Optimism Powers Crypto’s Newest Collective | State of the DAOs
You're reading State of the DAOs, the high-signal low-noise newsletter for understanding DAOs.
Gm and welcome to an Optimistic future! In this issue, BanklessDAO core contributor hirokennelly.eth shares the latest details of Optimism’s new DAO. Are you curious about the Token House, the Citizens’ House, and how they work together to fund public goods? Or maybe you want to learn more about the $OP token airdrop? Whatever your interests are, Hiro has answers for you.
Next, we share the TL;DR on the latest DAO ecosystem takes and thought pieces, making it easy for you to cut through the noise and stay up to date on the world of DAOs.
This is the current state of the DAOs.
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Optimism Powers Crypto’s Newest Collective
Crypto Twitter lit up in April when Optimistic Ethereum (Optimism) announced that it was ready to tokenize its community and create a decentralized autonomous organization called the Optimism Collective.
And then yesterday, this happened:
There has been talk of Layer 2 Summer for over a year (and #L222 has been trending since last year). Layer 2 (L2) is a term for a specific type of Ethereum scaling solution that allows users to inherit the security of Ethereum but transact with cheap fees and fast inclusion times. Optimism relies on Optimistic rollup technology to scale Ethereum. As the name implies, the scaling solution literally involves optimism, in this case that the transactions are legitimate.
But this optimism extends beyond the technology. Optimism holds special appeal for those of us aware that its founders are aligned with Ethereum’s ethos of permissionless building, progressive decentralization, and public goods funding, the idea that together we can create a more vibrant, sustainable, and beautiful world.
In the structural design of the Optimism Collective, we see this optimistic spirit at work. The Collective will be divided into two governing bodies: one for token holders to focus on short-term incentives, and one for those focused on long-term retroactive public goods funding. In the medium term, an executive body is tasked with guiding the Collective as it gets its governance legs.
Exploring the nuances of the Optimism Collective’s structure reveals a governance and token design that encodes the belief that together we can build better things even though our incentives are not always aligned, even though our specific goals may be different. Optimistic Ethereum encapsulates the spirit of this new epoch. Optimism isn’t just a scaling technology; it’s also the fundamental subatomic force that binds all of Web3.
The Optimistic Path
On March 23, 2022, Optimism published a short but powerful blog post — Ether’s Phoenix — about building infrastructure to support public goods funding. It posits that public goods-focused building is “a mindset: that optimism prevails, that better systems are possible, and that humankind will be rewarded for its cooperative revolution”. Shortly thereafter, a follow-up post told their story. Optimism started as a “small group of ETH obsessives, maniacally scribbling on whiteboards”, to a short time later, developing the Optimistic Rollup.
As the team raised significant funding to scale their own operations, they wrote that Optimism was “nearing the end of a chapter and the beginning of the next — one driven by community ownership and governance”. A week later, the news was so hot that even Arbitrum did a quote tweet trying to get in on some of the action:
Optimism (✨🔴_🔴✨) @optimismPBCIntroducing the Optimism Collective: https://t.co/PbQyBU1J6l
A New Model of Optimistic Governance
On April 26, 2022, a new model of democratic governance was born. As a decentralized autonomous organization, the Optimism Collective resonates with the soul of Ethereum: the idea that the technology we build and the systems we create to incentivize behavior can create an abundant, sustainable, and techno-optimist future. Calling itself a “new model of digital democratic governance optimized to drive rapid and sustained growth of a decentralized ecosystem”, the governance model is designed to empower a community to build and benefit from a robust public goods funding model. This model is centered around the axiom of impact=profit and the conviction that funding public goods can be profitable.
The Optimism Collective defines the impact=profit axiom as “...the principle that positive impact to the collective should be rewarded with profit to the individual”. In other words, people and projects should be retroactively funded for contributing to the public good. As Vitalik Buterin writes, “The core principle behind the concept of retroactive public goods funding is simple: it’s easier to agree on what was useful than what will be useful”.
