1inch Network Treasury

[Natalia]

Aim of the proposal

Enabling full-fledge community governance of 1inch protocols, facilitating a sustainable, long-term model for revenue stream distribution.

Background

The 1inch Network’s DAO-based governance system has existed since December 2020. In June 2021, it was revamped. Now, time has come to make another step towards transparent and sustainable governance by introducing the Treasury.

Proposed Treasury scheme

The DAO makes all decisions on the distribution of funds accumulated in the Treasury, new token minting, adding and removal of modules from the network.

The Treasury’s central component is the Trading Strategy, a stable liquidity pool powered by the 1inch Aggregation Protocol. The Trading Strategy is executed as a newly-created fund subsidized exclusively by the 1inch Network protocols’ current revenue streams.

DAO_new (3)1980×1400 212 KB

1inch Governance

Treasury governance includes two layers of Instant Governance and a separate Governance system focused on community proposals and administered via Snapshot and SafeSnap voting.

On tier 1, 1INCH stakers and vested token holders vote on the revenue stream distribution, choosing among all available options, including token burning, payouts to referrers and depositing of tokens to the Trading Strategy.

Two types of tokens can be used for voting. st1INCH represent staked 1INCH tokens, and v1INCH tokens represent 1INCH tokens held in the vesting smart contracts and owned by backers, advisors and core contributors. (For more on 1INCH distribution, see this post.) st1INCH and v1INCH have the same voting power.

On tier 2, 1INCH stakers and vested token holders decide on the allocation of Treasury funds via Snapshot voting. The majority of these funds cover project development costs, while the remainder would be sent to a secondary burn address.

The Trading Strategy

The trading strategy is a 1inch liquidity pool of two industry-standard stablecoins (USDC-USDT). This automated market maker (AMM), highly profitable and optimized for the USDT/USDC pair, will be integrated as a liquidity source to the Pathfinder algorithm. Earnings are estimated to be around 5-10% APY. The Trading Strategy is viewed as fully open-source and available for various integrations.

SafeSnap

The governance process uses SafeSnap as a module enabling on-chain execution of off-chain votes.

SafeSnap facilitates the execution of transactions that have been approved via a Realitio question for execution. A question asked on Realitio consists of a proposal ID (e.g. an ipfs hash) that can be used to provide more information for transactions to be executed, and an array of EIP-712-based transaction hashes representing the transactions to be executed.

SafeSnap Module2624×1400 238 KB

SafeSnap Module (source: Introducing SafeSnap: The first in a decentralized governance tool suite for the Gnosis Safe | by Gnosis | Gnosis)

Overall, the 1inch Network Treasury is expected to come as a major step towards mature community governance of 1inch protocols, which, in turn, leads to long-term sustainability and growth.

Your feedback on this proposal will be appreciated

[flare]

Such good idea.Let’s do it!

[Anonymous353]

Nice!!!
Finally.

[Anonymous437]

100% in favor of this proposal, as a decentralized and self-sustainable funding mechanism is critical for 1inch Network’s future growth and regulatory resilience. The partial burn aspect will also contribute to a more reliable token value, thereby solidifying trust of the entire ecosystem as well.

[flare]

@Genkai.Shogun Bro,some suggestions?
Time to buy 1inch ！

[Natalia]

exactly, I specifically like the partial burn aspect of the revenue stream distribution which btw was inspired by one of the community member stated in this post.

I really hope this collaborative proposal can resonate with lots of good ideas expressed earlier on the forum, le’s get it implemented!

[Tanz0rz]

This is a great way to give the Treasury a safe yield while also enabling distribution of funds. One suggestion I have here is to split this into two separate proposals when moving to stage-2. I see two distinct features/proposals here. The first would be to implement the USDT/USDC trading pair with the Treasury. The second would be enabling delegation of those funds via SafeSnap.

[DemoPower]

great proposal !!!

[Anonymous345]

I see with the $5 million in the trading strategy it’s generated (roughly) 100k in 73 days. That does match the 10% suggested, but comparing it to curve.fi’s pools, this value extraction isn’t constant for the liquidity depth. With 10% on $5 million, and then take 30% of that to burn, that’d only be a $150,000 burn a year from the trading strategy; it almost doesn’t seem worth the burn unless more value was extracted. I think there should also be a burn limit given to the treasury in contrary to my previous point about too little being burned.

