New v4 Governance (council) Structure and Plan

Governance/DAO Discussions
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Last updated: 3rd June, 2023

Hello dYdX Community,

Following our recent discussion and insights shared by Matt from Synthetix, We’d like to propose a new governance structure for dYdX. This structure borrows from the well-tested structure of Synthetix while adding some unique elements tailored to our community’s needs.

We have crafted a flowchart illustrating an ideal initial structure for dYdX to provide a comprehensive picture of our vision and simplify comprehension. This structure has been customised to suit dYdX’s unique needs and goals. As we progress, elements like the Marketing and Legal Councils may need to expand geographically to enhance their effectiveness.

Furthermore, it will be crucial for the Treasury Council to devise a suitable funding strategy for each council. This could be achieved by allocating a certain percentage of fees generated, ensuring the sustainability and financial autonomy of the DAO. This financial infrastructure will allow us to maintain and strengthen our operations and adjust dynamically to any shifts in our ecosystem.

We view this structure as a stepping stone, an initial framework that we can adapt and evolve as our DAO matures and our needs change. This flexibility is key to fostering a robust, resilient DAO that can thrive amid the challenges and opportunities we will undoubtedly encounter in the future.

The full-size flow chart can be viewed here.

dYdX v4 Governance Structure
dYdX v4 Governance Structure1920×1096 89.6 KB

Laying the Foundations: Phase 1

We must establish critical components to initiate this transformation and set the stage for this structure’s implementation. This is essentially the first phase of implementing this structure:

Trading Council

Made up of eleven members, each compensated with 5,000/month, will play a critical role in assessing and deciding on proposed changes to the protocol. Their duties include:

  • Assess and discuss proposals.
  • Vote on proposals.
  • Evaluate Endorsed Delegate applications.
  • Approve Endorsed Delegates.

Treasury Council

Comprised of three members, each compensated with 7,000/month, will oversee the financial health of the protocol, ensuring that all councils and their members have the necessary resources to function optimally. Their tasks would include:

  • Allocate budgets to, and manage the finances, expenses, and payments for all councils and their members.
  • Fund incentives and strategically manage resources.
  • Engage in strategy and deal-making.

Endorsed Delegates

They will have a unique role in this governance structure, acting as a bridge between the community and the councils. We suggest dividing 2.5% of rewards among Endorsed Delegates for their contributions. Their primary responsibilities will be to:

  • Assess council member applications.
  • Elect all council members.

Funding and Site Updates

As part of this transformation, requesting funding from the treasury to allocate towards product development and technical work will be necessary. One key area of focus will be updating the official governance site community dashboard. Fox Labs would be available to help with this product development work.

Our recommendation includes adding a dedicated councils section where all councils and their member’s profiles can be viewed publicly. This would allow for transparency and visibility into the operations and membership of each council. It should be possible for any member of the community to nominate for council membership directly from the dashboard. This would facilitate the endorsement process, enabling Endorsed Delegates to elect new council members using their delegated tokens.

In parallel, we propose creating a comprehensive list of all Endorsed Delegates, complete with profiles and relevant details. This would be accompanied by a formal application process for those wishing to become an Endorsed Delegate and a mechanism for Trading Council members to approve these applications.

Trading Council Discussion

We have begun outlining the operations of the proposed Trading Council in a forum post. We strongly encourage all community members to review this document and provide feedback. Your insights and suggestions will be invaluable in shaping how the Trading Council and the entire governance structure will function as we move forward. Your participation is not just welcome – it’s vital.

Next Step: Phase 2

In Phase Two, the focus should shift to establishing the Grants Council and the Risk Council.

We currently have a Grants Program, run by Reverie, which should be transitioned smoothly into the council structure. Given the expertise and experience of Carl and Alexios, we recommend their automatic inclusion as two of the five members of the Grants Council for the initial term. The remaining three positions should be filled through the newly formed election process with the Endorsed Delegates.

After this we recommend future grant applications be posted as individual Discourse posts, creating an open and public forum for discussion. This will allow the community to monitor the proceedings around each grant application, evaluate the performance of council members, and ensure the highest governance standards. We suggest polls for each grant application post to involve the community further. These polls will enable community members to express their views on the value/worthiness of the proposal and the reasonableness of the funding amount.