When designing the governance framework, the Optimism team decided to go bicameral, erecting two different governmental bodies to make up the Collective. The Token House, governed through tokenization, will begin to take shape now that Airdrop #1 has occurred. The Citizens’ House will come later and be governed by holders of soulbound NFTs. Each House will be tasked with aligning incentives and values in pursuit of the Optimistic Vision.
Along with the bicameral structure, the Optimism Foundation was created to help guide the Houses as the community discovers how to govern the Optimism Collective. Initially, the Foundation and the Collective will have to learn how to govern together. As the Collective finds its groove, the Foundation will relinquish its governance responsibilities to the Collective and slowly dissolve in an act of decentralized sacrifice.
The Founding Documents
The founding documents of the Optimism Collective are the Working Constitution of the Optimism Collective and the OPerating Manual v.0.1. The Working Constitution embodies the soul of the Collective and informs its operations. The Manual and all further iterations must stay true to the principles as laid down in the Working Constitution.
The Working Constitution embodies the spirit of the Collective and creates a flexible framework that supports a sustainable and fair model for democratic governance. It enshrines the Collective’s experimental governance mandate and clearly states that it will self-destruct within four years of adoption as it cedes its authority to the permanent Bedrock Constitution. The Working Constitution also mandates the eventual creation of the Citizens’ House to provide checks and balances to the Token House, and it cements the Foundation’s role in helping to guide the Collective. This Working Constitution is a living document that will continue to evolve as governance successes and failures inform the Collective.
OPerating Manual v0.1
The initial OPerating Manual enacts the principles enshrined in the Working Constitution, providing the operating guidelines and governance procedures for the Token House. The Manual will be updated with the launch of the Citizens' House. As an experimental and iterative organization, the Collective will ensure the Manual will be regularly revised as the governance model becomes clearer and more refined.
The Optimism Foundation
According to the Working Constitution, the Optimism Foundation is a “Cayman Islands organization responsible for guiding the growth and development of the Optimism Collective”. Upon formation, the Foundation has certain enumerated powers and responsibilities as defined in the Working Constitution. The Foundation will act as the benevolent matriarch, helping to steer the wider Collective of community members, builders, and citizens, until it too decentralizes into Web3’s subatomic optimistic force.
The Collective Blueprints
The Optimism Collective will ultimately be governed by two bodies: the Token House and the Citizens’ House. Although each House will have separate responsibilities and areas of focus, they will share responsibility for granting ‘citizenships’ in the Citizens’ House and defining the network parameters for the Optimism protocol. Until the Citizens’ House is fully formed many of its responsibilities will rest with the Foundation.
The Token House
The Token House is made up of holders of the OP token, the Optimism Collective’s governance token. OP holders will submit, deliberate, and vote on proposals affecting project incentives, protocol upgrades, disbursement of treasury funds, and network parameters. They also will grant citizenship to the Citizens’ House, once formed. Members may either vote directly or delegate their voting power to a third party.
Governance will be primarily coordinated through the Optimism Forum and Snapshot, the off-chain voting platform. Initially, proposals will be tightly regulated and overseen by the Foundation. Certain proposals, such as those encompassing treasury appropriation or rights protections (changes to the founding documents), may only be initiated by the Foundation. Unlike many protocols, most proposals can be submitted straight to Snapshot for voting.
To minimize voter fatigue and increase participation, voting on proposals will occur at set intervals. Governance proposals must meet quorum (the minimum number of OP votes required for a proposal to be enacted based upon the total OP supply) and overcome an approval threshold, which is the minimum number of votes required to be cast in favor of a proposal. Initial quorum will be set at 10% of the total supply, while approval threshold requirements vary depending on the proposal type.
The Foundation will ensure that only proposals meeting quorum and approval thresholds are considered for implementation. For proposals that meet voting requirements, the Foundation “will determine whether the proposal is safe, secure, consistent with the purposes of the Foundation and the Collective, and capable of being implemented in a legally compliant manner”. If so, the Foundation will work towards proposal implementation; if not, it may be sent back to the Collective for modifications or resubmission, or a proposal may be implemented subject to certain guardrails.
