Whitepaper - Wrapped DAOs structure for Iota Community Funding using an Iota Web of Trust

Author: @dumdave (Iota Discord)

last change to this doc - 19 Nov 2021

Note that TangleDust.com is not an official Iota site and the views expressed here are exploratory only to assist the community in developing its own ideas.

[1] Background - The Treasury Vote

It is likely that before the end of 2022, Iota will establish a Treasury to hold and distribute the equivalent of USD 100 million, though this could be vastly more if the Iota token happens to gain in value by that time (or of course, considerably less). There will be a vote first on whether to establish the Treasury fund or to 'burn' the tokens, for which the voting method has already been decided - it will be essentially 1 Miota = 1 vote. This document asssumes that the community will vote to use the money for positive causes. Even if the vote did go the other way, the work described below would still be a useful community asset.

Much of the discussion about the Treasury vote has centred on the technical method to be used, which seems likely to be '1 Mi = 1 vote' with a plugin to the Iota Firefly wallet as the place where voting occurs. Voting will take place over a time period to stop Iota tokens being rapidly moved around, and any Hornet node will be able to track voting. NB This paper is entirely about what happens AFTER that vote - it accepts entirely the existing decisions on the initial vote.

[2] What happens after the Treasury Vote?

Day 1 - the community celebrates as there should be ample funds to back all useful looking ventures. Then the questions arise.

Who is going to administer the fund? [who do we trust to hold the keys to the money?]

What is its legal structure? [who is volunteering to get made liable for tax?]

Who takes decisions on allocations of money? [can the money all be spent in the first year?]

Will all the decisions be dominated by the 'big bag' holders? [and will they use that to give money to each other?]

This paper suggests one possible future, and asks for support for the approach. It is assumed that there will be other whitepapers with their own proposals, so a second '1 Mi = 1 vote' (hereafter called "Vote 2") is likely with the community being asked to choose between the whitepapers. If this one is selected, then the following will happen.

[3] System of checks and balances

Guiding principle The sums of money involved here are large, and no Iota holder wishes to expose Iota community funds to risk, so any solution needs to provide a robust solution that can resist gaming. That means that the guiding principle must be practicality not a desire for utopian solutions. The proposed solution would have these components, each expanded upon in following sections.

[3a] A Swiss limited liability company (GmbH). Other locations are possible (e.g. UK) as are other company strutures. This is currently under research by @Node Runner following on from this previous paper which sets out the excellent reasons for needing such a company.


As a working title in this document, this company will be called Iota Community Funding GmbH

Iota Community Funding GmbH will have formal legal control of all funds made available following the Treasury Vote though it will request that the Iota Foundation retain custody for security reasons in the short term, releasing only 10% for the first 12 months of its operation. For the purposes of this paper it is assumed that total funding will be USD 100 million, so Iota Community Funding GmbH will have access to USD 10 million in its first year of operation.

The operation of Iota Community Funding GmbH will be governed by a Constitution (see below) which will have been adopted as part of "Vote 2". As set out there, the company will be proud to pay taxes and will seek to have a positive public image. All decisions and financial transactions made will be formally made by this company.

[3b] A Written Constitution. The Constitution will set out a structure for decision making by Iota Community Funding GmbH through the use of two DAOs (Decentralised Autononymous Organisations). These will operate at times in harmony and at times in tension, and that is a feature not a bug. The two DAOs structures and purposes are set out individually below. Note however that, from the start, neither DAO has any executive authority - they do not themselves bind Iota Community Funding GmbH to do anything, they merely advise. In no circumstances do they themselves distribute funds.

This means that Iota Community Funding GmbH is in a powerful position and could abuse its powers. That is balanced by the right of Iota members to appoint or require the resignation of any controlling officers of the company. This in itself could be done by a vote of either of the DAOs, with a 'disqualification from standing' by either DAO being binding and not reversable by the other.

It may also be possible for Iota members to get injunctions in the courts to require banks and others involved in the custodianship of Iota Community funds to suspend access while such changes to company officers takes place.

This paper is not the correct place for a draft of the Constitution, but the principles that will be contained within it are set out throughout. Any final Constitution will also require formal legal advice be taken on the precise wording to be adopted.

[3c] The Community Fund Governance DAO. This is the senior of the two DAOs in that it is responsible for the major strategic decisions. These need to be refined but they would include, for example, the following.

[a] Decisions on pacing of spending. That is, what the annual allocation of funds to community projects should be.

[b] Decisions on valid areas of spending. That is, setting out the principles for the next year on the type of project to which money may be allocated. For example, ruling out or allowing political or charitable donations.

[c] Decisions on the minimum requirements for a spending proposal. That is, the extent to which the money can be given to anonymous sources, the staging of funds and the controls over failures to meet any given plans.

