Ratification of Profit Definition for Round 4

[kaereste]

@spengrah

I see what you’re saying, though I think you probably mean “outputs” instead of “outcomes” (the latter is basically equivalent to “impact” ).

English is not my native language so it’s possible I’m not communicating clearly, sorry about that. But what I mean is that what we’re really paying for with grants is not impact. It would be irrational to expect impact as an outcome, since it’s unpredictable and highly dependent on luck and timing. We’re paying for people to make an effort on bets we make together. But we don’t pay for impact.

It’s like hiring a salesman. You pay a retainer for certain things that the salesman is supposed to do, the whole abracadabra cargo cult that is supposed to bring you sales. But sales are not guaranteed, it’s a kind of magic, some salesmen have it, some don’t. So if you really want to optimize for the number (or size) of sales, you have to incentivize the salespeople with some % of the revenue they bring.

That’s how I see the grants vs retro relationship.

[kaereste]

And for clarity - grant recipients that bring exactly 0 impact while delivering on all the critical milestones will still receive the whole grant amount, same as grant recipients that bring significant impact. That’s why we need retro to reward impact.

[OPUser]

Voted - Yes
I have already mentioned my concerns on this topic, and it’s great to see ideation around it. The current impact=profit metric is flawed as it gives an added benefit to projects that have already acquired significant $OP from the collective. One obivious counter argument to this is that our forum is open and anyone can submit a grant proposal, so why they didnt ?

If you only count transactions or fees generated as impact, most of it could be because such projects received millions in $OP and used it to farm/reward users, thus creating artificial engagement/impact. How can you compare the impact of such projects with those that didn’t receive any grant? Their impact is modest but consistent. Shouldn’t one of our goals be to reward such projects as they are doing something new, pushing innovation, and taking risks in creating something new?

I am not suggesting charity. In the past, I have generously rewarded non-developer impact (public goods) because our operating manual allowed us to do so. I was able to make my own decisions within the boundaries of our collective constitution.

It seems this proposal will pass without ratification, and I don’t have a full picture of the fallback plan set by the Foundation. However, if I am (as a badge holder) forced or bounded by the operating manual to rubber-stamp the current definition of impact=profit, I will choose to Abstain from casting my vote. I find it morally and ethically wrong that these two are put into the same bucket.

[Baiqi]

Voted - Yes
I believe that the part about already receiving funding must be considered. There are many teams that haven’t received any funding but are still doing great work; they deserve more weight.

[Michael]

Voted no.

I think there should be some form of grant subtraction, but that it should be very small just to add a tiny bit of friction into the system.

But 45% and 25% on builders/foundation grants is just too high in my opinion. Grants work best when there is a strong incentive for projects to continue and go for RPGF afterwards.

[ccerv1]

I voted no.

It’s a tough call, because I do believe there should be some form of subtraction that can be applied consistently, but doesn’t distort incentives. I didn’t like in Round 3 how that was a factor that badgeholders were supposed to assess alongside impact.

However, it’s clear that opinion is divided both about the rationale and the math behind this proposal. It’s hard to predict how these rules might affect RF4 distribution outcomes – there would effectively now be an impact threshold that a project would need to cross in order to receive retro funding.

In the long run, the thing I care most about is sending a clear signal to projects about what forms of contribution will be rewarded, so they can build in that direction and eventually have something resembling predictable cashflow. This feels like one step forward, two steps back.

[Griff]

Despite being connected to several projects that got grants, I am voting for deduction.

Projects that get grants have a huge advantage in Retro Funding. They have gone thru the process of getting a grant, so they got

• Exposure to a bunch of badgeholders
• Feedback on their project, before starting and a long the way.
• Funding to execute it and maybe even farm users.

Again, it is worth repeating these are HUGE advantages!

Projects that are innovating without permission and adding value are HEROES and they should be given extra consideration IMO. The easiest way to do that is to deduct funds from projects that were given grants.

It seems like the framing for this proposal is “let’s take money from projects that got grants…” When, in reality the impact of this proposal is more like, “Let’s reward projects that add value for our ecosystem without asking for grants a relative bonus.”

I mean its SOOOOO much easier for a project with a grant to get passed the RF4 requirements than it is for a project without grant. Especially growth grants which are explicitly for farming users! We should acknowledge that and give the projects that didn’t need funding to add value a bump, the easiest way to do that is to deduct from the projects that get grants.

Also, it seems underspecified what happens with the money that would be deducted from the projects. IMO I would like to see that funding go back to the grant programs. It seems like we are way under budget on RetroFunding (~20% of the token supply) and if the Grant distributor does a good job, and projects they pick do well in RF, then it makes sense to send more money to their grant program so it can be given out to more projects. It’s a nice positive feedback loop.

[Jonas]

Annotation
In case the proposed profit definition is ratified, the OP amount deducted from the impact rewards will be returned to the Retroactive Public Goods Funding treasury.

Thank you for raising this question, the post has been edited to reflect this.

[joanbp]

I voted No.

Here are some of my reflections.

Random sampling and my basis for voting

I was not among the badgeholders randomly selected for participating in the deliberative process, but I have read all of the documentation and watched the recordings that were made available afterwards.

