KIP-44: Create Incubator DAO

[j_z]

Updates: Revised on 3/29 (see comment), on 3/30 (see comment), and on 4/4 (see comment), and on 4/5 (see comment).

kip: 44
title: create incubator dao
category: other
author: @j_z 
status: final (adopted)
created: 2022-03-21
revised: 2022-03-29, 2022-03-30, 2023-04-04
replaces: KIP-0, KIP-1
dependencies: N/A

Proposal

Fund an Incubator DAO to govern a large asset pool and explore new concepts for the ROOK token.

References

[1] 0xDAO
[2] Index Coop
[3] Index Coop Market Cap
[4] Crunchbase

Background

Summary

This proposal funds an Incubator DAO to govern a large asset pool and explore new concepts for the ROOK token. Volunteers who self-identify and are elected from the community will become the multisig signers and sophons for the new DAO. The Incubator DAO will be independent, and its name, mission, strategy, rules and so on, will be decided entirely by ROOK tokenholders. At this point it is envisioned that the Incubator DAO will use the ROOK token for governance only.

Analysis and Rationale

The Rook DAO is designed around building software for large, risk-averse users and customers over a long period of time. Its conservative governance model is tailored for this specific mission, and generally prevents it from prioritising tokenholder-centric policies on treasury management or tokenomics in the current regulatory climate.

In the current Rook DAO, tokens are votes rather than shares, meaning that the treasury value is unrelated to the token value. Various initiatives like emissions, governance, staking, and utility, have all apparently failed to increase interest in the token over the last two years. Some tokenholders with new ideas for where to take the token are apparently discouraged when these ideas do not align with the specific mission or requirements of the current DAO, and are rejected.

Rather than continue to see tokenholder ideas rejected due to a lack of alignment, this proposal acknowledges the potential mismatch, and seeks to empower those tokenholders instead, by funding a separately-governed “Incubator DAO” with a large asset pool consisting of USDC resulting from swapping various ERC20 tokens (see Specification), plus 162,780 ROOK, and 10 ETH (for gas).

With these assets, the Incubator DAO will be better capitalised than well-known projects like 0x DAO ($4.1M at launch [1]), Index Coop (52.5% of tokens allocated to the community treasury [2], or $6.3M as of April 4, 2023 [3]), or a typical series A startup [4]. It will have a yet-to-be-defined mission or objective, unencumbered by the mission, expenses, and requirements of the current DAO. The Incubator DAO will be free to define its own mission, experiences, products, brand and marketing, and collectively manage liquidity, asset strategy, tokenomics, and governance in ways that totally align with tokenholder interests.

When the Incubator DAO is funded, the current DAO will lose its link to the ROOK token, and its governance will change to a system driven by its multisig signers, who will use a simplified voting system that maintains effective controls over assets in the Treasury and Strategic Reserve. This change will allow the multisig signers to efficiently sort through the legal challenges related to the Strategic Reserve wallet before carrying the project forward.

DAOs are flexible organisations that are uniquely suited to the ever-changing environment of DeFi. While they may not always be the fastest at making decisions, they are adaptive and highly durable. As participants in one of the oldest successful DAOs in the industry, we want to see tokenholders protected and empowered on their own terms.

Implementation

To receive funding, the Incubator DAO must inherit the governance of the current DAO as its initial framework. It must elect at least 4 multisig signers and 4 sophons. At least 2 sophons should not be multisig signers. No signer or sophon may be a contributor of the current DAO. Nominations for signers and sophons must be by open solicitation, and people must be allowed to self-nominate. There must be a public vote to elect signers and sophons from among the nominated candidates. A multisig wallet must be created to serve as the treasury for the Incubator DAO. Elected signers must be added to the multisig, and any non-elected signers must be removed.

On ratification of this proposal, numerous ERC20 tokens will be swapped for USDC (see Specification). Once the swaps are complete, and the above criteria are met, the USDC output of the swaps, plus 162,780 ROOK, plus 10 ETH (for gas) will be transferred to the Incubator DAO multisig.

The current DAO will at that point become governed by its multisig signers.

Execution

See the “Specification” section for execution details.

Monitoring and Reporting

The Treasury Team will prepare assets and monitor their transfer to the Incubator DAO. An update will be posted when asset transfer is completed.

Specification

On ratification of this proposal:

1. Swap the following for USDC:

   6,692,498.00 DAI

   3,557,859.80 USDC

   234,719.88 kDAI (LP token)

   616,487.33 kUSDC (LP token)

   2700.49 ETH

   622.34 WETH

   1,437.45 sETH2

   1,212.23 rETH

   37.70 rETH2

   955.77 stETH

   23.15 WBTC

   3,038.98 ALCX

   100.17 cvxFXS

2. Verify that the Incubator DAO has created a multisig wallet and elected a set of at least 4 multisig signers and 4 sophons.

