[TEMP CHECK] Defining the Service Provider & Delegation Platform Relationship

Governance
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title: [TEMP CHECK] Defining the Service Provider & Delegation Platform Relationship
author: @llamaxyz
created: 2023-03-25

Summary

This publication introduces a discussion if entities can receive payment for being both a Service Provider and Delegate Platform.

Abstract

Within the Aave ecosystem there are numerous Delegate Platforms and several Service Providers. The prospect of becoming a paid delegate has emerged and this publication seeks to define the relationship between delegate and service provider in the context of receiving payment from Aave.

At the core of the topic, should a Service Provider that offers a Delegation Platform receive additional payment for providing the Delegation Platform service. Similarly, should Delegation Platforms who progress to becoming a service provider continue to receive delegation platform payments. How could Aave remunerate delegates who offer more than governance participation. Are these mutually exclusive payments or is the same entity able to receive payment for being both a delegate and Service Provider.

As Aave does not offer payment for providing a Delegation Platform, this conversation is pre-empting a future state within the community. By having this conversation now, it will provide clear indication of the communities sentiment to be factored into various contributors future plans whilst not adversley affecting any current contributor.

Motivation

A quick summary of Delegation Platforms which are either current or proposing to become a Service Provider:

At the time of writing neither of the teams mentioned above are seeking payment for being a delegate.

There are numerous delegates within the Aave ecosystem which are supportive of delegates receiving payment for the service they are offering Aave. This has been mentioned in the comments on this thread. Through passing conversations and reading over other governance threads, several current delegates are intending or considering contributing to Aave beyond participating in governance decisions.

With the emergence of the prospect for paid delegation and there already being service proviers with delegations platforms, there is the potential for Aave to provide payment to the same entity for being both Service Provider and Delegate. This publication does not present an opinion, as it affects the author, but seeks to kick start the conversation and will continue to update the post based upon community feedback.

From a budget perspective, Aave needs to consider the prospect of remunerating delegates and how this affects service providers with delegation platforms. Similarly, how would Aave reward delegates who provide a service beyond participating in governance.

To help kick start conversation, a few considerations are shared below:

  • Delegation Platforms are providing a service to Aave and therefore should be considered service providers and thus rewarded for there efforts.
  • Service Providers are sufficiently paid and any delegation platform should not receive additional payment.
  • Delegation platforms represent an additional time commitment for Service Providers and should be consider worthy of a separate payment.
  • Delegation Platforms may seek to submit AIPs and spearhead initiatives adding value beyond a voting service. Examples include supporting adoption of GHO and market marking services etc…
  • AGD can be used to provide incremental payments to delegates who perform a service beyond voting participation
  • Should Aave consider a potential voting delegation renumeration construct which recognises registered addresses with voting influence and how active they are within Aave governance. There are several iterations of this across the industry which can researched and tailored to suit Aave. Would this approach include or exclude Service Providers.
  • Delegation Platform may build a material voting base which then enables easier transition to becoming a Service Provider.
  • Service Providers require proposal power to submit AIP and the emergence of delegation platforms may lead to teams loosing proposal power preventing AIPs from being submitted. This may suggest a preference for Aave or stkAAVE holders to separate voting and proposal power delegation.

The above outlines some considerations for discussion in the comments.

Next Steps

Continue the discussion in the comment section below.

Based upon commented, crowd source several voting options which can then be presented to Snapshot as part of a [TEMP CHECK] and then used to shape an ARFC proposal.

The ARFC seeks to provide clarify on the communities outlook for delegates and service providers.

Copyright

Copyright and related rights waived via CC0.

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Hello @llamaxyz,

Thank you for initiating this crucial discussion on defining the relationship between Service Providers and Delegation Platforms within the Aave ecosystem.

As the Aave-Chan Initiative (ACI), we believe that it is imperative to establish transparent guidelines for compensating entities that contribute to Aave in various capacities, including as Service Providers and Delegate Platforms.

We propose that Aave should assess the value provided by these entities in each role independently. Service Providers are essential for driving the growth and development of the ecosystem, while Delegation Platforms facilitate governance by actively participating in decision-making. Consequently, it may be appropriate for entities that contribute in both capacities to receive distinct compensation for each role.

Nonetheless, we acknowledge the importance of maintaining transparency and clear boundaries. To ensure fairness, we must establish expectations for each role and evaluate the contributions of each entity accordingly.

Currently, given the DAO’s revenue and overall maturity, we suggest that only Service Providers seek compensation from the DAO. Delegate Platforms may explore alternative avenues for support, such as the Aave Grant DAO or initiatives like the recently funded Buttery.

