using DAO funds. Once effective cryptoeconomic primitives have been discovered, it will aim to enshrine the control of them into the core on-chain DAO governance mechanism via existing, or novel, governance tooling.

The motivation for JIP-17 should be considered of reasonable urgency. Although sitting predominantly in JitoSOL (and therefore implicitly value accretive), un-activated Jito DAO REV that could be used for value accrual and network growth bears considerable opportunity cost. The lack of mechanisms and coherent strategic approaches for activating this capital represents inefficiencies in the Jito ‘economic engine’ and capital activation approaches should be spun up as quickly as possible.

Specification

JIP-17 seeks a mandate to assign full autonomous spend authority of the following amounts from the Realms treasury to a subDAO structure, with the encouragement to spend the amounts over a period of 12-months. The amounts are:

  • $7.5m in JitoSOL (for building and buy backs)
  • 5m JTO (for incentive engineering and market incentives)

The composition of the subDAO will be as follows:

  • A set of decision makers, who will sit on a 4/6 multi-sig and have ultimate decision making authority on spend and transaction type. The m-of-n quorum will be used to settle consensus decisions in monthly synchronous decision making sessions.

  • A set of experts, including researchers, mechanism designers, technologists and token economists, who will build and inform the core knowledge base of the subDAO. This group will be pro-actively curated and iterated throughout the subDAO term.

  • A set of builders who will complete the work and ship the code.

  • A lead facilitator, who will support all parties as much as required and facilitate coordination towards aims, outcomes and target metrics.

  • The subDAO should be considered autonomous, and thus self-governing and so will have the ability to build novel incentive structures and governance mechanisms that will influence future Jito DAO structures of a similar nature in the future.

  • The subDAO will operate under a ‘conclave’-like decision making system, with monthly synchronization events where decisions are presented, discussed and executed, with no exit until consensus is reached. No information will be revealed to the market, or externally to the decision makers until transactions are executed.

The Members of the subDAO will be:

  1. Decision Maker 1: Nick Almond (Facilitator) - Head of Governance, Jito Foundation
  2. Decision Maker 2: Paul Dylan-Ennis - University College Dublin
  3. Decision Maker 3: Wassim Alsindi - 0xSalon, MIT Cryptoeconomic Systems
  4. Decision Maker 4: Kollan House - Co-Founder MetaDAO
  5. Decision Maker 5: Othman Gbadamassi - Chainflow
  6. Decision Maker 6: Ian Unsworth - Kairos Research

Aims, Outcomes and Target Metrics

Aims:

Over the next 12 months the Cryptoeconomics subDAO will aim to:

  • Design and architect a range of Jito token economy focussed mechanisms that will drive growth of the Jito Network and value accrual into the JTO token.

  • Commission and oversee the build of these mechanisms ensuring the highest possible quality, security and market impact on a rapid delivery schedule.

  • Generate an expert consensus on the optimal approach for Jito’s cryptoeconomics and put this theory into practice in the form of actionable mechanisms and market strategy.

Outcomes

In order to be considered a success the Cryptoeconomics subDAO will need to achieve the following:

The delivery of at least 2 (ideally more) divergent approaches to Jito token economy governance and value accrual, these should draw from the following:

  • An approach to ‘smart buy backs’
  • JTO or JitoSOL auction mechanisms
  • Mechanisms or approaches for enhancing JTO and / or JitoSOL liquidity
  • A DAO-to-DAO approach that enhances the network effects of JTO and / or JitoSOL
  • A Jito economy data and analytics system / oracle design
  • A JitoSOL / JTO yield augmentation mechanism
  • A fee switch vault mechanism

Metrics

Optimisation Metrics:

  • JTO as a percentage of the SOL market cap.
  • JitoSOL and JTO trading depth in AMMs, up to sensible thresholds.
  • New JTO and JitoSOL markets, including pools, venues and integrations.
  • Execution speed.
  • Minimal build spend, with a maximum of 20% of JitoSOL allocated to build.

The subDAO will be judged on these metrics by the end of its 12 month term, implying that these mechanisms should be put into active practice ASAP. The subDAO is empowered to execute with speed and agility and will execute any mechanisms and systems it generates throughout its term in order to test their efficacy, with a goal of DAO level integration by the end of its term.

Finally, the subDAO will be expected to return accumulated and/or unspent assets to the core Jito DAO at the end of the 12 month period.

Reporting

The subDAO will be left to its own devices to work and ship the desired outcomes, but will be expected to publish a full and comprehensive report to the DAO each quarter to show its progress and reveal receipts of its spending.

Every substantial decision is reported back to the DAO forum, a decision being transactions signed.

The subDAOs main requirements to the DAO are to ship positive and material outcomes in the economy.

Risks

  • The subDAO is ineffective, or incompetent and money is misspent or wasted.

    • Jito DAO is transitioning spend authority to this group. Since there is no trustless mechanism available for guaranteed return of assets to the DAO, the Jito DAO should consider these assets potentially marked to zero, with no chance of being returned directly to the main treasury. The DAO should consider the JIP-17 transaction as going “on-risk” with the subDAO and consider JIP-17 a bet on the ability of the initial participants to deliver on the aims and outcomes outlined in this proposal.

  • The multi-sig signers collude and defect with the treasury.