Grants Council

Consisting of five members, each compensated with 5,000/month, it will have the following responsibilities:

  • Apply to the Treasury for Budget.
  • Assess All Grant Applications.
  • Vote on Grant Applications.
  • Advise the Treasury Council on Grantee Payments Due.
  • Oversee and Manage Grantees.
  • Handle Grant Project Communications.
  • Monitor and Report Grant Progress.
  • Facilitate Networking Among Grantees.
  • Provide Feedback to Grant Applicants.
  • Promote Grant Opportunities Publicly.

Risk Council

Consisting of three members, each compensated with 5,000/month, it will be responsible for ensuring the protocol’s integrity and its users’ protection. Its responsibilities will include:

  • Assessing the Feasibility and Risk of Proposals.
  • Monitoring and Mitigating Market Risks.
  • Developing Risk Models and Analytics.
  • Managing Asset Listing and Delisting.
  • Defining Risk Policy and Guidelines.
  • Communicating and Educating on Risks.
  • Creating Risk Evaluation Processes.
  • Advising the DAO on Risk Matters.

Final Step: Phase 3

In the final phase of this governance structure overhaul, we would establish four additional councils, each playing a vital role in the growth and prosperity of dYdX.

Ambassadors Council

Composed of five members to start, each compensated with 5,000/month, it will serve as the face of dYdX in the wider crypto community. Their responsibilities can include:

  • Advocating for dYdX Externally.
  • Building Relationships with Influencers.
  • Representing dYdX at Industry Events.
  • Collaborating with Marketing Council.
  • Ensuring Compliance in Communications.

Marketing, Communications & Growth Council

Composed of five members to start, each compensated with 5,000/month, it will play a central role in expanding our user base and fostering engagement. Their responsibilities can include:

  • Managing and Expanding Affiliate Programs.
  • Researching Market Trends and Audiences.
  • Handling Public Relations and Communications.
  • Coordinating and Overseeing Content Creation.
  • Fostering Community Engagement and Support.
  • Identifying and Managing Strategic Partnerships.
  • Conducting Market Analysis and Planning.
  • Ensuring Regulatory Compliance with Legal Council.
  • Tracking and Reporting Campaign Performance.

Validator & Market Maker Council

Also comprised of five members, each compensated with 5,000/month, it will work to enhance market stability and growth. Their responsibilities can include:

  • Establishing and Strengthening Market Maker Partnerships.
  • Supporting and Assisting Validator Networks.
  • Expanding Business through Strategic Initiatives.
  • Tracking and Reporting Key Performance Metrics.
  • Managing and Mitigating Business Risks.
  • Ensuring Compliance with Regulatory Norms.
  • Handling and Resolving Disputes.
  • Providing Support for Market Participants.

Legal Council

Consisting of two members, each compensated with 15,000/month, it will ensure that all aspects of dYdX’s operations remain within legal and regulatory compliance. Their responsibilities will include:

  • Identifying Legal Risks in Proposals.
  • Enhancing Proposal Compliance and Safety.
  • Providing Risk Management Guidance.
  • Advising on Legal Implications.
  • Liaising with External Legal Counsel.
  • Updating DAO on Legal Changes.
  • Interpreting Legal Matters for DAO.
  • Ensuring Compliance and Protecting IP.

With the implementation of these councils, dYdX’s governance will be comprehensive, well-rounded, and prepared for any challenges or opportunities that may arise in the dynamic world of decentralised finance.

This updated idea around restructuring the governance system is subject to further discussion and refinement. We must determine each council’s roles and responsibilities and establish clear expectations. We must define processes for replacing members who do not meet their obligations—establishing guidelines to prevent conflicts of interest and ensure transparency and accountability in governance bodies.

Regarding the proposed number and compensation for each council member, these numbers are initial suggestions and should also be subject to community discussion. They should reflect the complexity of the roles, the responsibilities undertaken, and the time commitment required, and they may need to be adjusted over time.

Your Voice Matters: Quick Poll on the Proposed Governance Structure

Help us gauge community sentiment about these changes. Even if you’re short on time or prefer not to comment, this quick poll lets you express your opinion. Your vote can shape the future of dYdX!

  • Absolutely! Bring on the new, sleek, democracy-infused governance structure!
  • Nope, let’s cling to the good ol’ inefficient, one token, one vote system.
  • Hmm, I’m a fence-sitter extraordinaire. Procrastination is my superpower.

