Let's talk about the Steem Proposal System (SPS)
For those who aren't aware, the Steem Proposal System (SPS) also known as the "Steem DAO" was introduced in HF21. In the words of the original announcement, the SPS was intended to:
... allow Steem users to publicly propose work they are willing to do in exchange for pay. Steem users can then vote on these proposals in almost the same way they vote for witnesses It uses stake-weighted votes, but voters can vote for as many proposals as they want.
Similar to an Ethereum DAO, but without the (built in) flexibility of smart contracts, this decentralized funding mechanism enables Steem account holders to get funding for blockchain projects straight from the blockchain.
The SPS has been collecting 10% of blockchain inflation since August, 2019, when HF22 went live. Half a year later, however, the disbursements were entirely ceased as a result of the turmoil that centered around softfork 0.22.2.
Until recently, disbursements remained halted, but one proposal (from @the-goilla) finally managed to get funding a few months ago in order to Modernize [the] steemit.com Interface. In my opinion, this proposal is delivering good results.
As a result of this long stretch of unidirectional flow, the SPS is currently holding about 4 1/2 million SBD. Depending on external market prices, this is a value of anywhere from $4 1/2 million to 2, 3, 4, or more times that value, and it's continuing to receive new funding every single day. That's a lot of value.
Based on history, I don't think it's a stretch to say that the SPS is a sort of a double-edged sword for the community. On one hand, it can provide funding for projects that benefit the blockchain, but on the other hand, before it was locked down we saw a number of recipients who seemed to extract more value from the SPS than they delivered to the community.
So, the question is, how can we make use of all that value in the SPS without having it turn into a new vehicle for exploitation?
Coincidentally, we have a time-tested governance model that we can use as an example for steering decentralized investments. It's known as "the corporation". I already touched on this a couple of years ago, in my article A proposal about proposals,
In the cryptocurrency space, we like to think that we're pioneers in decentralization - and we are. However, decentralization is not entirely new. Corporations have had decentralized structures for centuries. The shareholders own the company, they appoint a board of directors, and the board of directors hires a Chief Executive Officer to manage the day to day affairs and look out for the interests of the shareholders.
Would it be possible to manage the SPS in the same way?
When I wrote that article, the SPS was funded at less than 3 million SBDs. Now, it's 50% more valuable.
So, the question I asked in 2022 is still valid. Can we borrow from the model of the corporation in order to make effective use of the SPS funds while minimizing the risk of exploitation? I imagine something like this:
- As a community, we decide on the desired structure of a "steering committee" or "board of directors" for selecting a fund manager. The committee/board members are paid out of the SPS, and their job is to (i) select a person who will manage the SPS and set a strategy for its use; and (ii) evaluate that person's performance.
- note that these would not (necessarily) be Steem community members. Instead, we would put out a public call for applications; we would look for people with actual relevant experience; and the final committee would be approved by community vote (stake-weighted).
- The Steering committee would select/recommend someone to act as a CEO/fund manager. That person would also be paid salary and budget out of the SPS, and their first job would be to complete the relevant applications for legal/regulatory compliance as a formalized profit/non-profit organization - with the relevant fiduciary duties. If needed, they could even use part of that budget for staffing.
- again, this person does not need to have a prior affiliation with the Steem blockchain - just relevant business experience.
- The CEO/fund manager would set a strategic direction for use of the funds to benefit the blockchain and community, then they would recommend for/against SPS proposals based upon alignment with their strategy.
- As the blockchain inflation rate goes down in future years, this new organization would probably need to establish additional funding sources, which could come from products that are bootstrapped by the SPS funding.
As an example, imagine this structure for the first year:
- The community selects 3 board members at 20K SBDs each;
- The board selects 1 fund manager at 100K SBDs
- The fund manager:
- sets up a legal entity that controls an operating budget of 300K SBDs
- creates a strategy for use of the SPS.
- evaluates community proposals for alignment with the strategy and recommends for or against them
- At any time that the board or fund manager are perceived to deviate from the community's interest, the community can vote to replace or remove them. Any of this might be pre-funded and time controlled through the use of escrow or multikey accounts to protect the board members or fund manager from sudden and arbitrary defunding.