    • It is possible, however at least 4 of the signing set would need to successfully collude with a pay off profile of 1/4 of the subDAO treasury. It is likely that the permanent reputational damage to the participants would be enough to hold this trust model together. However, a simple whistleblowing and bounty system will be formulated to lower the probability of defection amongst the singing set.

  • The subDAO overspends on experts and / or contributors.

    • Given the urgency of the issue, this is a more desirable state than inaction. Inertia is more costly than overspend. However, any egregious spending habits will become evident as the subDAO produces its receipts at quarterly reporting thresholds (at a minimum). The subDAO will still be in sovereign control of the funds, but the DAO will be able to persuade them to change direction at the social layer.

  • The subDAO creates sell pressure on JTO.

    • JTO will not be sold to fund subDAO building activities, but will be activated to have materially positive effects on the token economy, which can include performance-based long term incentive alignment with key stakeholders. Jito DAO generates REV in the form of JitoSOL, it is these assets that will be utilised for funding TSD activities.

  • subDAO members disengage, fail to make decisions, or self-deal.

    • subDAO members will be incentivized to make optimal decisions. A maximum of one foundation member will act as a minority decision maker and facilitator and will recuse themselves from any incentives or payment to act in a decision making capacity. Decision makers are explicitly separate from experts and builders and will not pay themselves to do anything other than make decisions.

The composition of the group is of paramount importance, since they will have full execution authority over the treasury and the subDAOs action. A diverse set of members are invited to present themselves on the forum whilst JIP-17 is in draft phase and suitable members will be vetted and added. Once the full decision maker composition is achieved, a request for formal escalation to official status will be made and the two week countdown to vote execution will take place as per standard Jito constitution norms.

Jito DAO members are invited to rigorously evaluate the proposal in the draft cycle and leave their comments on the forum; escalation to official status can be requested at any time. The creator of the proposal has authorial sovereignty on the proposal and thus final editing rights. Forks of JIP-17 can be made in the drafts section if desired.

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I’ve tuned into the latest discussions (forum, plus wave 1 and 2 of the tokenomics calls) and have read the updated “JTO Utility And Tokenomics” word document. How exactly will this operate “subDAO members will be incentivized to make optimal decisions”? Is the minority decision maker and facilitator part of Jito Foundation (to accept not being paid/incentivized)? On this capacity, it might be worth extracting learnings from Pyth DAO governance model to help optimize this one. Overall, this is a very sound and balanced proposal.

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Thanks Dan. That’s right, there will be no incentives for any internal members for any DAO practice as a matter of standard practice.

The exact nature of the incentives for the decision makers will be determined once we convene them the first time. We’ll discuss this with them once we’ve found them. For some, it may be the case that they don’t need or want them, due to obligations from their other work. For some, it will be what is required for their time to synchronise on a monthly basis. Not fixed yet, but the paradigm will be that it is kept to a minimum, but respect the value of their time.

Do share any relevant references here if you have any that are worth reviewing.

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Thanks for the proposal, @drnick. After a set of discussions on the forum based on the research and the Roundtables, we believe it’s time to take actions to implement changes that were discussed. A structure with a full autonomy of the allocated amounts and a set of diverse and capable members seems a great way to execute what’s to be done to unlock its value for the network and token holders. We also appreciate the promise of publishing the comprehensive report to the DAO each quarter and every substantial decision as it’s signed.

We have a couple of comments and questions:

This requires serious commitments from the members. We appreciate them.

It could be part of what it provides as the initial reporting, but the measurable values for those optimization metrics would be great to be shared so that the DAO can monitor them during the subDAO’s operation period.

What kind of system do you consider for the DAO to “persuade them to change direction”?

Thanks for kicking off the activation of the important initiative!

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Thank you for your thoughtful comments @Tane.

Yes, intentionally so. I want to build commitments around synchronisation. We meet once a around an multi-sig, discuss and execute. Each makes and independent decision, by signing or not signing. It’s an off-chain norm that we will follow, but does require a commitment. I would estimate it at a 3 hourly monthly ask. The biggest challenge will be synchronising at a shared time, which is why it’s a serious commitment. We should definitely appreciate them if they achieve the very ambitious goals of the proposal.

I think we should formalise them very concretely, what I don’t want us to do is get bogged down in over formalising benchmarks. There is a public governance specification trap that I am intentionally trying to avoid. But I am happy to take the guidance of delegates and beyond on what a sensible starting point is. We can edit this proposal until we elevate it to official status.

That’s an excellent question. I would love to find a way to broadly engage with token holder input when it comes to the feedback moments. Ideally, everyone is happy with progress and approach and the subDAO can just get on with it. If anything gets contentious I propose we escalate it to wider participation in the DAO. The forum should suffice in the near term.

And thank you! I know it takes time to seriously consider proposals like this and I appreciate your input.

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Requesting to elevate to official status.

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Gauntlet supports this proposal. We believe delegating authority to a subDAO to work with experts to design the proposed mechanics and oversee these mechanics makes sense. That said, we likely would not have prescribed budgets for specific uses (such as buy-backs and incentives) as that adds unnecessary restrictions to what could hamper the system’s design that experts come up with.

However, we think it makes sense for the DAO to be able to re-vote and amend this initial ballpark budget once a system is proposed.

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