BUILD Economic Proposal BEP-21
BEP-21 is a major upgrade to the existing DAO infrastructure and sets out monetary policy for 2022. The proposal comprises of three parts relating to BUILD DAO treasury and governance restructuring, BUILD token target inflation and future BUILD DAO treasury allocation.
TL;DR:
- The DAO treasury and governance structure will be restructured from the existing Governor Bravo system to a hybrid system with core assets controlled by Governor Bravo with Gnosis Reality Module and operations assets controlled by a Gnosis Safe with Reality Module.
- BUILD token target inflation rate will be set to 25% for 2022 (down from 30% in 2021), and this figure will be reviewed during Q4 2022 in order to set policy for 2023.
- The new tokens will be minted directly to the BUILD DAO Treasury, which will disburse the tokens on a quarterly basis via the following allocations: 35% to Ecosystem Rewards, 30% to Treasury Allocations and 35% to Developer, Marketing & Operational Expenses.
DAO Treasury & Governance Restructuring:
It is critical that we overhaul the existing governance structure (pursuant to item 2 of the recent roadmap) as there are aspects of the structure currently acting as an impediment to progress rather than facilitating progress. The existing DAO structure has the core treasury assets and the BUILD token minting controlled by a fork of Compound’s Governor Bravo module. This is considered the gold standard in terms of security and decentralization but is complex to operate and extremely expensive to use in practice. Additionally, there is a treasury Gnosis Safe multisig wallet controlled by core members from which operational expenses can be paid, and these expenses are legitimized by way of off-chain Snapshot votes, which by contrast are easy to spin up and are free. A diagram of the current DAO structure is shown below:
As new tooling for DAOs is built, and in particular the Gnosis Zodiac suite of modules, it raises the possibility of adopting a hybrid model which could reduce the costs and complexities of interacting with Governor Bravo whilst maintaining a high-level of security and increased flexibility. It could also introduce a level of automation to the control of assets that would reduce reliance on core members. This new setup would require splitting the DAO structure into three core components: the Mint, the Treasury & Operations as can be seen in the following diagram:
The BUILD minting keys would be retained under the control of Governor Bravo, and under the indirect control of the Treasury Safe via the Gnosis Reality Module. These keys would be utilized once per year after soft-consensus is reached as to the proposed yearly inflation rate. Once the vote to mint has passed the minted tokens are transferred to the Treasury Safe, where they are held for safe-keeping alongside all the other assets that form the core BUILD DAO Treasury.
The Treasury Safe is configured as a Gnosis Safe multisig wallet controlled by a secondary Reality Module, this time configured with the SafeSnap plug-in allowing off-chain Snapshot voting to control the safe. Any such vote will be subject to tightly-controlled proposal limits in place and full power of veto by multisig signers. The SafeSnap module can instruct the Treasury Safe to release funds for a variety of purposes, not limited to the following: DAO liquidity provision, ecosystem rewards, disposing of or acquiring assets; external partnership investments. The Treasury also releases funding for Operations on a quarterly basis according to the yearly budget.
The third component of the DAO is the Operations Safe multisig which is again configured as a Gnosis Safe with the SafeSnap plug-in. The principal use of the Operations Safe is for core team signatories to use the wallet to fund operations, however it is proposed that any DAO member can apply to the Operations multisig for funding to carry out tasks under three main headings: developer funding, marketing funding, operations funding. There will be enforced periods in which funding proposals can be submitted and a strict limit on the types and quantities of funding that can be sought via these automated processes, at least in the short to medium term. The above changes will enable the following improvements to governance workflow:
- Reduced interaction and costs associated with Governor Bravo
- Maintained security around minting keys and inflation policy
- Reduced interaction costs around core treasury management
- Increased flexibility around use and delegation of core treasury assets
- Minimized friction around use and delegation of operations budget
- Reduced operational overheads for disbursement of operational expenses.
The BUILD DAO Core Team proposes that we adopt the above-noted hybrid Treasury & Governance model.