Assuming the APY is only driven by volume and not by the overall value of tokens in the pool, would it be better to have some sort of “stable protocol” that’s like curve.fi but instead it’s all fixed rate swaps on different pairs. This would allow multiple points of value extraction, even if requires an initial investment.

To add to the stable protocol idea, could users also get in on the stable protocol and invest some of their own tokens into the pool to deepen the liquidity and also get a decent APY. It would also keep the foundation from adding money from their own pocket to benefit the protocol. I mean it doesn’t look like anything is stopping someone from depositing their tokens into the trading strategy if they understand etherscan anyway. The contracts could even be set up to automatically extract some of the value that’d go to the LP and redirect it just the the liquidity protocol.

My last comment will have to be on referrals, I’ve shared my address with some people before and never generated any referral rewards, do referrals really need 20%? I think your referral program needs work.

I’d love some more input on this, maybe I’m misunderstanding something or maybe someone else has some better ideas to go with my suggestions.

[Roxan]

@Robert

I’d love some more input on this, maybe I’m misunderstanding something or maybe someone else has some better ideas to go with my suggestions.

To clear doubts Check these Original Post that started this
Gov.1inch.io/t/discussion-on-possible-1inch-tokenomics/2235
Gov.1inch.io/t/discussion-on-possible-1inch-tokenomics/2235/38
Gov.1inch.io/t/discussion-on-possible-1inch-tokenomics/2235/54

[Roxan]

@Natalia

Your feedback on this proposal will be appreciated

I don’t why but I smell lots of Manipulation in this

[flare]

Why？
First ,we both want 1inch project better and better.
Second, 1inch team put forward three possible schemes for integration, which is good for everyone.
Let’s make it great！

[Roxan]

It’s Because there are huge amount of things that are kept unknown in this proposal like

1. How much & How long the Burn Event will keep happening . Any limit ?
2. How Good Trading Strategy is ? Is it Wise to just depend on a Single revenue Stream ?
3. APY fluctuates heavily sometimes . What things are done to mitigate it ?
4. Snapshot Voting is Rigged by Whales & bad actors sometimes as we saw in UNI Governance .
   What Extra Steps taken by the team to avoid it in DAO ?
5. Why burn event has to take place from treasury why not doing it directly ? You don’t have to spend money to burn .
6. What factors influence Burning ? Simple burning is way to Direct & harmful & has no advantage unless we connect Burning event with some stuff like Binance did ?
7. I Agree with @Robert that Ref System needs a redesign & we can’t oversee it
8. VCs have too much power in voting why are they given these right to vote when you know that they’re not an individual but entire company ? Isn’t that possess a manipulation in gov system ?

[flare]

@Roxan

Because there are huge amount of things that are kept unknown in this proposal

1.I thinke the 1inch team has fully considered these 1-8 problems。
2.If they have time, they can fully discuss and interpret these (1) - (8)。

[3.1415r]

Great proposal! A few comments/questions:

1. Just to make sure I understand correctly, the plan would be to keep 70% of the protocol revenue for the Treasury and invest 100% of those 70% into the Trading Strategy, and then tap into that invested reserve to cover costs as they occur. Did I get that right?
2. Is there a dashboard somewhere where we can monitor periodical income and costs of the protocol? That would be very helpful to inform decision making re treasury management.
3. For the sake of trying to keep the structure simple and in line with @Robert’s comment, I would favour keeping the Tier 1 burn only and reinvest 100% of the Trading Strategy profits. If we want to burn more, we should be able to do that at tier 1 level by changing the % allocation.

[Roxan]

@3.1415r

favour keeping the Tier 1 burn only

+1 It’s Absurd to do 2 burning events

Also How about using that Tier - 2 30% Funds as an Treasury APY Booster instead of burning & invest that money in High APY pools ???

Like shown here

[3.1415r]

@Roxan

How about using that Tier - 2 30% Funds as an Treasury APY Booster instead of burning & invest that money in High APY pools

I like that idea, 30% in higher APY pools on blue chip third party protocols like Yearn or Convex.

[flare]

Burnning is to reduce supply, which will also improve APY!
At the same time, burnning is hitting the black hole. It is a dynamic regulation process. We can’t burn a lot at the beginning. We need dynamics!
Two layer burnning shows that we have used different strategies and produce different values.

[Natalia]

1. the percentages on the scheme is just to illustrate how the distribution may look, but it is all up to stakers to vote on the ratio (this is the Tier 1 on Instant Governance);
2. there is no dashboard or any other tools around the Treasury, but this is definitely something we should consider/develop;
3. as I said it is all up to the community to define the distribution balance .