0 voters

3 Likes
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Hey Kagan,

Thanks for the proposal above - will share my thoughts hereunder:

Firstly, the call with Matt was very informative and provided a lot of insight into the history of Synthetix, its evolution over time (from a governance perspective and legal perspective), and the lessons learned along the way. I personally think that calls like these with members from other protocols will be very beneficial in spearheading future efforts for the dYdX Ecosystem and, most importantly, increasing the community’s knowledge-base in regard to certain topics so that we are all well-equipped to discuss, propose and vote on future proposals in relation to pivotal areas within the protocol (a recap can be found here: Recap: Call w/Matt Losquadro from Synthetix re. Governance).

Secondly, I am personally not a fan of copying other protocols’ mechanics lock stock and barrel. Were this to be the case, there would be no legal or technical innovation with regard to implementing and adopting governance frameworks that are protocol-specific and community-specific. Different protocols necessitate different governance frameworks and different communities also necessitate different governance frameworks.

Thirdly, when you think about it, we already do have this framework in place and thus, what would this proposal really change? We have a Grants Trust (you can call it a committee, council, SubDAO - the name is irrelevant as it’s substance over form), we have an Ops Trust, we will have a Treasury Management Trust, Growth Trust, Risk Management Trust etc. (naturally the entity-type may change should there be some legislative changes within the jurisdiction that affect the operations thereof, however, thus far this structure has worked provided the functions of a Trust do not breach the laws of the jurisdiction, namely VASP Laws).

As I previously stated, what we should be doing is evaluating these calls and taking on the lessons learned from other protocols. Following that call, we should be discussing quadratic voting (its risks, pros and cons and whether it would be ideal for dYdX to implement), the Synthetix technical architecture in relation to not offering a front-end itself (ties into the front-end decentralization efforts being spearheaded by Ops - how can we improve, optimise and progressively decentralize this layer of our tech-stack?), introducing accountability metrics (ties into what Matt mentioned re. council/committee member inactivity), so on and so forth.

I do not deem the above proposal to be productive in nature as it would not change much aside from renaming what we already have or are intending to have in place.

2 Likes
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Hi @Immutablelawyer,

Thank you for sharing your insightful comments, they are appreciated. However, I respectfully disagree with some of the points you’ve raised.

Firstly, I would argue that we don’t have the proposed structure in place. What we currently have is Reverie running the grants programme and we are only now working toward creating an Ops subDAO. We don’t have a dedicated Trade Council that would vote on proposals, but rather we are relying on the one-token-one-vote system. In my opinion, the proposed structure provides a more organised and efficient approach to governance.

I completely understand your concern about copying other protocols’ mechanics. I agree that different protocols and communities necessitate different governance frameworks. However, I see the value in learning from established, tested systems and adapting them to fit our unique needs. The proposed structure isn’t about copying Synthetix’s system verbatim, but rather about taking inspiration from a successful model and tailoring it to dYdX, such as with the Marketing, Communications & Growth Council and the Validator & Market Maker Council.

In regards to the Grants Trust and other trusts you mentioned, I feel that having elected council members to oversee these areas could be a better solution. Currently, the system relies on individuals deciding they want to launch a trust, putting a proposal together, and then nominating who they want to manage it. Then, it’s up to the community to vote on whether they want to proceed with their plan. In my view, elected councils could bring more clarity and accountability to these processes.

I absolutely agree with your point about learning from these calls and discussions. Quadratic voting, technical architecture, accountability metrics, and other topics are certainly worth exploring. However, I still believe that putting a solid governance structure in place is a crucial first step that will allow us to tackle these issues more effectively.

If you or anyone else has a different proposal or ideas on how to improve the proposed structure, I would love to hear them. This conversation is essential for us to find the most suitable governance structure for dYdX.

Thank you again for your feedback.

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appreciate the proposal, but personally don’t love all the councils / sub daos here - feels overly bureaucratic and rather duplicative.

Right now as I understand it idea going into v4 is that protocol governance will essentially have relationship with two entities -

  1. Ops sub dao to coordinate bunch of back end operations and support requirements
  2. Foundation of coordinating legal things, full time contributors etc.

That simplicity I think is best - e.g. I don’t think there’s any upside to putting more organizational things under protocol / token governance. The main focus there should be the actual software itself.

Personally don’t think SNX or MKR are good models to follow - MKR especially.