3. Transfer the USDC from (1), 162,780 ROOK, and 10 ETH, from the current DAO treasury to the multisig wallet in (2).

[x50]

I’d def be in favour of this, giving direct ownership over a new token-based DAO to tokenholders seems like a win-win

[Wismerhill]

This is an egregious attempt by the current management team to cut ROOK token holders from the governance process and secure their claim on the ~$44M ROOK treasury. Creating an empty shell funded with $10M governed by ROOK token holders doesn’t solve the disgusting lack of accountability of the current team in regard to the management of the current treasury.

By implementing governance by a committee controlled by the current contributor squad (as a reminder, 22 people with an average yearly compensation of $300k), the management team (current contributors) made sure there was no possibility for the ROOK token holders to directly govern the project.

This sounds like a final attempt to get rid of any form of governance from the ROOK token holders. I would be in favor of this proposal if 100% of the current ROOK treasury was transferred to this new Incubator DAO.

[starfire]

this is, in my opinion, the worst possible outcome for governance participants, early supporters, and token holders. I would like to respectfully ask JZ & Hazard to reconsider all options. A DAO meeting this week seems appropriate.

[tedward]

If i acquired 51% of the tokens and posted a proposal to spin out an incubator for all of you and leave the money and technology to just me it would be immediately shot down and decried as a governance attack. I’d probably also get banned for trying something so unethical. Everyone associated with this proposal should get the same treatment as this is the same thing.

Obvious at this point a divorce is necessary as assumptions of good intent are gone. It should be done with every holder and every token treated equally.

[Stile]

While I think I know the answers for most of these, for clarification:

1. Could we have more info on the rationale behind this? Is it just to dissociate the current DAO from those that would like to liquidate the treasury and the potential legal risks that would involve? What would those legal risks be and what criteria are most concerning? Are there specific comps that are particularly concerning?
2. If this were to pass, would there be any way for community members to still somehow legally maintain a connection to the project? On a related note to such community members - what would you want if no form of revenue/treasury sharing could ever be involved?
3. Are there potential legal issues with the token as is?
4. Is there a particular reason for the timing?
5. If this were to fail, do you plan on making an immediate attempt at another type of proposal or would you allow some time to pass to re-evaluate the situation?

[j_z]

@starfire

I would like to respectfully ask JZ & Hazard to reconsider all options. A DAO meeting this week seems appropriate.

Happy to discuss civilly and consider options. It’s worth noting that legal ramifications of any idea is of the utmost importance to avoid putting anyone in legal jeopardy.

[rhizobtc]

Would the current DAO remain branded as Rook?

I could see how the incubator DAO could become the “marketing arm” with no official connections obviously. This would potentially skirt legal liability from the protocol. Also, it would be an interesting mission for the new community.

Who would retain the management of Discord and Twitter/public coms?

[j_z]

We’re preparing some additional clarification regarding the questions and discussion points that have been made, both here on the forums and in discord. Will follow up soon.

[flips]

I was very surprised to see such a proposal, and I think it is a terrible one.

For one, I find it disingenuous that it’s named “Incubator DAO” to “explore new concepts for the ROOK token” while what this really is about is to strip ROOK token governance off of the Rook Finance project (“When the Incubator DAO is created, the current DAO will lose its link to the ROOK token” and “The current DAO will at that point become governed by its multisig signers.”). If that is the intention of this proposal, then at least be explicit about it. As it stands, it looks like you’re trying to buy your way out of accountability and governance by ROOK tokenholders - just before the launch of the new flagship products.

Personally, I do not want the ROOK governance token to be decoupled from the project.

Second, if the idea is to be able to allocate treasury money to community-driven ideas, marketing, or some other development project that would feed into the ROOK Finance ecosystem, such expenses should be able to be approved through regular KIPs or even be at the discretion within the Labs budget or some grants program. I don’t see the the need to spin off a separate Incubator DAO for this.

Finally, the proposal mentions “multisig signers who will […] maintain[s] effective controls over assets in the Treasury and Strategic Reserve”. It should be clarified who are the current multisig owners of both the treasury and Strategic Reserve, specifically clarity around who “owns” (residual ownership in Guard’s terms) the tokens in the Strategic Reserve and whether this would change by adopting this or a similar proposal.