As the Aave ecosystem continues to grow with the upcoming emergence of GHO and portal revenue, new pathways for delegation compensation may become more viable. However, it is crucial to remain vigilant about potential “grifting attacks” that could exploit the system. To prevent such scenarios, strict monitoring of delegation platform compensation is necessary, with safeguards in place to ensure that no entity (A whale, a centralized exchange, a protocol) can create a bogus delegate platform, self-delegate, and cash in the budget without providing real value.

If the conversation moves towards compensating delegates, the program should have limitations in place: a time-bound renewal (quarterly), a restricted budget (allocated by quarters), a maximum compensation cap for a delegate, and a whitelist of participants approved through a DAO vote.

We eagerly anticipate engaging in further discussions with the community and collaborating on a fair and transparent framework to reward all contributors to the Aave ecosystem effectively.

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Thank you for initiating this conversation @Llamaxyz

If we are to use the lens that ‘Governance is a service’ that a group can provide to the DAO similar to other services, then each service should be separately compensated since each service is a specific expertise which costs time from talented individuals who offer this service.

The DAO should clearly segment the services it seeks and spin up separate budgets for each segment similar to the ongoing ARC: Incentivized Delegate Campaign (3-month) campaign. This allows multiple providers to bid for multiple services and the DAO can choose the best from each provider under each category

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The topic of “Delegation Platforms” and “Service Providers” is becoming a bit messy from my perspective, with the perception that they fit into the same bucket. Some thoughts of mine about them.


First the “simple” one. Service Providers provide work that gives operational value to a protocol like Aave, work that the protocol itself can’t get done anyhow else without the participation of an external entity (team, contributor, etc).
Compensation is just clear following relatively standard laws of economics.


Now, Delegation and Delegation Platforms. Delegation is a native optional “optimization” of the governance system of Aave: it is optional because the core of the governance still is direct voting (you have AAVE, you can vote), it is optimization because, in practice, it is not so simple to create awareness and expertise about all proposal for AAVE holders.
Additionally, delegatees act as a “cost optimization” mechanism on the current governance, as voting is still relatively expensive at the moment, and whenever a delegatee votes, can represent numerous delegators at the same time.
So even if slightly different, delegatees (or platforms) can be compared to politicians, as elected representatives of a group of voting power holders.

Compensation for this work could be reasonable, as it clearly gives some value and optimizes participation, but there are aspects that should be taken into account as requirements:

  • Being a delegatee on any non-Aave community should not be allowed. It is completely unnatural that people representing the interests of AAVE holders are heavily involved as representatives of other communities, sometimes what we could consider competitors.
  • Public messaging regarding Aave should be healthy and reasonable. Criticism is obviously good, especially here on the forum, but there should be a clear line if somebody is “officially” representing the community. Examples of clear misconduct in my opinion are heavy external criticism of Aave, or clear endorsement of competitors of Aave.
  • Full disclosure of commercial interests of the delegatee/platform. It is the common norm in blockchain/DeFi to be collaborating with multiple protocols in parallel. In my opinion, the field is “green” enough for this to create clear conflicts of interest, so in order to avoid policing overhead, full transparency should be required, and any lack of it, should mean immediate removal from any Aave dynamics.
  • Whenever there is any type of delegation agreement behind the scenes, full disclosure about it, as it clearly distorts the meaning of the participation.

Now, do I think the previous should be implemented? Not really.

Instead of spending resources and time on bureaucracy and politics, the community should be focused on:

  • Come up with improvements to the governance system itself (not only technical but also design innovation) to increase participation and reach.
  • More educational material to inform AAVE holders, and more channels to distribute this material. Can be debatable, but I feel it is way more healthy to have 1’000 AAVE holders voting and participating directly in governance than 10’000 delegating.
  • Find out the right place on Aave for the “platforms” build around delegation. Blockchain technology is a change of paradigm, so the same can probably apply to delegatees/politicians.
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Hi @eboado, @MarcZeller and @jengajojo,

Thank you for commenting on the forum publication.

It is great to see the community engaging on this topic. Llama is seeking to better understand the communities views on these topics as we progress towards shaping a forward looking budget. We agree there are many possible implementation solutions, to which the community can decide upon what to implement. The key conclusion we are seeking to draw from this discussion is if/when Aave expects to allocate funding to delegates platforms and how will these be funded. If there is clear preference for a Service Provider, who also manage delegation platforms to receive separate payments, then this will feature in the overall DAO’s budget construct. Similarly applies, if a Delegate Platform must be an Aave maximalist and not receive payment from other entities for a similar service, then this will likely impact Aave’s over delegation platform budget.

It is apparent from reading the comments further discussion is needed, particularly in the area relating to what other activities delegates can partake / receive payment for. Anything mutually exclusive, ie: Aave maximalist, will have a dramatic affect on the eligibility of many existing delegate teams to seek funding.

