Title: Outcomes-based resource allocation framework (OBRA)

Authors: Peter @pet3rpan-1kx (1kx), @Andre, @Christoph , Justin @AccelXR-1kx (1kx)

Created: 2023-11-06

Please refer to the full proposal text on the SafeDAO forum. Some parts needed to be removed to fit within the character limit on Snapshot: https://forum.safe.global/t/sep-8-outcomes-based-resource-allocation-framework-obra/4376

Abstract

The proposal intends to provide a structured use of resources to ensure the most efficient and useful utilization of SafeDAO's assets.

Proposal types

State which proposal type this proposal belongs to. [ ] SEP: Constitutional Proposals [X] SEP: Governance Proposals (vote possible in Sprint 1 as exception according to Sec. D.II. Governance framework) [] Other SEPs

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Proposal details

A. Scope of framework B. Hierarchy of governance for resource allocation I. Objective II. Strategies III. Initiatives C. Submission and review cycle I. Submission process II. Review process D. Voting thresholds E. Compliance with relevant regulations F. Soft launch G. Changes to the governance framework Annex 1: Vision and goals Annex 2: Strategy proposal template Annex 3: Initiative proposal template

A. Scope of framework

The Outcomes-Based Resource Allocation Model (OBRA) serves as a streamlined resource allocation framework for DAOs to allocate resources effectively. For this, OBRA introduces

• Hierarchy: A hierarchical connection between vision, goals, strategies and initiatives (Sec. B.I)
• Budget: Defines the introduction of a maximum budget per season and strategy (Sec. B.II.2 and 3)
• Payout: Defines rules around how initiatives can be funded (Sec. B.III.2)
• Process: Defines a clear submission and review cycle for strategies and initiatives (Sec. C)

The framework generally applies to any resource allocation from the SafeDAO treasury towards predefined counterparties, such as individuals or teams.

The framework only partially applies to resource allocations that lack a predefined counterparty, or involve a large number of beneficiaries, e.g. (retroactive) rewards and incentives. Such allocations are initiatives under OBRA and need to adhere to the hierarchy (Sec. B.I) and the process (Sec. C). However, the predefined budget requirements (Sec. B.II.2 and 3) and the payout terms (Section B.III.2) do not apply, which are structured for working relationships and not for rewards and incentives.

Not within scope of this framework is

• the joint treasury between SafeDAO and GnosisDAO
• User allocation B from SEP #5
• Ecosystem allocation
• resources provided to SafeDAO by other entities, such as other DAOs or the Safe Ecosystem Foundation, e.g. airdrops/rewards or Safe Grants Program.

These allocations follow their own allocation requirements and have a maximum budget, so that there is no benefit from further streamlining them.

Also, this resource allocation framework does not encompass treasury management activities, such as exchanging assets for other types of assets, like stablecoins. Such activities are considered outside of the scope because they involve asset exchanges rather than expenditure.

B. Hierarchy of governance for resource allocation

I. Objective

OBRA establishes a hierarchical relationship between vision, goals, strategies, and initiatives. By doing so, it ensures that each initiative aligns with the DAO's overarching objectives. As a result, governance can concentrate on these core areas, hereby minimizing its focus area.

The vision is the overarching north star – the big picture of what the DAO aspires to become. Goals articulate the desired outcomes that align with this vision. Both vision and goals are stipulated in the SafeDAO constitution (see also Annex 1). Strategies provide the high-level approach and key metrics to achieve those goals. Initiatives are specific actions or projects undertaken in line with a strategy to achieve the goals.

All strategies must drive forward existing DAO goals. All initiatives must be driving forward existing DAO strategies. Generally, an initiative cannot receive funding unless it is tied to a pre-existing strategy, with the wildcard strategy (see Sec. B.II.3) being the exception.

Below is a visualization how vision, goals, strategies and initiatives relate to each other:

II. Strategies

1. General

Strategies outline the different approaches designed to achieve SafeDAO’s agreed-upon goals and vision, which are both codified in the constitution. Strategies provide the pathway to reach those goals, setting the direction rather than the destination and serving as the roadmap.

Examples:

• Focus on building more third-party Safe modules to drive safe transaction volume, which would lead to more utility and thus greater TVL
• Focus on institutional crypto adoption to drive TVL

There may be many valid strategies that the DAO can adopt to achieve its goals. SafeDAO should both carefully assess the validity of strategies while also focusing on experimenting and validating new strategies. The maturity of each strategy and progress being made on each front should determine the level of resources being allocated towards that particular strategy (see B.II.2 Budget).

2. Budget

SafeDAO operates on seasons (see governance framework). Seasons should be allocated an overall budget, and within each season, specific strategies are assigned their respective budgets. The seasonal budget can be a range and span beyond multiple seasons. This approach is adopted because the overall SafeDAO treasury valuation for the initial seasons will be unclear. As SafeDAO matures, there may be a decision to not pre-allocate budgets anymore, opting instead for a self-assessment approach by guardians, delegates and token holders. The budget will be determined by its own SEP and can be renewed or amended in the review sprint (see Sec. C.I.).