E.g. would rather see protocol dao just appoint ops dao and /or foundation to handle all these things themselves and report back with details as necessary. tokens ultimately control the software (and funds) anyway…

1 Like
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@Phoenix in a truly decentralised structure, the community, not just a few entities, governs the protocol. This approach encourages a broad range of perspectives and ideas, encouraging innovation and ensuring the protocol remains resilient and adaptable.

While I understand and respect your perspective, preserving the decentralisation that sets DAOs apart from traditional centralised entities is essential. The challenge lies in balancing efficiency with the principles of decentralisation, ensuring the community remains at the heart of decision-making processes.

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I agree in principle. But practically speaking, in any case, the token holders / validators are still governing all software and capital assets via on-chain governance, and that is definitely totally decentralized.

Your proposal goes farther and suggests that all of the individual work-streams themselves, which AFAIK the protocol would otherwise just contract satellite entities to perform (via decentralized governance process!), also have to be on-chain and individually under governance control.

That just seems more complicated and less efficient. I don’t see the upside to putting those directly under token governance, when the alternative still gives token governance full control over revoking agreements with contracted entities e.g. and picking new ones anyway. Frankly I just see a lot of unnecessary added risk.

DYDX is one of the most, if not most successful on-chain projects to date. No secret that there’s a lot riding on v4 transition. And your proposal outlines a highly experimental and un-proven governance structure of putting all the individual functions being performed as “councils” on-chain. And I don’t think how experimental this would be is really up for debate.

So given all that, how would putting the individual cost structures completely on-chain create any additional value for token holders or project overall? Versus the more straight forward alternative…

Simple token-governed engagements with the subdao and foundation entities already in existence in my view is the most simple path forward, would accomplish everything necessary and in no way sacrifices decentralization of the software itself or of governance. Ultimately the most important thing to govern is software itself, as it controls all else…

So that’s my view. But I’m open minded to other lines of reasoning…

p.s. I think the councils you outlined here are pretty duplicative in nearly all cases - whats a “trading council”? what’s the difference between marketing / growth and ambassadors council?
Why is the treasury council doing strategy and deal making?

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I appreciate your perspective, @Phoenix, but I also see value in the proposed structure, and here’s why:

Firstly, while it may seem complex, it is designed to be efficient once set up correctly. This isn’t an unproven or experimental approach, but one that has been successfully implemented and tested by Synthetix over the years. The model has shown its merits and that’s why we are proposing it.

As for the roles of the councils, they each have distinct functions. The Trading Council, for example, would handle matters such as voting on relevant proposals and inducting members into the Protocol DAO. The Treasury Council, on the other hand, would manage the treasury, which involves strategic decisions and deal-making to ensure the funds are used wisely and grow over time.

The Marketing, Communications and Growth DAO would have a broader mandate, encompassing a range of responsibilities including but not limited to: affiliate system management, market analysis and strategic planning, partnerships and integrations, new market opportunities, user retention and expansion, performance metrics and reporting, regulatory compliance, marketing strategy and campaigns, brand management and public relations, community outreach, education and content creation, and partnership development.

The Ambassadors Council would focus on promoting the protocol, fostering relationships with other entities in the ecosystem, and advocating for partnerships. The specific responsibilities of this council can be further defined as we move forward.

In essence, the goal here is to leverage the diverse expertise of the community by creating specialised groups that can focus on distinct areas of the protocol’s operations. This can lead to more informed decision-making and efficient execution of tasks.

I hope this provides some clarity on the proposed structure.

1 Like
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it really does. i love well explained view like yours

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Hi @foxlabs
I agree with the direction of this proposal. However, there are some question and recommendations.

Question(1)
On what basis did you decide on the number of members and remuneration of each council?

Recommendations(2)

  1. Treasury is the heart of the DAO, and it doesn’t seem like a good idea to let just three people hold it. I recommend adding one from each Conucill.

  2. Regarding the remuneration of members of each Conucil, we recommend that you set KPIs agreed with the DAO and make some of them performance fees.

2 Likes
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Thanks for the proposal above - its really great but we can discuss about it.

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Hi @Oxlide , the old fox labs here. This idea is now outdated. Please ignore. As things have changed since this original idea.

2 Likes
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Hi @CipherLabs
What forum is being discussed about the structure of the dYdX DAO?

1 Like