The big weakness that I see with all these plans is that SPS proposals can be defunded at the drop of a hat, but people in roles like "board member" or "CEO" want to have some assurance that they will continue to be paid (unless they are named "Elon Musk" 😉). To mitigate this, perhaps(????) we could make use of the blockchain's "escrow" and/or multikey capabilities to lock away quarterly or annual funding in advance - but I don't really know much about that, so this would need to be explored.
Another weakness that I see is that there is no way to guarantee that the CEO's recommendations get followed. I guess it would be up to the community to vote to replace the CEO and/or board if they were consistently making recommendations that the community didn't back. After all, part of a CEO's job is negotiating with stakeholders. There may also be potential to mitigate this risk with multikey accounts and/or escrow operations, but we'd have to work that out, too.
Question for another day: How much STEEM would someone have to buy in order to gain a controlling interest in the SPS fund? At today's prices, 50 million STEEM could conceivably be purchased for about 2x the nominal value of the SPS (OTC). That's enough STEEM to outvote either of the existing return proposals.(For reasons of controlling the SPS fund alone, a large STEEM purchase almost seems a worthwhile expense for a well-funded person or organization. Add to this the capability to direct other blockchain rewards and the ability to shape the information content on the social media platform...) |
It occurs to me that every day that the SPS grows in value makes it more and more likely that someone will be interested in gaining control of it. So, if the community wants to retain our say in how the SPS is directed, the sooner we come up with a long-term strategy, the better. Without community action, control of this fund becomes an increasingly attractive target for a potential investor (or group of investors) who might put the ecosystem's interest behind their own ability to extract revenue from the SPS.
What do you think? Can a corporate (or non-profit) governance model be applied to the SPS in order to make strategic use of this source of funding for the benefit of the blockchain and the surrounding community?
Thank you for your time and attention.
As a general rule, I up-vote comments that demonstrate "proof of reading".
Steve Palmer is an IT professional with three decades of professional experience in data communications and information systems. He holds a bachelor's degree in mathematics, a master's degree in computer science, and a master's degree in information systems and technology management. He has been awarded 3 US patents.
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One of the caveats with these funds - which is often overlooked - is the fact that since they are being offered as pay for development, there is a high likelihood that one result is a constant downward price pressure on the Steem token as developers/beneficiaries will be looking to sell the tokens they get paid.
That might not have been an issue when Steem was a top-50 coin, but now that we're hanging around at no. 400 and lower it could become problematic.
One of the potentials for abuse of the SPS is the possibility of it becoming a circle-jerk for the biggest stakeholders... which could possibly be circumvented by enacting some form of weighted voting, or capping support votes at 50K SP or something like that, meaning a larger number of community members would have to approve a project for it to fund. Otherwise you end up with a system where a single account (like UPVU, for example) has the power to decide what gets approved and what doesn't.
Would the corporate model work? I honestly don't know...
Well, it could be that some downward pressure is needed on the price of SBDs. I like getting overpriced SBDs in author rewards as much as anyone, but I'd really rather see them pegged near $1.
But you're right that there's a risk there. I would expect the fund manager's strategy to include controlling the release rate.
In the end, I see three possible paths (though we can change direction again at any time):
I agree with this:
Sooner or later, I think this is a very likely result if we don't come up with some governance model that imposes a fiduciary duty on the recipients of the funding. And as the fund continues to grow in value, it becomes increasingly attractive to someone who is prone to misuse it.
Yeah, I guess there's no way to know without trying it.
Thank you @event-horizon!
I think the question you raised is vital for the future of Steem. Currently Steem DAO is something like a suitcase without a handle. Potentially, this is a ticket to continuous improvement and success, but we do not know how to use it. Instead of funding good and necessary projects, Steem DAO becomes a threat. Having temporarily blocked access to these funds, everyone calmed down. But this is not a solution to the problem, but its freezing. This is something like a frozen conflict in geopolitics. The absolute majority believes that this is the best solution, because people do not die. But this is a time bomb, which, when it explodes, takes ten times more lives.
