Establishing an Insurance Bounty to increase fiscal efficiency of Polkadot treasury

Rejected

1. Executive Summary

The Polkadot ecosystem faces a significant challenge due to the volatility of the DOT cryptocurrency, which affects the actual USD value received by projects funded by the Polkadot treasury. This proposal introduces an Insurance Fund designed to stabilize the funding environment by ensuring projects receive the intended USD value of their grants, regardless of DOT price fluctuations. This fund will make adjustments by compensating projects if DOT’s value decreases and reclaiming excess if its value increases. This approach not only aims for fiscal efficiency within the treasury but also streamlines governance processes by reducing the need for follow-up proposals, thereby enhancing operational stability.

Added note:

This is NOT to top up bounties. They manage their own funds. In general Bounties will not be made whole with this. As Bounties manage their funds over a longer period of time, a decrease in "runway" until the next fill up, is not a problem.

Additionally only projects, who are asking for a concrete dollar amount, can and will be made whole with this.

With the current downturn of the market, roughly 66% of the requested funds would be needed to make the projects whole which are stuck in this spend period. These projects would approach the treasury anyway to get the whole dollar amount they asked for. This initiative would streamline this process.

2. Introduction

The Polkadot ecosystem benefits uniquely from its community-owned treasury. With the advent of OpenGov, this treasury funds a diverse array of entities through a process allowing up to 28 days for token holders to discuss and vote. Given the treasury's primary composition in DOT, entities face significant uncertainty in forecasting the USD value they will receive for their services. Historical data highlights the issue: entities rarely return excess DOT when prices rise, and when prices fall, they must absorb costs, reduce outputs, or seek additional funding. In recent spending periods, these imbalances have led to over $3.5 million in losses for teams in a market downturn and $6.5 million in overpayments in a market upturn by the treasury, highlighting the urgent need for a mechanism to manage these discrepancies.

3. Problem Statement

Projects funded by the Polkadot treasury are currently exposed to financial risks due to the volatile nature of the DOT cryptocurrency. This volatility leads to budgetary imbalances, either by projects receiving less than the expected USD value, jeopardizing their operations, or by receiving an unfair surplus, creating inequity among grantees.

4. Proposed Solution

The proposed Treasury Insurance Fund is designed to address the fiscal challenges presented by the volatility of the DOT cryptocurrency, ensuring that projects funded by the Polkadot treasury receive the intended USD value of their grants. The fund will operate with two main mechanisms:

Compensation: This function of the fund will autonomously provide additional DOT to projects if the cryptocurrency's value decreases from the time of proposal approval to fund disbursement. The goal is to ensure projects are made whole, maintaining the originally intended financial support despite market fluctuations. This mechanism is crucial for the stability and continuity of projects, which might otherwise face financial shortfalls that could jeopardize their completion and success.

Reclaim: In cases where the value of DOT increases significantly from the approval to the disbursement period, the fund will retrieve the excess DOT. This process will be supported by a social contract agreed upon by the project teams at the outset of funding. Teams are expected to comply with this agreement to maintain fairness and integrity within the community. Non-compliance will be publicly noted under the proposal and any additional proposal in version 1 and may adversely affect the team's reputation and eligibility for future funding. This mechanism ensures that the treasury does not over-disburse funds, which is essential for maintaining a balanced budget and fair allocation of resources among all projects.

The effective management of these functions will rely on real-time data and proactive engagement with project teams, facilitated by the fund's curators who will monitor market conditions and coordinate closely with each funded project. The introduction of these mechanisms will not only protect projects from financial volatility but also instill a greater sense of security and trust among community members and stakeholders in the Polkadot ecosystem. This proactive approach aims to foster a more robust and resilient funding environment, where projects can thrive without the looming threat of financial instability due to uncontrollable market dynamics.

5. Organizational Structure

  • Director: Manages overall fund operations, engages with stakeholders, and handles external reporting. Communicates with project teams pre and during funding.
  • Curators (3): Monitor the value changes of DOT disbursed and determine necessary adjustments per project and collect overpaid DOT, providing detailed reports to the treasurer.
  • Treasurer/Accountant: Manages the fund’s finances, ensuring transactions are accurate and records are well-maintained. Reports numbers to Director.
  • Signers (2): Ensure the integrity of financial activities as part of a multi-signature protocol that requires 4 out of 7 signatures to authorize transactions, enhancing security and oversight

.