[Cmande3]

this proposal is incredibly sad to read here… I hope we can all meet to discuss this at length at here your clarifications and motivation behind posting this. ROOK token holders have since inception been known to govern treasury - this is essentially going back on this statement. This seems as a attempt to take the treasury for yourself and prevent shareholders from having any decision making over the treasury. If we can make an amendment and change the incubator DAO to an opt in (for every rook token … 50 or so dollars are added to the incubator DAO then i would be more keen here.)

[j_z]

Hello folks,

Over the last week or so, we as a community have been having a variety of discussions in community calls, discord chats, and here on the forum. I’m following up here to bring some of those highlights/questions/answers/ideas to the forums to help with conversation continuity. A lot of these things have been discussed already, but most of them have not yet made their way to the forums.

The Rook team and community feel there is a misalignment between the project’s stated mission and the priorities of ROOK token holders. Change is overdue. This proposal not only proposes a possible solution but also serves the purpose of formally beginning this discussion of how to solve this misalignment problem. The sooner we can have productive conversations the sooner we can come to some consensus about a solution.

I’ll jump right into some great comments/questions/highlights from other discussions, and I’ll also answer some questions that were directly asked here on the forums.

@Sha_har
https://discord.com/channels/732921100702318723/1088203620094320671/1088209218194112522

This proposed solution was not created specifically to combat rfvoors. In fact, this misalignment problem has been discussed internally and in the community for quite a while. The rfvoors event did, however, emphasize the need to get this conversation started sooner rather than later. A healthy solution is long overdue.

I would not go as far as saying that this project cannot continue with the current governance status quo, but the reality is that this project’s productivity and success has been negatively impacted and will continue to be negatively impacted unless we unblock this project’s mission (see this post’s proposal for an example of how to do that). The current token and governance status quo puts our development team at a handicap for securing partnerships and succeeding at our mission in a productive manner. Knowingly operating with a handicap is not ideal. And it’s also not ideal that token holders have their (good) ideas & proposals rejected due to lack of alignment with our project’s mission. Hence the desire for a solution that’s win-win for both the development team and the token holders.

Hazard provided an excellent example of this in the recent community call, linked below. I highly recommend listening to this if you haven’t already.

https://youtu.be/RBO2ofZALBg?t=1719

A.) MEV is highly competitive. Products and solutions must be fast to market, contain some % of proprietary infrastructure, and must maintain a competitive advantage.

B.) DAOs emphasize transparency, open source, community involvement, and governance proposal procedures.

Having A and B together is extremely difficult. Having B degrades A’s ability to be highly competitive in a market that rewards first movers. And having A degrades B’s ability to have transparency and community involvement. If we were fully transparent about everything we did all the time, we’d be handing out blueprints for what to do on a silver platter for everyone in the industry for free. That is a recipe for failure, especially because other projects aren’t limited (like we are) with restrictions that come with DAO governance and a token. In addition, our customers don’t even want to interact with a token, nor do they want DAOs due to the current regulatory environment.

As a result of all this, there’s tension between the DAO token holders and the Rook development team. My goal with this proposal was to begin the process of finding a solution. There are a lot of smart people here, we can certainly come up with something that works.

Now, let’s follow up on some more questions & comments:

Will Rook DAO remain after the creation of Incubator DAO? If not, what will the new legal entity/structure be?

The new entity will be whatever structure that maximizes the success of the mission & its products. The current DAO will remain governed by its multisig signers.

Why $10M and not half or all of the treasury?

The development team needs runway build industry-leading MEV products and infrastructure. This is the mission we set out to accomplish. If we gave all of the treasury to the Incubator DAO, we wouldn’t have runway to accomplish our project’s mission.

What happens to team ROOK tokens?

They will be treated the same as anyone else’s ROOK tokens, there will be no special treatment.

What do the original founders have to do with the project today? Or with this proposal?

I (JZ) am the only original founder involved in the project. Anyone can submit a proposal, just like I did with this one.

What does the founder lawsuit have to do with this?

Nothing, they are unrelated

Who owns the IP?

I do (JZ), my IP ownership over the technology dates back to early 2017 when I began building it. That’s well over three full years before the ROOK token even came into existence.

@Stile Could we have more info on the rationale behind this? Is it just to dissociate the current DAO from those that would like to liquidate the treasury and the potential legal risks that would involve?

We acknowledge the tension between the team and community. It has been concluded that the source of this is an irreconcilable incompatibility between the competitive necessity to push technology to achieve the mission and the community’s expectation about project transparency, the token, and token holder’s desire to use the treasury for non-mission related purposes.

@Stile If this were to pass, would there be any way for community members to still somehow legally maintain a connection to the project?