The Citizens’ House
If the Token House is for the plutocrats (Optimism’s term!), then the Citizens’ House is for the people. The primary purpose of the Citizens’ House is to determine how to allocate network revenue and its initial OP token supply to retroactively fund public goods. The Token House is meant to incentivize for the short-term; the Citizens’ House will be built to sustain the Optimism Collective’s long-term vision, anchored in the impact=profit maxim.
In the spirit of optimistic experimentation, membership in the Citizens’ House will be granted via soulbound non-transferable tokens, known as Citizenship NFTs — recipients can’t sell, transfer, or otherwise move these out of their wallet address. Yet soulbound NFTs aren’t without controversy:
That aside, it’s clearly a way to decouple economic incentives from governance, which is a strong check on the Token House. The Citizens’ House, described by Optimism as the identity-first layer of the Collective, will require a new Operating Manual, v0.2, but this experiment in citizen-based governance is expected to commence once the Foundation, in consultation with the Token House, determines the mechanism for granting Citizenship NFTs.
The Token House and Citizens’ House form a marriage of two parties whose incentives do not cleanly map, but who must work together, believe in the vision, and behave optimistically. Optimism doesn’t just bind us when we have the same motivations; it’s a force that steers us towards a collective vision for how we want to live.
OP Token Allocation
The Token House will be made up of OP holders, and the disbursement method for the tokens has been under discussion throughout the cryptoverse, largely focusing on the mechanics of Airdrop #1. Airdrop #1’s allocation parameters reward active Optimism and Ethereum users who are helping the larger ecosystem grow, but it’s also worth examining the general allocation to get a sense of what Optimism is working to accomplish.
The OP token allocation is broken up into five distinct categories of recipients:
Thirty-six percent of total token supply will be allocated to core contributors and sugar xaddies — those people and entities who have enabled Optimism to reach this point. This type of retroactive allocation is typical in the ecosystem, and recognizes the importance of compensating past work. These allocations will be subject to a lockup period.
At the outset, there will be an initial total supply of just over 4 billion OP tokens, which will inflate at a rate of 2% per year. Sixty-four percent of the total token supply will be allocated to the community of users and projects through airdrops, ecosystem incentives and development, and retroactive public goods funding. A rough approximation of the unlocked OP token supply is below.
As the graphic makes clear, Optimism expects to release their total token supply over a four-year period, but its main focus will continue to be on proactively funding its ecosystem’s growth and retroactively funding public goods. All of this began yesterday with Airdrop #1.
The announcement of Airdrop #1 was a watershed moment for the Ethereum ecosystem as it helped many to understand the core ethos of Ethereum, expounded by Vitalik and scoped by Optimism. Airdrop #1 allocated 5% of the total initial token supply to nearly 250,000 eligible addresses. These users were rewarded for both their use of Optimism and their general support of the Ethereum ecosystem. Ecosystem participants were also allocated OP tokens for voting in DAO-wide Snapshots, being a multisig signer, contributing to Gitcoin Grants on L1, and bridging to other L1s or L2s. Early users of Optimism who met at least four of the six criteria for the airdrop had their allocation boosted.
With an additional 14% allocated to future undefined airdrops, there’s never been a better time to get involved in the Optimism and Ethereum ecosystems. Join a DAO and vote on Snapshot, take on the responsibility that comes with being on a multisig, or donate to Gitcoin Grants to help fund our ecosystem — round 14 is starting soon!!
Or maybe buy a Pooly to support PoolTogether’s efforts to fight back against a malicious lawsuit. We don’t know the parameters of the future airdrops, but likely the best way to get in on future airdrops is to join the Optimism Collective Discord and get involved in shaping the future of protocol governance and public goods funding.
Proactive Ecosystem and Retroactive Public Goods Funding
While rewarding early contributors, investors, and ecosystem participants is important, nothing says public goods like proactive rewards for builders helping to grow the Optimism ecosystem or retroactive funding for goods.
The Ecosystem Fund is the corollary to the retroactive public goods funding with which we are familiar. Proactive funding seeks to incentivize builders to work within the ecosystem in the future.