3. Wildcard strategy

One strategy may be a wildcard strategy. This strategy is distinct from the others in that it doesn't follow a predefined path towards the DAO's goals. Instead, it serves as a flexible and adaptable approach that can pivot based on changing circumstances, emerging opportunities, or innovative ideas. Due to its experimental and potentially riskier nature, it will be allocated a comparatively lower budget than other strategies. During review periods, it's essential to evaluate whether initiatives under this wildcard strategy can give rise to future strategies.

The strategy proposal template is in Annex 2.

III. Initiatives

1. General

Initiatives are work proposals that are funded by SafeDAO. They are more traditionally thought of as more traditional ‘DAO proposals’. All initiatives must be driving forward existing DAO strategies.

The initiative proposal template is in Annex 3.

2. Payout procedures

Initiatives are being funded under the following operating procedures:

• General: Initiatives are funded in USDC and may have a success reward for their completion in SAFE.
• Payment terms: Initiatives are generally funded by streamed payments with a 4 weeks cliff period unless the sum of funds is < 10,000 USDC in which case payment may be made through a series of scheduled payments or as otherwise agreed upon. During the cliff period the payout can be terminated by the Safe Ecosystem Foundation in extreme cases, such as the project being inactive and not communicating.
• Initial lump sum: If the requested funds are < 10,000 USDC, the proposer may request an initial lump sum to kickstart the initiative. The lump sum may not exceed more than 20% of the total funding requested for the project unless the project timeline requires less than 12 weeks to complete.
• SAFE rewards: The SAFE success reward will be locked up for 1 year, followed by a 1 year linear unlock via vesting contract. The success reward will be transferred at the end of the respective season where the initiative was completed.
• Transition period: Due to the current non-transferability of the Safe token, including SAFE rewards to proposals and subsequent transfers are only possible in the sprint after the token becomes transferable.

The following illustration provides a visualization:

Below is a table that outlines how funding amount and project timelines interact.

|Funding amount|Project duration|Upfront lump sum|Payment terms|Notes| | --- | --- | --- | --- | --- | |Small (< 10k USDC)|Short (<12 weeks)|Yes, negotiable|Upon agreement|Ideal for quick-turnaround projects needing immediate funding.| |Small (< 10k USDC)|Mid to long (≥12 weeks)|Yes, up to 20%|Upon agreement|Provides initial support, with rest on agreed schedule| |Mid to large (≥ 10k USDC)|Short (<12 weeks)|No|Streamed with 4-weeks cliff|Suitable mid- to large large projects with a short timeline| |Mid to large (≥ 10k USDC)|Mid to long (≥12 weeks)|No|Streamed with 4-weeks cliff|Suitable for large projects and SaaS models|

C. Submission and review cycle

I. Submission process

SafeDAO operates on seasons, each lasting 16 weeks. These seasons are divided into 4 sprints of 4 weeks in accordance with the governance framework.

• The first 3 sprints are the work period and have an exclusively operational focus
• The 4th sprint is a review period in which the funded initiatives and strategies of SafeDAO will be reviewed by SafeDAO. Initiatives will continue to operate during this period.
• New initiatives can only be proposed during the work period and not during the review period.
• Initiatives that are funded in the 3rd sprint will be subject to review in the next season.
• New strategies must be proposed during the review period to be considered for approval.
• Budget approval, amendment or renewal are proposed during the review period.
• For Season 1, there will be a transition period allowing for the submission of strategies and budgets also throughout the work period and the submission of initiatives during the review period.

II. Review process

1. Review of initiatives

During the review period, all initiatives are required to share progress updates and are subject to review. They do not need to re-apply for funding if their pre-approved funding extends beyond the specific season. If SafeDAO terminates an initiative it has effect for the next sprint. The outstanding approved funding and SAFE rewards will be terminated and are returned to SafeDAO (all unspent funds and unvested tokens).

2. Review of strategies

SafeDAO will also review existing approved strategies and may also decide to remove approved strategies. The removal of a strategy does not automatically affect initiatives that have been funded under them. Initiatives need to be terminated separately.

The following illustration provides a visualization:

D. Voting thresholds

To encourage coordinated delegation parties to emerge in the process while discouraging low effort and signal participation, there is a quorum threshold to vote on the DAO’s strategies, initiatives, review cycles and budget. ​​Below are the minimum number of Safe tokens required to meet the quorum:

E. Compliance with relevant regulations

All strategies and initiatives under the resource allocation framework must adhere to the constitution, the Safe Ecosystem Foundation’s deed, its relevant regulations, including those concerning investment and funding, and, if applicable, meet KYC requirements. The Safe Ecosystem Foundation, as a steward of SafeDAO, will guide and assess ongoing compliance with these principles and take appropriate measures if these are not met.

F. Soft launch

For Season 1 and 2, the resource allocation framework will operate under a soft launch protocol. Recognizing the need for flexibility during the formative phase of SafeDAO, the Foundation retains the prerogative to deviate from the payout procedure laid out in B.III. Initiatives and C. Submission and review cycles if necessary to ensure an efficient resource allocation process. Any deviations will be communicated transparently and are subject to review in the review and governance amendment sprint. This exception is limited to Season 1 and is introduced to allow a smoother transition into the new resource allocation framework.