We’re open to ideas here. The Incubator DAO itself could come from a proposal to do something, once that DAO is booted up. A community member could also reach out to the Rook development team directly about an opportunity to work for us. After all, many of our full-time contributors were hired from the community anyways.

@Stile Is there a particular reason for the timing?

Many mainstream organizations have become significantly more risk-averse regarding DAO operations. This is true of both potential integration partners and other interested parties. In light of this, it has become increasingly challenging to meet partners’ technology and organizational preferences, which has prompted a conversation regarding the decoupling of the protocol development from the token and DAO.

@Stile If this were to fail, do you plan on making an immediate attempt at another type of proposal or would you allow some time to pass to re-evaluate the situation?

These proposals are where governance begins, not ends, and nuanced and constructive conversations are the only way to move forward with a framework that is befitting for all. This proposal was one possible path forward to address the concerns of token holders, community members, potential integration partners, and the development team. It was intended as a starting point for a larger conversation, rather than being put forward as a suggestion for a final outcome. We intend to maintain dialogue with the community to find the most suitable resolution regardless of the outcome of this proposal.

@rhizobtc Who would retain the management of Discord and Twitter/public coms?

The autonomous Incubator DAO would be free to set its own direction on brand, marketing and communications. Current comms channels might be repurposed for the new entity, but that will be addressed in more detail down the line.

@flips It should be clarified who are the current multisig owners of both the treasury and Strategic Reserve

The current group of multisig signers will remain for the current Treasury and Strategic Reserve multisigs.

Why can’t Treasury funding be allocated to community-driven ideas, marketing, or some other development project that would feed into the ROOK Finance ecosystem using the existing governance model

This is the misalignment between the project’s mission and the priorities of ROOK tokenholders. It is apparent that the tokenholders want the ability to pursue new initiatives, revitalize the Community, and increase interest in the ROOK token. With this separation between the development team and the token/governance, that is now possible.

@Wismerhill @Tony239525 Why is the token not a claim on the treasury by default?

The treasury was not accumulated through a token sale. In the governance beigepaper, it was explicitly affirmed that the token confers a single intrinsic right - the right for its holder to transfer it.
https://github.com/rookprotocol/kips/blob/master/gov-beigepaper.pdf

@Wismerhill @Tony239525 How can you talk about legal risk when you’re siphoning $7m a year?

We are investing in our mission. That involves attracting and retaining sought-after engineers, conducting R&D, paying for cloud infrastructure, professional services, etc. Paying engineers to build MEV solutions is what the project is about, but it’s clear that core motivation isn’t shared across the community. And that’s why we proposed the creation of Incubator DAO to clearly separate the differing interests.

Why name it Incubator DAO?

Name it whatever you want. This was a placeholder name.

[dcfgod]

henlo frens

i wanted to just chime in with some points

• i don’t feel there is any real usecase for a new dao apart from rage quit. random holders are not going to take this pile of money and build some product they can market and get revenues for. the product is the mev stuff that’s being built

• based on that position, this new dao should be a rage quit dao only. which means it should be a proportional exit. every rook holder chooses their path (old dao or new dao). going forward old dao will have no voting and team will make dictatorship choices for you. new dao will basically immediately vote to put up a claims contract. the amount of funds new dao is loaded with is the % of the treasury equal to the % of the token supply (less dao owned supply) that chooses new dao.

• although this would work it doesnt really benefit the stayers because they dont get the book value gains of buying back at a fraction of book.

• in every scenario it is far healthier for us to just buyback like we used to with the cvx revenues, and voted to before with 4m from the treasury. those that want out could sell at a fair price, toxicity is removed from discord, book value rises for everyone that stays, and we all still get to see products ship and this mev stuff go live.

• to me there is some psyops going on here that i am afraid of. I do not want to see a world where the team uses this as a trick to get every rook holder out of their hair and then goes on to build some great business for themselves funded by our treasury. only for that new great business to have no benefit to the rook tokens or those that wanted to stay for the flashbots flippening.

• as a rook holder my worst case outcome should be the treasury value per rook and my best case outcome should be multiples of it. in no scenario should my outcome be a fraction.