Twenty-five percent of the total token supply will be devoted to building the Optimism Collective ecosystem. This will be split among the Optimism Collective, ecosystem partners as determined by the Foundation, a seed fund for early-stage projects, and future proactive allocations.
The Ecosystem Fund will not get any additional funding following its initial OP token allocation. By the time funds have been spent and support and building are underway, the team is optimistic it can shift the funding to private investors who will be rewarded through the retroactive funding model.
Retroactive Public Goods Funding
Optimism has been retroactively funding public goods for much of its recent history, announcing last July that all revenue generated from block sequencing would be dedicated to such funding. To date, over 1 million USD in retroactive funding has been granted.
In addition to revenue derived from block sequencing, Optimism is allocating 20% of the initial OP token supply to retroactive public goods funding. This retro funding is expected to occur quarterly, with an eye on ensuring that the community and companies that make up the Collective are fairly rewarded based upon their impact.
To understand the full power of the Collective, to truly realize its potential for large-scale impact as a protocol that is also a public goods funding factory, we have to get into protocol economics: the ‘OP’ in ‘Optimism’.
Users interacting with the protocol create transaction fees that would fund public goods even without the OP token. But the OP token is the fuel that will ignite the Optimism Collective into a public goods funding powerhouse, building flywheels capable of creating large-scale and lasting change.
Believing that robust public goods enable an abundant ecosystem, the Collective seeks to generate value through a virtuous tokenomics cycle that is elegantly simple:
Sequencer fees generated through the protocol are the source of sustainable revenue that will enable OP’s economy to bloom into a flourishing ecosystem. Like our frens at Tally Ho, the Optimism Collective has hard-wired public goods into its ethos and its product, turning the protocol into a public good.
The first round of retroactive grants for public goods largely focused on tools and infrastructure within the broader Ethereum ecosystem, which will pay dividends for future builders and users. This flywheel of public goods funding is what we get when we incentivize participants to work with new models of social and economic coordination with a focus on building a robust ecosystem.
We have choices about the way we spend our time in Web3. Determining the methods by which we transact within our ecosystem must align with the overall vision and ethos of how we engage with this wide-open playground. There are many scaling solutions available to help us live a cost-effective life on chain, but there’s only one Optimism Collective.
Powered by the protocol, the Collective is evolving into a fully incentivized community capable of bringing sustainable funding to those who are sowing the early seeds for a rich and vibrant ecosystem. The Collective is tasked with supporting the gardeners tilling the soil, providing it with nutrients, and tending to the shoots as they slowly grow and spread into a lush, interdependent canopy.
Now is a great time to become more OPtimistic. Check to see if you can claim some OP tokens. Get involved in their Discord, apply for a job at the Optimism Foundation, or just follow them on Twitter and help spread the word. Claim or swap for OP tokens and get active in Token House governance or work to become a member of the Citizens’ House.
We have the choice to support protocols that are building innovative governance structures to serve the greater good. It’s easy to get lost in the cryptoverse, but the Collective’s guiding light gives us good reason to be more optimistic not just about crypto, but about our collective future.
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Hand-picked articles to understand the current state of the DAO ecosystem
DAOs at a Glance
Dive into the concept and various forms of identities in web3. Starting as a reference, it defines different identities (transactional, personal, collateralized, social, reputation, and data) and protocols / services using each. It looks into the inter-relationships between identities, their implications (fraud prevention, scaling, data availability), and some real-world use cases. It also touches upon how DAOs are creating unique identity structures requiring careful governance.
Author of article: Packy McCormick
Newton's Alchemy: A Celebration of Failed Experiments and Progress by Packy McCormick discusses why failures are necessary for technological success. His comparisons are drawn from a 2017 article about Newton, the “father of science” and the juxtaposition to his belief in and pursuit of alchemy, a “failed” branch of science. It is easy to look back and be confused that this scientifically-minded individual was so deluded into thinking that alchemy was possible. The thing that is pointed out, is that it hadn’t yet been shown to be impossible, and the 17th century was a time of discovery. McCormick points out that without Newton’s erroneous observations, those after him would have made the same or similar observations. Those errors moved the research forward more quickly. Essentially, the questions that were being asked were the pointers for future researchers to follow and find new methods.