[d] Decision on the allocation of funding specifically to support the functioning of the other DAO and Iota Community Funding GmbH, for example remuneration for those spending time in the administration of the DAO.

Note that the Community Fund Governance DAO will have no ability itself to actually allocate funds to any community or other project.

As set out in [3b] above, any decision taken by this DAO is only a recommendation to the company Iota Community Funding GmbH though a failure to follow its recommendations could be a serious matter for the company and its officers.

Voting Method '1 Mi = 1 vote'

The Community Fund Governance DAO will arrange its voting on the basis of '1 Mi = 1 vote'. This recognises that the big holders of Iota are mainly those with a good knowledge of the project and with a substantial investment in keeping it progressing successfully. At the same time, as the community funds are owned by the whole community, there is no reason for the 'big holders' to dominate decisions on the allocation of those funds. The Community Fund Governance DAO therefore has the role of ensuring stability but with no ability to access the funds itself.

[3d] The Community Fund Distribution DAO.This is the DAO that will be responsible for making all decisions on community project proposals. It will arrange the structures under which proposals for community funding can be brought forward, for example setting up a four month cycle of proposals, proposal refinement and voting. It will conduct the votes and decide on the way that funding is allocated.

As with the first DAO, any decision taken by this DAO is only a recommendation to the company Iota Community Funding GmbH from whom any actual payment is disbursed.

Note that this DAO is bound by the strategic decisions made by the 'Community Fund Governance DAO'. Should it try to allocate funding in contravention of the rules set by the other DAO, the company will be required to ignore such recommendations.

Voting Method '1 human = 1 vote'

This is the most innovative part of this proposal, and the part therefore needing most serious examination. It has at its core the following requirement for those allowed to vote.

"A tangible contribution must be made over a period of at least three months in the last twelve months involving a sustained personal effort to move the Iota project forward in a positive direction. This must have been observable to the general community."

This author believes that Iota is in a position to create a 'Web of Trust' that can overcome the commonly argued cases against such a voting system. Here is a brief examination of those arguments.

[Arg 1]. Why don't we just use KYC (Know Your Customer)? It is trivially easy to show that Know Your Customer does not work at all in Iota's case as anybody is allowed to buy Iotas at a cost of less than USD 1.00 if they wish. Therefore there is no block on anybody in organised crime from arranging for a thousand (or ten thousand) real people buying Iota and then taking over the voting system. They could then direct all community funds to their own projects. KYC is dead in the water.

[Arg 2]. If you allow anonymous Discord names, I could set up as many as I want? Which is true, if having an anonymous Discord (or Twitter or Reddit etc) name was the only criteria for being allowed to vote. Under this proposal there is an additional requirement to demonstrate a tangible contribution to the Iota project (as set out further below). It might be possible to have one ID as a Developer, another as a Reddit contributor, a third as a Twitter personality etc and make a solid contribution in each role - but it would be hard to keep them apart under close examination - and to lie to get a second or third personal vote would be risky to your reputation and would mean losing any vote at all as well as possible disqualification for applying for funding. So not so easy - and see the suggested system for how this would be handled.

[Arg 3]. It might work at first but once it grows to bring in the people working on Iota related projects, won't it spiral out of control? Now this is a serious question and it needs careful examination. At the moment most people in the central Iota community are known to each other quite well. If the ability to vote is to encompass the whole community however then it needs to be allowed to those who make a great contribution while never setting foot in a Discord channel. How is that to be handled? A proposed solution is explained in the 'reputation colonies' discussion below.

[Arg 4]. It isn't democratic to limit who can vote, and goes against the whole principle of a DAO! In truth, DAOs are a bit too recent of a concept to have hard and fast principles that we all have to abide by. Letting anybody vote was an easy decision when the voting was token weight based. After all, if your big holders control over 50% of the tokens, what does it matter if you let ten thousand people vote who hold just one each? In short, Iota's DAOs belong to Iota and the Iota community can arrange them just however they wish.

A fuller explanation of the 'Web of Trust' and 'Reputation colonies' is set out below. For the moment though we need to complete the Legal Structures.

[3e] The Iota Foundation (IF)

The IF does not wish to have any role in running this system, but the fact that they have the power to stop and start the network, and hence to control trading in Iota, is important for any situation when things go badly wrong. In Constitutional terms they will occupy a role similar to that of the Queen (or subsequent Monarch) in the UK Constitution. They have no formal powers but if they indicate their displeasure then things get changed.

Under the Constitution proposed above, if a majority vote of either DAO requests it, then the IF will be asked to get involved insofar as their involvement can help rectify matters. The limits of this power need legal discussion with the IF.

Important note There will need to be a fallback system for DAO voting in the event that the Iota network is unavailable.