EDIT ADDING SOME MORE POINTS

• another psyops I worry about is the team double dipping. Imagine a world where this transition to a new dao is not proportional (as they want it). Then the team would take all their rook tokens, claim their piece of the treasury that transitions, leave with that, and then also get all the IP rook holders funded and the revenues from it, and the funds they kept, only to not share anything with rook holders since the token is now worthless and only a burn for some small portion of assets. i hope this is not the intent but i just want to make sure its not the case.

ty
god

[Tony239525]

Thanks J-z for the effort. I think we all agree on the symptoms (both for the dev team as well as for the token holders) but I do not agree with your solution, which for me looks like a way to eliminate the ROOK holders from the picture while siphoning the treasury. Sounds like dev team and ROOK token holders got married 2 years ago, and now dev team wants to divorce, keep the kids, the assets, and ask the ROOK holders to say “thank you”

I tend to agree with DCFgod about the solution of a simple buy-back during a certain window, which would be (i) much more elegant and easier to implement (ii) would be a win-win as long as you believe is not a useless piece of sheet and you buy below treasury value (iii) eliminate the toxic relationship

[easyhoon]

“The treasury was not accumulated through a token sale. In the governance beigepaper, it was explicitly affirmed that the token confers a single intrinsic right - the right for its holder to transfer it.
kips/gov-beigepaper.pdf at master · rookprotocol/kips · GitHub”

But it was accumulated through emissions of ROOK rewards during the bull market when token was worth much more. ROOK token holders were indirectly paying for treasury assets since most emission farmers instantly dumped their tokens. I think you coming out with this proposal of taking away the tech & majority of treasury and putting ROOK tokens in charge of some meaningless DAO (you know that ROOK token is going to at least -50% in event of this proposal going through, and you even threw in what would be near worthless/illiquid rook tokens to sweeten the deal lmao) is a giant slap in the face to any ROOK holder. Basically, you used ROOK tokens to amass a huge $40m treasury and now when you don’t need the token anymore for emissions, you want to ditch every holder that was the buy side on ROOK tokens when you were emitting them aggressively to fund treasury with non-native assets. You’re gonna tell me that holders got inflated to death with emissions, funded the project indirectly and now you wanna take away any possible upside of the tech/war chest that was accumulated. Honestly, this is a disgraceful and borderline rude proposal which insults intelligence of holders, you will have no support from any ROOK holder that is classified as a sane person. From discord discussions, I conclude that you typed this up yourself and other members/sophons don’t necessarily share the same opinion, which I’m glad to hear. This proposal even reaching the voting phase would be a giant stain on the entirety of project.

TL;DR of this proposal is, let’s give current token holders $7M (which is less than 50% of current market cap) from $40M we own, take away governance rights on the project/tech that we’ve been building for years, so they can scram and we can keep rest of the money and the upside, while they basically funded our operation by buying inflationary tokens

JZ you can wrap a turd in the best piece of wrapping paper, but at the end of the day, it’s still a turd, and nobody wants a turd.

I certainly hope you can realize your mistake and turn to a more positive future where the project/treasury stay governed by ROOK holders and thrive together. Through thick and thin.

[j_z]

Hi folks,

After a week of community discussions focused on finding a compromise, should out to @tedward, @Wismerhill, @Sha_har, and others. I’ve updated the proposal to significantly increase the amount of value being transferred to the Incubator DAO. And to also swap that value to USDC prior to transfer so that the value in Incubator DAO remains stable.

Discussions are happening in Discord, on the forums, and on governance-related community calls. I encourage folks to continue to participate in a respectful and professional manner.

[Wismerhill]

Thank you @j_z for the latest update after this week of intense discussions. There has been a lot of progress already made, and more to come.

I’d like to add another point to the proposal that I think should appear: current DAO contributors should not have the right to candidate as sophons and signers for Incubator DAO, as they will remain DAO contributors of ROOK DAO, and aren’t willing to part ways with ROOK DAO.

I also take the opportunity to bring attention to the first KIP proposal for Incubator DAO: KIPX Draft: Implement the rage quit process at Incubator DAO. This is not the place to comment on this proposal, but I want to make sure everyone notices the new section of the forum dedicated to proposals for Incubator DAO.

[hazard]

I’d like to add another point to the proposal that I think should appear: current DAO contributors should not have the right to candidate as sophons and signers for Incubator DAO, as they will remain DAO contributors of ROOK DAO, and aren’t willing to part ways with ROOK DAO.

This is a good point @Wismerhill; proposal has now been updated to prevent current DAO contributors standing for election to any of the above positions in Incubator DAO.

Relevant paragraph:

At launch, the Incubator DAO will inherit the governance of the current DAO. It will require at least 4 multisig signers and 4 sophons. At least 2 sophons should not be multisig signers. No signer or sophon may be a contributor of the current DAO.

[JasonW]

UPDATE: This proposal was edited on 4/4 to clarify the scope of the current DAO’s engagement with the proposed Incubator DAO.

We will discuss this at today’s Governance Workshop at 3PM ET in the DAO Calls channel on Rook’s public Discord here: Rook

[j_z]

Consolidated some of the ETH entries into one, totaling 2700.49 ETH