Wasteful treasury spending on bad proposals, grifting and other harmful phenomena are common among DAOs with open proposals. Some of the late incidents are Bankless allocating Optimism tokens for themselves and Aave firing its service providers for non-performance (after spending several hundreds of thousands of dollars).
I propose that Shutter DAO set internal rules to encourage good finance and project management.
For any proposal that allocates a significant amount of money, there should be at least two competing proposals from different service providers, to encourage price competition among the service providers
Each proposal should include a budget breakdown, deliverables, phases and projected spent
Each proposal should come with a staged money rollout with phase-gate process to ensure that the service provider is delivering. If a phased gate is reached and the service provider is not delivering, the contract should be terminated. A lot of money is wasted by keeping bad ventures going forward when there is no clear requirement to terminate the process early.
There should be a CFO role representing the interest of DAO members. The CFO should fill in details in the proposals comparing prices, quality and other factors of the service providers to ensure DAO members have correct information and understanding of the quality of proposals and choices they make. Itâs important that these facts are independently checked and e.g. the information about the general market prices of different services does not rely only on the service providers themselves.
The CFO should also gatekeep the proposals and make sure any proposal is well-prepared before the DAO can vote on it, with the power to veto bad proposals.
Iâd be concerned about empowering a single individual to gatekeep proposals or hold a veto power of some sort. Iâm not even clear how youâd accomplish this with executable proposals. Is this a model that youâve seen other DAOs use?
I have seen success in this general area in DAOs that utilize small groups that are elected to be resources in this area. Those groups help shepherd and advise on proposal creation, but they hold no special authority over the delegates or proposals. Usually 3 people in the group as a minimum. Those groups can help signal on âspamâ proposals vs âendorsedâ proposals if you will, but the permissionless nature of a decentralized DAO could be questioned if a single individual controls and/or vetoes proposals.
@miohtama - Thank you for the thoughtful proposal. I agree it is important for Shutter DAO 0x36 to have solid financial management and prevent wasteful spending.
You argue Shutter DAO 0x36 should have more strict requirements for proposals that allocate âsignificant amount of moneyâ.
How would you define âsignificant amount of moneyâ? Or how do you think about the threshold?
Assuming CFO is paid $100/hour to review and edit proposals
Proposal is for $10,000
CFO spends 2 hours to review the proposal is a good and has accountability
Money spent: $200 (2%) on the proposal for the review.
Money potentially saved :$10,000
Money lost: $200
We can set e.g. 3% threshold and then based on the âreview budgetâ I would assume the practical proposal budget threshold limit is somewhere $15k - $25k.
Iâd be concerned about empowering a single individual to gatekeep proposals or hold a veto power of some sort.
If the DAO is unhappy with the performance of CFO or thinks rules are not being followed, DAO can get rid of the CFO.
I have seen success in this general area in DAOs that utilize small groups that are elected to be resources in this area. Those groups help shepherd and advise on proposal creation, but they hold no special authority over the delegates or proposals.
There have been several incidences of wasteful DAO treasury spending because these groups are not accountable. Nothing prevents them from making proposals for the DAO to buy services from their friends, whereas free market services would be multiple times more cost-efficient.
For the reference, here are some public procurement rules and thresholds from the UK and Finland. Note that these are states with $100B+ budget, so thresholds should be multiple times higher than for a DAO. But this gives context and rules on how a good and accountable service providing and public fund distribution looks like.
These are nice references because they are public, unlike corporate internal procurement procedures, which would be closer to what a DAO needs.
Thank you @miohtama for proposing this, at Kleros Labs in the long term we think the idea of setting up the role of a CFO to overview expenses could make sense. However it has to be the right person and no CFO could be better than a bad CFO, so the no-CFO option should be available if this is pushed to vote at some point.
There is also a Web3 CFO Club that would be good to share synergies and best practices. Our own treasurer would be able to get an intro there. Agreed that one of the key roles of the CFO would be to take care of the Financial Well-being of the DAO and compare the different Service Provider costs in a neutral way. However regarding this specific part we also have some concerns:
As mentioned by @5pence this is in our opinion too much power in the hands of one person and out of the scope of the CFO in our opinion.
The other important point we want to stress is that the DAOs mentioned (AAVE, Compound, Arbitrum, Optimism) have millions under management. However, as Shutter DAO is in its early days. So in our view the need for a dedicated role is limited for now.
In the short term, articulating the high level vision and setting the DAOâs priorities for the next months/quarters/year is more useful. This discussion as a community will inform the future expenses, whether or not a CFO enforces them. A good example is this vote: this vote from Arbitrum DAO