6. Members

Director:

  • Crane: 13RBN6UF43sxkxUrd2H4QSJccvLNGr6HY4v3mN2WtW59WaNk

Curators (3):

  • Strindbergman: 14dwjTET5jJyfBELo1t37gr2uR7LGESPpUhSfdWyH9SL9KyF
  • Yung Beef: 14x6ah3J21QonWASv6QKwqd8SWrS7ddqmMzyRCmGQWMaPzae
  • Goku: 121avdvM8H6BUgxFrg8fVT5mH346XNYW5YEwdo3xvLnhL9rn

Treasurer/Accountant:

  • Blinkin: 11EtSwVGXDjVo9YDPtCCVUczwUH9V53dm9qWtJWAFPzm3U7

Signers (2):

  • Lolmcshizz: 149AQApEw4Xe1DxWesqywiuGQHazbETMgWgT89WjEYFAc29y
  • Jose.Crypto: 16PoxoUdcLsEvsWQNVLUM2zyozKYa87Ebv1u7YcmYpTV9eFk

7. Compensation Plan

Compensation for the roles is initially set as follows and will be reviewed based on actual workload:

  • Director: $2,000/month
  • Curator: $1,500/month
  • Treasurer: $1,000/month
  • Signer: $500/month

8. Implementation Considerations

Operational Protocol: A direct proxy will be used for fund management to ensure prompt adjustments, avoiding the delays associated with the Bounty module.

Emergency Use: The fund can act as a short-term emergency loan resource for critical needs, such as the Indy500 shortfall or the current marketing bounty shortage, because of missing the spend period. Projects requiring emergency funding must apply detailing the nature of the emergency and the necessary funds, reviewed by the curators and director.

Social Contract: Agreements will be established at the proposal stage to ensure compliance with the fund's recovery mechanism. Public accountability will serve as the primary enforcement measure, with non-compliant teams facing potential repercussions in community standing and future funding prospects.

9. Public Reporting and Performance Transparency

Bi-monthly Reports: Every two months, the fund will publish a report detailing its activities, financial movements, and any instances of non-compliance with the social contract. These reports aim to maintain transparency and foster an environment of trust and accountability within the community.

10. Fund size

For the initial funding of the Treasury Insurance Fund, we request a capital allocation of 1 million DOT. This substantial amount is anticipated to address the immediate needs of projects requiring compensation at the conclusion of each spending period. Given the volatility of DOT, it is expected that the initial outlay will be significant as we aim to make projects financially whole, aligning their received funding with the originally intended USD values.

As the market trends generally indicate an upward trajectory, we anticipate transitioning to a delta positive state within the next year. In this phase, we expect to be collecting more DOT than disbursed as the value of DOT increases. This will allow the fund to gradually rebuild and maintain a robust reserve, ensuring its longevity and sustainability.

The proactive financial management of this fund will be critical in adjusting to market conditions and ensuring that the fund not only compensates projects effectively but also capitalizes on positive market conditions to enhance its capital base. This strategic approach is designed to maintain the fund's health over the long term, adapting to the dynamic economic landscape of the cryptocurrency market.

11. Scope

We are committed to fully compensating all projects that are adversely affected by the market downturn starting April 1st. Our goal is to ensure these projects receive the full intended value of their funding, despite the unfavorable market conditions. This initiative underscores our dedication to maintaining the stability and viability of projects reliant on treasury funding during periods of economic instability.

We acknowledge and appreciate the introduction of the new spend extrinsic feature which allows payments in stablecoins. This development is a significant step forward in providing stability and predictability in funding allocations. However, it is important to note that the current reserves of stablecoins within the treasury are relatively modest, amounting to a medium seven-digit sum. This reserve could be entirely depleted by a single substantial proposal, such as one from Inter Miami CF. Consequently, while the move towards stablecoin transactions is promising, it is not yet a viable standalone solution for managing the financial needs of all projects due to the limited availability of these funds. It underscores the continued necessity for the Treasury Insurance Fund to manage the volatility associated with DOT and to ensure projects receive adequate funding regardless of market conditions. Additionally, it is important to consider the timing and strategic implications of transitioning significant treasury reserves into stablecoins, particularly at the onset of a market upturn.

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1MDOT
Status
Decision28d
Confirmation
7d
Attempts
2
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47.2%Aye
50.0%Threshold
52.8%Nay
Aye
83.47MDOT
Nay
93.34MDOT
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1.72%
24.4MDOT
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1.42BDOT
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[Deleted Account]

Hello,

...while the move towards stablecoin transactions is promising, it is not yet a viable standalone solution for managing the financial needs of all projects due to the limited availability of these funds.

Then let's increase the availability of stable coin assets in the treasury.

It underscores the continued necessity for the Treasury Insurance Fund to manage the volatility associated with DOT and to ensure projects receive adequate funding regardless of market conditions.

No, it doesn't.

Additionally, it is important to consider the timing and strategic implications of transitioning significant treasury reserves into stablecoins, particularly at the onset of a market upturn.

Then please start an initiative for the community to consult on how to effectively manage asset diversity.

Nay.

Regards,
kukabi | Helikon

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[Deleted Account]

there is the new spend() extrinsic to pay out in USDT. If proposers don't want uncertainty, this is what they should do. This bounty would just add complexity to a process that can be handled much simpler

Edited

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[Deleted Account]

Hello from Polkadotters.
In general, this sounds like a smart idea. But, there are much better ways how to insure proporsers. Use USDT or request more DOT with a promise to refund whatever USD value is in excess. Those are quite cheaper solutions, than paying 8,5k USD/month to directors, curators, treasures, and signers.

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