Target Inflation Rate:
Until this point the BUILD DAO has taken an ad hoc approach to token inflation. The core team believe it would be advantageous to formally set a target inflation rate with the following aims:
- Reduce hoarding and increase velocity of BUILD tokens
- Fund ecosystem development and rewards
- Avoid over-zealous and unpredictable debasement of BUILD tokens
To give some context to the inflation history of the BUILD token, it was initially minted in a batch of 100,000 tokens which were fairly distributed in late-2020. There was a further inflation event in early-2021 which generated an additional 30,000 tokens — a year 1 rate of 30% inflation. As the only previous example of an inflationary event it is proposed that 30% is used as the upper bound for modelling of a target inflationary strategy. On the lower bound it has previously been evidenced that an inflation rate of 10% would allow the treasury to fund only a modest liquidity mining programme with a low rate of interest, therefore it is proposed that this is used as a lower bound. Using these figures and a four-year time horizon we get a proposed series of models as follows:
Using our upper and lower bounds it can be seen that at the lower rate of inflation (10%) would lead to a total supply of 143,000 at the end of 2022, and 190,333 at the end of 2025 (47% increase). Using the highest rate would lead to a total supply of 169,000 at the end of 2022, and 371,293 at the end of 2025 (186% increase). All of the above figures seem subjectively reasonable at meeting the stated aims, although it should be recognized that all of these models inevitably lead to exponential growth in token supply. In this circumstance it is considered likely that the community will vote to change the inflation strategy long before the effects of this are felt.
In order to remove any qualities of exponential growth from the inflation policy, a tapered policy was modeled. Unlike Bitcoin’s programmatically enforced reduction in supply, our inflation policy will be enforced on a yearly basis through an on-chain vote so we can afford to be reflexive and propose an individually tailored figure each year whilst still conforming to a general strategy. Shown below is a modelling of a tapered inflation strategy reducing from 30% in year 1 and 25% in year 2 to 10% by year 5:
The net result of a tapering inflation strategy as above is that the supply increases at a rate of approximately 30k BUILD per annum across the modelled period, with total supply at the end of 2025 totalling 246,675 (90% increase).
The BUILD DAO Core Team proposes that we adopt an inflation rate of 25% for 2022, to be reviewed in Q4 2022 in order to set policy for 2023.
BUILD DAO Treasury Allocation:
For a considerable proportion of 2021 the BUILD DAO has held an over-large proportion of its core assets in two Balancer pools. These have provided substantial liquidity to the market but have reduced the ability of the DAO to fund activities and forge meaningful partnerships. It is proposed that for 2022 the DAO reduces its contribution to these pools and instead looks to incentivize liquidity provision across a range of venues with the following aims:
- Incentivize Ecosystem liquidity provision
- Increase Protocol Controlled Value
- Fund BUILD DAO operations expenses
The following table shows a proposed split of funds derived from token inflation towards three key areas: Ecosystem Rewards, Treasury Allocation & DAO Operations. The first of these will be used to incentivize market participants to provide enhanced liquidity for project tokens and reduce the market’s reliance on DAO provision of liquidity. The second of these is to fund the acquisition of yield-bearing assets and capital stakes in other protocols. The third area is to fund development of the BUILD DAO’s own projects, fund marketing of the DAO and projects, and provide funds to pay both team and community members for work carried out in the operation of the DAO.
Using the proposed inflation rate value of 25% for 2022 and the token values from the last treasury report of October 2021 the available funds proposed for LP rewards are approximately $170,000 for the entire year, treasury allocation of around $147,000 and entire operations budget of $170,000. It is considered that this rate of funding is sufficient to attract the necessary resources to improve the current situation substantially, whilst mitigating the risk of excess debasement and reducing the short term issues of bringing large quantities of tokens to market.
The BUILD DAO Core Team proposes that we adopt the above-noted Treasury Allocation strategy for 2022.
Next Steps:
The three key elements of BEP-21 will be put to a Snapshot vote at https://snapshot.org/#/build in the coming days to confirm informal consensus amongst the community. Subject to a successful Snapshot vote there will be a short delay as the revised Treasury & Governance model is implemented and then a subsequent series of formal votes on Governor Bravo to institute the revised policy on-chain. This series of votes will unfortunately be gas intensive so we will be offering a limited gas reimbursement programme to ensure the smooth on-chain implementation of consensus. Please keep an eye on our Discord Announcements channel and our Twitter account for more details.