Disclosure:
Llama is a delegate across multiple communities. Clarification around Aave DAO’s stance on this topic is of a particular interest and Llama intends to remain impartial throughout the conversation. A similar post relating to Service Provider and the division of various work scopes is something we seek to publish in the future as we advance towards creating an overall DAO budget.

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Hi Everyone :wave:

To progress this conversation and ensure the communities wishes are reflected in the forward looking budget for the DAO, @Llamaxyz intends to present a Snapshot vote that will determine the path forward.

Note: Llama has already began researching various options and contributors at Llama have implemented governance processes at several well known DAOs, like APWine and Paladin DAO. Financial analysis for how this would affect the communities cash flow and runway has already began. This is something we are looking to showcase on the UI that Llama is building for Aave DAO as we continually add features over time.

The vote shall present the following options to the community:

Option 1 - Delegate Gas Rebate Program

This option reflects the proposal outline here and no additional funding outside of this proposal is to be allocated to delegates for governance participating during the next 6 months. After the 6 month window has passed Aave DAO is then able to review this decision.

Option 2 - Incentivised Delegates Program excluding Service Providers

@Llama shall design an Incentivised Delegate Program, which only recognised delegates are eligible for inclusion within, for the community to review and comment on. This will include a review of existing programs already implemented in the industry, with the a recommended program being published as a TEMP CHECK for the Aave DAO to review and iterate on.

Do note, Service Providers are excluded from receiving economic reward for being a recognised delegate platform.

Option 3 - Incentivised Delegate & Service Providers including Service Providers

Similar to Option 2, with the only difference being Service Provider are to receive payment as a Recognised Delegates.

The outcome of this vote will lead to a revision of the DAO’s financial forecast and runway. If the community elects for an Incentivized Delegation Program, Llama will provide analysis for how this will affect the communities runway. We believe it is beneficial for an proposed incentivized delegate campaign to contain a analysis, including sensitivity analysis, creating visibility around the affects it will have on the communities runway and profitability.

@Llamaxyz intends to create a Snapshot vote starting Monday 8th May. We are more than happy to include community feedback.

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​​This is an underrated reply, kudos @eboado .

It seems to candidly represent the state of Governance within Aave and others, linking it to real-world examples for greater comprehension:

In addition to politicians, some alternative ways to view this role:

  • Management consulting
  • Activist investing

Each team takes a different flavor toward approaching this role & responsibility.

While I agree with most points, I’d like to click in on the following topic:

Not sure this is entirely the right perspective. Almost all - Flispide, Penn, Wintermute, LBS, Wallfacer, Michigan, StabeLab - represent other DAO communities. Each team isolates this responsibility differently.

While some may disagree, we (Flipside) look for opportunities that benefit both communities. This may be particularly true in ecosystems where there are synergies, such as Optimism.

We diversify across product type - avoiding doubling up on the same type of protocol.

By contributing in others, it leads to cross-network context, creates representation, and allows for greater knowledge transfer as some organizations are in different stages of maturity (i.e. Hop vs. MakerDAO.)

Furthermore, the community has just voted to approve ACI’s expansion to “have an active presence in other DeFi DAOs and representing Aave-DAO interest there.”

I do - however - agree delegates should not represent a direct competitor.

@eboado how do you approach this with service providers? Should it be regarded the same way?

Back to the basis of @Llamaxyz proposal:

I do not see the need for service providers to earn additional compensation as delegates.

Furthermore, there is a clear conflict of interest when they are voting on treasury management, risk, or technical implementations that they have brought forward.

It is beyond the scope of work, expensive and dilutive.

Let’s focus on team’s core competencies.

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Hi @fig,

Thank you for commenting on the post. Most of the feedback resonates with Llama’s views.

Could you, or Flipside, please expand on the comment specific to conflicts of interest ?

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Sure thing! This line feels like a fair interpretation and baseline:

Some examples of malice I’d see:

  • voting on the XYZ acquisition while being a XYZ delegate
  • increasing the supply cap on ABC while working with ABC protocol / DAO
  • voting on the introduction of another, potentially competitive service provider

Just a few examples of potential sticky situations Aave may find itself in. Some of these we have griped with in the past - but it feels as if we are maturing, passing these.

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We are inclined to lean towards Option 2.

The role of a service provider and delegate are delicate positions which must never be convoluted.

The primary basis for this is conflict of interest as @fig points out clearly.

If a Service Provider is allowed to actively participate as a recognized delegate, and is compensated as well, there will be an increased likelihood of conflicts of interest arising in the course of carrying out both responsibilities.

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with the ACI we’re in support of Option 2.

As Service providers, we’ll be sitting out of any delegate compensation program.

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Hi Everyone,

A Snapshot vote has been created, link here.

Thank you in advance to those that participate in the vote.