[RoundElephant]

PROS

I’m a huge fan of formalizing the treasury strategy and value accrual mechanisms, and I love how this is a hybrid approach to the 1INCH Tokenomics post by Anton – token burn and stable trading strategy .

I’m a little confused are why there are two separate burn events. Is there a reason not to just have one in order to simplify it?

Also, is protocol income the only stream of revenue for the Treasury? I had assumed that some of the tokens slated for Community Incentives, or Network Growth Fund, would be diverted to the DAO’s treasury – who is controlling how these tokens are spent?

On tier 1, 1INCH stakers and vested token holders vote on the revenue stream distribution, choosing among all available options, including token burning, payouts to referrers and depositing of tokens to the Trading Strategy.

Awesome! I like this approach as it lets the token holders control the balance between investing in growth vs. 1INCH value accrual vs. long-term sustainability. This sets 1inch apart from other DAOs as we’d have a value accrual mechanism built in.

---

CONS

Two types of tokens can be used for voting. st1INCH represent staked 1INCH tokens, and v1INCH tokens represent 1INCH tokens held in the vesting smart contracts and owned by backers, advisors and core contributors. (For more on 1INCH distribution, see this post 5.) st1INCH and v1INCH have the same voting power.

This is pretty much my only source of concern with the proposal. All numbers I use below are from the Token Distribution page, please correct me if I am wrong about any of them:

• Total future diluted supply of 1INCH is 1.5 Billion
• Unvested tokens make up 55.5% of the total diluted 1INCH supply – 832 million 1INCH
  • 22.5% Core Contributors – 337 million 1INCH
  • 18.5% Backers Group 1 – 277 million 1INCH
  • 12.2% Backers Group 2 – 183 million 1INCH
  • 2.5% Small Backers – 37 million 1INCH
• Currently, there is only 181 million 1INCH in circulation (12% of total supply)
  • I believe most of these come from the initial air drops in late 2020 and early 2021
• The remaining ~ 500 million (33%)1INCH is slated for Community Incentives and Network Growth Fund.

So, if unvested 1INCH and staked 1INCH have 1:1 voting power, then unvested 1INCH would have an 82% voting super majority and staked 1INCH would have 18% voting power. I think these numbers would even out as early backers sell their 1INCH after it vests, but for the time being they’d have nearly total control over the DAO.

I trust the that the Core Contributors (22.5%) would vote in the best interests of the protocol as they are very informed, so I’m not so much concerned with those votes, it is the 33.2% of voting power going to Backers that concerns me.

---

SCENARIO

I could picture a worst-case scenario in which the Backers band together to vote for something that is in their best interest but not the interest of the protocol as a whole. Since there are far fewer Backers than protocol users, it would be easier for them to coordinate a vote (they’d probably delegate their votes to just a few representatives).

The combined voting power of the Core Contributor’s unvested tokens (22.5%) and all of the circulating 1INCH (12%) would only come out to be 34.5%. Backers Core Contributors and 1INCH holders would need over 96% voter participation, and all vote the same way, in order to beat out the combined voting power of the backers – this is nearly impossible to reach.

---

SOLUTIONS

Here are a few possible solutions I am weighing regarding the centralization problem I outlined above.

1. Don’t allow unvested 1INCH to vote and use a % of the staked 1 INCH as the quorum threshold instead of the 4 million
   • There have been difficulties reaching quorum so I assume that might have something to do with allowing unvested 1INCH to vote.
2. Only allow the unvested 1INCH of the Core Contributors to vote
   • I think the community trusts the decisions of the core team and they are undeniable the most informed voters.
   • One drawback of this is that it would still make the voting more centralized than most other DAOs.
3. Allow all unvested 1INCH to vote, but their votes are not worth 1:1 with staked 1INCH, they are worth a fraction.
   • I’d suggest using a multiplying that would set the combined total voting power of staked 1INCH (assuming all 1INCH is staked) equal to the combined voting power of the unvested 1INCH.
   • That comes out to 1stINCH having the same voting weight as 4.6 v1INCH.

I’d love to hear everyone else’s feedback on whether they are also concerned with that change to the voting system. And if they are, I’d like to hear their proposed solutions.

---

TL;DR: Allowing unvested 1INCH to vote, and giving it the same voting weight as staked 1INCH, would mean that the community of users and early adopters could lose control of all governance processes because there are far more unvested 1INCH than 1INCH currently in circulation.