This is all tied together at the end when he looks into the similarities of the age of experimentation in the 17th century, the current crypto bear market, and what he’s seen people call “nonsensical use cases.” Like alchemy, some of the crypto projects seem really far-fetched. But similarly, without the alchemical questions, chemistry would not have been developed in its footsteps. Without the “nonsensical” use cases, there would be difficulty in finding what IS useful. The optimism in his point of view is well stated when he says, “My hope is that people don’t stop trying weird stuff and that investors don’t stop funding weird stuff,” and closes with, “we keep experimenting and failing and learning and tweaking. The best is yet to come.” The power in experimentation isn’t knowing the answer, nor specifically finding the next new thing, but paving the way for others to learn from, ask the questions and create.
Author: Joey DeBruin
The ‘bucket’ lens comes from the Web2 ecosystem, where employers task their staff to work for the major part of a day, 9-5. Given the chance, these employees will prefer to work across different platforms without overexerting themselves at one company. The idea behind communities being clouds and not buckets stems from the ability of contributors to work and make a contribution to different DAOs. This makes such a contributor unique, making them a valuable asset in the space.
Author: Daniel Ospina
A leader provides direction, makes changes, and rallies others. We are familiar with all these concepts, but one thing to note is that charging a leader with all these responsibilities and qualities to master can be very demanding. Could this weigh leaders down? Maybe we could solve this issue with a construct where responsibilities are split between different individuals. Each elected role holder handles their own task, discusses with other role holders, and engages members. Although some leaders may lack certain skills, increasing collaboration between leaders may create better solutions and grow the organization as a whole.
🔥 and 🧊 insights from across the DAO ecosystem
🔑 Insights: Although everyone in the world does not know about web3 ecosystem as well as the web2 space, it has thrived and made an impact on users. The web3 ecosystem might hit 1 Billion users in the coming decade.
We are in the 4th phase of the price innovation circle. This cycle is composed of a few stages: prices attracting new entrants, new interest and social media activity, more people getting involved—contributing new ideas and code, projects and startups getting created, and finally product launches that inspire more people, eventually culminating in the next cycle.
The web3 Ecosystem is a better place for creation than the Web2 space: Considering how many creators are in web3 versus web2 and how they have been paid so far, web3 platforms pay more than the Web2 platforms. Web3 space has over 22,400 creators (based on the number of NFT collections) and has paid out $174,000 per creator, while Meta has paid out $0.10 per user likewise other web2 platforms.
The web3 space is still in its early stage: Web2 is crowded with lots of creators across the globe, but web3 is still nascent. Now is the the best time to learn and leverage the possibilities of Web3.
Author: Kelsie Nabben
🔑 Insights: The article defines DAOs from multiple angles: cybernetics, law, and economics, briefly analyzing different DAO design patterns, the choices driving them, and their implications.
The definition and design of DAOs is contextual and they encapsulate early cypherpunk ideologies.
Cybernetic definition of a DAO is similar to a human-software ensemble, comparable to a regenerative economy, with symbiotic characteristics. Legal definitions account for the more algorithmic and computational nature of DAOs. Institutional economics define DAOs as digital organizations, wherein DAOs are simply the next evolution of how people will coordinate.
The primary factor that influences the design of a DAO is its purpose (what is being decentralized, automated, or organized).
Common components of different DAO design patterns include primary objectives, tokenomics, capital allocation, participation principles, dispute resolution mechanisms, and communication & coordination processes.
Author: Rohan Dasika
🔑 Insights: Web3 platforms have changed the narrative of reputations. Previously, reputations were limited by geography to now being based on participation in projects like DAOs, NFTs, DeFi, and other dApps.
The world wide web consortium (W3C) introduced a standard for a verifiable credential (VC), creating a mechanism to issue credentials in a cryptographically secure, private, and verifiable way.