I used to believe that Steem DAO was the panacea for blockchain prosperity. But after seeing how money was spent on projects of questionable value at Hive, I changed my mind.
Who has sufficient competence to determine that the project has sufficient potential to be funded? Decentralization is good, but public opinion is easy to manipulate. Let's imagine that a certain project is under consideration. Suddenly, @remlaps says he sees potential risks in it, but SC01 assures that everything is fine. Who will most people listen to?
The management system of Steem is an oligarchy. The richer you are, the more important your vote is. There is nothing to prevent some influential user from using the Steem DAO for their own purposes.
The management model you propose has the same flaws as in real life in large corporations. If in the USA, the process of appointing top management is probably more transparent and its activities can be somehow controlled, then in countries like Ukraine, top management is a superior race that uses resources as it pleases.
The issue with Steem DAO needs to be resolved. It seems to me that everyone in Steem is used to postponing questions for later, maybe someday it will be resolved by itself. Money that does not work has no value. Perhaps the solution to this issue can be in the financial plane. As long as there are no projects that the community wants to fund, these funds can be made to work without spending them. The Steem DAO could be something like the central bank of Steem, performing the function of smoothing out sharp price spikes. Perhaps it would be possible to develop some mechanism so that at the expense of Steem DAO resources you can get significant delegations for your projects or something like that. There are many options.
After all, it is possible to burn some of the funds to reduce the potential attractiveness of the Steem DAO for abuse.
When this DAO functionality was added it would have been better if some new "special" addresses like @null were added to the chain so funds could be directed to perform a variety of high level actions, such as sending them to the reward pool, auto-buying Steem off the internal market, etc. Some of those could be approximated by bots but you'd have to trust the account managing the bot.
Personally I think the system wasn't well-designed, and suffers from some of the same governance issues as the chain as a whole. To be generous, the main driver of the original design had been the top witness and may not have realized that the witness-voting had issues that were repeated with the SPS. To be cynical, he may have fully expected to have him and his friends extravagantly bankrolled with the veneer of "community" over top of it. I think the all-or-nothing stake-weighted voting in an environment where there are huge disparities in stake size makes this system function poorly (I previously floated the idea that big stakeholders could use bots to control their voting behavior to implement other approaches as a workaround). Regardless, the typical person is probably not great at figuring out what is or isn't a good project to fund, so I'm not confident it would be a good system even without the issues.
Personally I think the idea of boards, CEOs, etc., is kind of over-complicated. An alternative that might make more sense in the nearer term would be to have some proposals that pay a big chunk of SBDs to a handful of trusted community members who could then use those funds as grants for worthwhile projects. That way people who aspire to have projects funded wouldn't have to agonize over whether they could get an amorphous "the community" on board but could just appeal to some of those designated angels.
Philosophically, it might also be worth considering whether the "development" people value happening on other chains might be a soft equivalent to the "proof of work" system: people are confident enough in the value of chain X that they are willing to put real developer person-hours into it. Does "funded" development have the same effect? (It would probably be good in the sense of SBDs being used to pay for goods and services, but that's maybe a different way than people think about the benefits of people developing things for the chain).
They could even put funds into multisig accounts, which could then be directed by two or three trusted people. Give proposals to multisig accounts that are controlled by teams of people, and then let them compete to deliver useful projects?
This is an interesting point. A way to harness this effect might be to pay proposals retroactively, after the deliverable has already been created. For example, @rexthetech could have submitted a proposal to be reimbursed for his multisig tool after he completed it.
Yeah, I think there's something to this. IIRC, this paper argued that there should be somewhere around 4 witness votes per account (VPA) on a DPOS chain with 17 consensus nodes in order to prevent centralized takeover. So, I guess maybe a similar dynamic is in play with the SPS. The ability to vote on an unlimited number of proposals might give too much of an advantage to large accounts.
Upvoted. Thank You for sending some of your rewards to @null. It will make Steem stronger.
TEAM 5
Thanks again, @o1eh!