G. Changes to the governance framework

To implement the resource allocation, the wording of the governance framework needs to be changed in the following sections. Additions are in bold, removals strikethrough.

I. Addition of proposal types under C.II. Proposal types

II. Addition of D.II. Governance cycles

1. Sprints 1-3

The proposals of the first 3 sprints shall address all proposal types except constitutional, and governance proposals, resource allocation strategy, initiative terminations and budget proposals (s. C.II. Proposal types). This design shall allow a focus on fostering the Safe ecosystem while avoiding distractions from governance -related, strategy and budget amendment proposals.

2. Sprint 4: Review and governance amendment sprint

As a counterpart to the restriction of governance proposals during the first 3 sprints, the 4th sprint is dedicated to governance and resource allocation review ~~and governance~~ and strategy and budget proposals. During this time, no other proposals shall be submitted.

III. Addition of H. Annex 1: Season 1

Annex 1: Vision and goals

Vision: Establish smart accounts as the default means for web3 interactions

Goal 1: Foster a vibrant ecosystem SafeDAO benefits from a vibrant ecosystem built on shared components and standards. SafeDAO supports and empowers new and existing projects integrating with the Safe Protocol or initiatives supporting the usage of Safe Protocol.

Goal 2: Resilience via decentralization The Safe Ecosystem shall be independent from any single entity. The Safe Ecosystem components, including governance, should be decentralized and permissionless.

Goal 3: Tokenize value SAFE should represent the value of the Safe Ecosystem. Mechanisms should be created to link the growth of the Safe Ecosystem to the growth in utility of SAFE.

Annex 2: Strategy proposal template

Changes to the proposal templates in Annex 2 and 3 don't require the SEP process. The Safe Ecosystem Foundation holds the authority to make these modifications or delegate the responsibility to a group of guardians or other SafeDAO participants, ensuring alignment with the framework's objectives.

1. Which goals does the strategy look to drive progress in?
2. Which metrics and KPIs could initiatives under this strategy be measured against?
3. Outline the execution strategy or thesis
4. What are some example initiatives that would fall under this strategy
5. Detail around existing data or evidence to support this thesis
6. Detail around any risks associated with this strategy
7. If this strategy succeeds, what is the happy case?
8. If this strategy fails, what would be some reasons?
9. Assessment of the strategy’s maturity and if there is additional data that needs to be collected for the validation of this strategy
10. What budget should this strategy be allocated for?

Annex 3: Initiative proposal template

1. Which pre-approved strategy is this initiative driving forward?
2. Which metrics and KPIs will the initiative be measured against?
3. Who is the accountable initiative lead? (individual or organization)
4. What is the initiative about?
5. What risks does the initiative entail?
6. Timeline/roadmap of milestones for the initiative
7. What resources are being requested from SafeDAO in USDC?
8. Are there any resources requested from the Safe Ecosystem Foundation?
9. Are there any upfront funding this initiative needs at the beginning
10. The requested SAFE success reward for completion of initiative (vested token bonus for completion of work)

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Purpose and Background

Decentralized governance / DAOs established a vision for the possibility of decentralized, neutral public goods owned by the public. However, after 3+ years of live data emerging around decentralized networks, decentralized coordination is still a work in progress.

During this period, we, 1kx, a major contributor towards this proposal has supported, invested, and participated in over 40+ DAOs and incubated/launched many ourselves. Through our experience, the case for decentralized resource allocation has a long way to go with finding a long-term viable model, with most DAOs experiencing major coordination failures such as the following:

• Unclear consensus and clarity on core DAO activities and product strategy, leading to excessive spending and misallocation of community resources to misaligned initiatives.
• Lack of oversight, feedback loops, and accountability of community initiatives leading to overhiring and working groups with unreasonably high burn rates and low output efficiency.
• Inadequate contributor quality curation and accountability leading to a high amount of incompetent, low context individuals gaining senior leadership positions, leading to a further degradation of the community’s operating standard and contributor value extraction at the cost of the entire community.
• Lack of data driven of decision making processes that lead to the governance capture of the community to contributors who brute force governance via bureaucratic lobbying.
• Bloating on the DAO’s decisional surface area to a point where collective governance contributors no longer have the adequate context to govern effectively, leading to over delegation and concentration of social capital to a few select voices who are time rich but not necessarily those creating real impact for the DAO.

Rather than trying to address these problems incrementally, 1kx looks to propose a surface area reduced model for the governance of SafeDAO’s resource allocation known as ‘outcome-based resource allocation’ (OBRA).

Effects and Impact Analysis

What are the effects of the proposal? What are the pros and cons? What are risks?

OBRA introduces processes to the resource allocation which require some administrative efforts. When strategies and initiatives are being submitted it needs to be assesses how the strategies drive goals forward and how the initiatives drive strategies forward. During the review process the existing initiatives need to give status updates and these need to be reviewed. Once the first review cycle emerges, there will be an open question on how to properly incentivize the review of this work, as this becomes an operational burden on token holders and delegates. It can be expected for professional delegates to emerge as a result of such incentives.