Unlike in web2, where reputation is centered around digital media platforms, web3 has a real-time methods for documenting reputation using tools like fungible and non-fungible tokens.
Earnings made from community participation can move with you as you join new communities enabling these communities to understand your reputation within the ecosystem.
dApps easily run aggregate reports on credit scores to determine trustworthiness and then use these scores to build lending protocols to allow under collateralized loans.
🔑 Insights: DAOs don’t use legal courts to enforce and verify commitments, but instead use blockchains and code. DAOs don’t fit into any legal category because decentralization is an essential component of DAOs and legal entities are centralizing forces.
Legal entities are, in part, defined by their physical location, but DAOs are decentralized and located in the metaverse and are often composed of pseudonymous contributors.
Legal entities are tied to the nation states they’re associated with, but because contributors are all over the globe, its rules are enforced by code, and
SubDAOs may be the bridge between nation states and DAOs. They can be legal entities, hold physical properties & assets, and KYC their contributors using third-party services, without revealing government identities.
DAO Spotlight: Tribe DAO
TRIBE DAO was born alongside “Fei Protocol” as a governance layer for the FEI stable coin and its treasury management strategy called “Protocol Controlled Value (PCV)”. During the launch of FEI V2 the TRIBE token became more than just governance rights for the protocol it also became a backstop for the FEI stable coin. In the event of a [black swan event](https://www.investopedia.com/terms/b/blackswan.asp#:~:text=A black swan is an,they were obvious in hindsight.) the protocol can mint additional TRIBE tokens and sell them for FEI to backstop the peg. To compensate TRIBE holders for this added risk of dilution the protocol started monthly buybacks of the token when the collateralization ratio of FEI is higher than 100%, meaning “number go up” for TRIBE holders as long as the treasury is managed well; this aligns TRIBE holders with the FEI mission of long term success and healthy reserves.
In December of 2021, Fei Protocol and Rari Capital completed the largest merger in Web 3 history by merging the multi billion dollar Rari suite of products with FEI and rebranded under the umbrella TRIBE DAO. A token swap was completed with Rari’s governance token “RGT”; the tokens were converted to TRIBE uniting both groups under one banner. The merger was beneficial for both teams as RARI’s killer product “Fuse Pools” needs liquidity to bootstrap new pools and FEI with its large treasury is looking for yield on its liquidity, these two together allow the teams to start new pools easily with FEI stable coin depth.
This liquidity match led to two more product offerings for the TRIBE: Tribe Turbo and LaaS (Liquidity as a service). Tribe Turbo gives new tokens a line of credit with FEI to bootstrap liquidity in yield generation strategies. The cost is close to nothing for the borrower and allows these tokens to become productive assets when paired with FEI in AMMs and DEXs; FEI and the borrower split the revenue generated by the strategy as each party committed 50% of the capital.
The other product offering that came about was LaaS in partnership with “Ondo Finance” that allows new DAOs to borrow FEI to create liquidity pairs in places like Sushiswap, Uniswap, or FUSE pools to create a liquid pair for the swapping of its native token; you can read all about this innovative product for new DAOs here.
The TRIBE just keeps getting bigger with two new protocols joining the TRIBE in April of 2022: Midas Capital and Volt Protocol. Midas Capital is a new sub-dao of TRIBE with the mission of bringing the magic of FUSE pools and other TRIBE offerings to new (and potentially all) EVM compatible chains and making the TRIBE a multi chain lending / borrowing giant. The other new member of the TRIBE family is “Volt Protocol” which is a stable coin set to keep pace with inflation, while the original code is a fork from FEI the peg mechanisms of VOLT are new and complex to say the least, have a look at the docs to learn more..
With all the new entrants joining the TRIBE the DAO has positioned itself to be DeFi’s first modular DAO powerhouse bringing multiple talented teams, products, and capital together to be a full stack operation in Web 3. Check out the Tribe Discord and the analysis from Bankless (Is TRIBE Undervalued? By Bankless).
Get Plugged In
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