[4] Proposed Iota 'Web of Trust'

It is worth briefly mentioning the origins of this idea, as they appeared in this Reddit post in early November 2021.

DAO Food for thought (Future) Voting, WoT, Proof of Humanity

That generated a lot of discussion both on Reddit and the Iota Discord and so key elements are repeated below in modified form - taking on board some of the points raised in earlier discussions.

IMAGINE The first vote has been taken using the new DAO based on the innovative Iota Proof of Humanity/Web of Trust system. The vote is over and the project has been passed by 240 votes to 70. That is, 310 people who have been 'verified by Iota as a unique human' have voted.

Examining the vote to see who was in favour we look at a list of their IHUDs (Iota Human IDs), listing them by IHCTs (Iota Human Confidence Types) for convenience. IHCTs have no priority order and any particular IHCT confers no different benefits or status than any other. They are an administrative tool.

We find the following:

a) 50 IDs with IHCT = "nm". These are Humans who are happy to be identified by their real names and who are prominent in the community. Dominik, Navin and Serguei are there. Despite having enough Miota to outvote everybody, they are also happy to participate in this more democratic 'one human one vote' DAO.

b) 70 IDs have IHCT = "pr". These are also prominent Iota people with formal roles (IF Member, Moderator etc). The only difference is that they have chosen not to be identified by real world names but have chosen Discord or Twitter handles instead. It has been easy to check that their chosen 'handle' identifies the relevant person easily enough. No further qualification was needed - their contribution is obvious to all

c) 80 IDs have IHCT = "cm". These are largely community members who are known through making a 'tangible contribution' to the Iota project. For example, the people behind the well known SWARM, Tanglesea and other DFI and NFT projects are there, as well as regular contributors to the Discord channels who assist in helping others, and of course the developers. The term 'tangible contribution' had been one of the most difficult to define in the early days but it was easy to see that, as on the main network, there was a need to define qualification for an IHUD by some reference to a finite resource (as in dust protection).

During the initial process it was discovered that a handful of people here had tried to game the system by using two IDs, both with a significant contribution but in different areas (e.g. Reddit v Discord). They had received a six month voting 'yellow card' and had the threat of a 'red card' now if they repeated the offence.

It was suspected that there were still a very few people who had multiple IDs. This was not a worry though as few votes were likely to come down to a margin of less than ten, and the guilty would be weeded out over time. In any case, this DAO was only concerned with allocating funds to particular community projects - it didn't control major funds so the rationale for cheating was very limited.

d) 40 IDs had IHCT = "co". These humans were the first people to qualify through the 'reputation colony' system. Most were people working on local Iota projects and they had been verified by a particular 'colony' made up of humans with existing IHUD status who jointly vouched for their contribution.

The 'reputation colony' system was in a constant state of development but was based on the experience of colonies across the globe. Newcomers were viewed with a certain suspicion until they had proved their worth - and time and reputation were both used to winnow out the suspect. For example, each colony was limited in size and would be split into two new colonies once it passed the threshold. Colonies which admitted people who behaved badly would lose their right to admit newcomers. Being able to vote in the Iota Community Fund Distribution DAO was a sought after privilege so people understood that admission could take some time.

[5] Technical Registration and Voting for the Iota 'Web of Trust'

The Iota DID System Iota is blessed with a sophisticated Decentralised Identity system that is nearly ready for release and which operates on the fee-free Iota network. That gives the Iota community a substantial advantage over others who have tried to use 'Proof of Humanity' in situations where they incur large fees every time they try to register a new person.

Another advantage is that Iota has a technically sophisticated community so that people, provided with the appropriate prepared web tools, should be able to register themselves onto the Tangle and be authorised by the 'Web of Trust' manager. They can choose for themselves how much or how little information to give and no-one but them is responsible for GDPR aspects. There will be only minimal requirements to allow people later to associate a list of voters with their Human ID equivalents.

Better put would be: "individuals register their DID and are issued a Verifiable Credential by the Web of Trust" (thanks to a DID expert on Discord for the wording).

Actual voting will then be by use of the IHUD and its associated private key.

[6] Conclusion and Future Actions

The sections above set out a working system to manage the substantial funds likely to be available after a Treasury vote. The only alternative likely to appear is a pure '1 Mi = 1 vote' or some bastardised version thereof (Quadratic Voting). If the community wants to have real influence over funding for community projects, while keeping the funds safe, then I commend this solution.

If this Whitepaper receives a reasonably positive response then work will continue on the detail of this proposition, not least the wording of the Constitution.

There is also an Experimental Iota Web of Trust DAO being created to test the principles set out here. Simply DM @dumdave on Discord if you would like to join others in taking part and support moving the ideas forward. Note. You have to be identifiable as already making a tangible contribution to the Iota project to get an Experimental Iota Human ID but anybody can help to develop this idea.

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