I do understand the wish to include other badgeholders than those who generally show up for everything, and to experiment with random (representative?) sample groups of citizens coming together to deliberate. And I don’t want to devaluate the care that went into choosing this setup!

However, the question of defining what we actually mean when we speak of ‘impact’ and ‘profit’ is at the core of everything that we do here, and in my opinion it would be better to include as many badgeholders as possible in the process - and especially those who have a lot of context and are very engaged.

I understand that in the future there may be many more citizens, and random selection for focussed discussions may be the only way to go, but at this point, only 30-40 citizens regularly participate in the ratification of token house decisions, and it seems very clear to me that there is a huge variance in what different citizens bring to the table. A random sample will hardly be ‘representative’ in any meaningful way, and even if that was the case, it might still be better to bring as much knowledge and engagement into the discussions as possible.

How much support is there for the proposed definition?

I notice that in the original post about the plans for the deliberative process, it was said that 50 citizens would be randomly selected - but going through the documentation, it seems that only 25 participated. At least, only 25 voted on the inclusion and weighting of deduction parameters.

I understand that 10 of the 25 participants (40%) voted against including the category of OP grants in the deduction formula.

As of right now, with two days to go, 28 citizens have voted for or against the ratification. As I understand it, several of these (like me) were not part of the random sample, which seems to implicate that not all who participated in the deliberations are voting on the ratification. For whatever reason. In any case, as of right now, the preliminary results indicate approx. 2/3 votes against the ratification.

EDIT: Quite a lot of votes came in the last two days. The distribution of votes for/against the ratification has remained roughly the same, however, with a clear majority of No votes.

What did the deliberative process show?

After having gone through the documentation, my main takeaway is this:

It seems very clear that there is a great need for much more shared context when discussing these questions.

Participants noted that they learned much from participating, and many were surprised to learn about the nuances of the grants process, such as that certain grants were not given to the builders themselves, or that funds might be locked up for up to a year.

These nuances are obviously important, as underpinned by the fact that the initial proposal to vote on a single weight for the deduction of any kind of OP grant was changed on the last day of deliberation into a proposal to vote on weights for each of three different kinds of OP grants.

My conclusion

Impact and profit are highly complex abstractions. Even if we only speak of the kinds of projects that will be rewarded in rpgf4 - and I think it would be a mistake to only look at those.

There is a great need for deliberations such as the one that we saw here. Those who participated learned a lot. The rest of us get to learn from the documentation and the recordings, but it seems clear to me that even more could be gained from including all of the most engaged citizens in the actual deliberations (simply by inviting them to join if they have the time and wish to do so).

It is too early for standardized formula like the one proposed. We have to start somewhere, yes, but then let’s start with the discussions and the deliberations - as we have, here.

As such, I think the experiment with the deliberative process is a huge success.

Realizing that something is more complex than you might have thought is not a bad result, even if it can feel like one step forward and two steps back. Rushing forward is no use if you are running in the wrong direction.

[Tamarandom]

I voted no.

I waited to hear more POV before making a final decision, putting my own cognitive bias in check, and some of the above rationale feed into where I landed.

I acknowledge a distinction between projects that have and have not received grants. I also acknowledge that we should not punish projects building in OP, whether or not they have received a grant in the past. Rather, we should boost rewards for anyone that develops the OP ecosystem without receiving monetary incentive. Many will be new and operating purely on intrinsic motivation. For me, this embodies the permissionless ethos web3 represents. It avoids thumbing the scale in favor of a few projects selected by a small, centralized group of grant decision makers.

So, it would be better to see non-grant-awarded projects receive a boost vs. grant-awarded projects get dinged. Even if we are to go the ding route, I do oppose a kind of penalty introduced suddenly, at the 11th hour. That feels rushed and, despite the careful consideration and deliberation of 25 Citizens, the numbers seem arbitrary.

I may be wrong but if Growth Grants are required to be passed entirely to the end-user, wouldn’t every Growth Grant directly increase the onchain activity only for those projects enabled to incentive end-users to interact with their products and protocols? Considering R4 is all about measuring onchain activity, it doesn’t seem fair not to take that into consideration. (Even if the grant recipient “only” gets funds to pass on to the end-user, that can result in significant monetary incentive to use their products and protocols vs. others).

While I do agree with the principle this means to address, I do not agree with the implementation proposed.

[brichis]

GM! As a Citizen I’ll be voting no as I don’t agree with the amounts; however, I do agree with the deduction.

1. I don’t think we should consider Growth Grants at all, as they’re directed to the final user at 100%. I believe, as Citizens, we need a bit more context about how the Token House Missions and Grants work.
2. The different amounts between Token House Builder Grants and Foundation Grants should be quite similar, or even the same, if they have the same restrictions such as the one-year lock.
3. As a project, applying for a Grant can be strategic. It highlights the entire process, provides visibility, and ensure that what you are building is aligned with our Intents (high-level strategic goals as a Collective). For me, this deduction can serve to decrease the number of grant applicants requesting a huge amount of OP that will be locked for one year. Instead, they might propose more conservative budgets with the aim of having greater distribution via Retro Funding.

Basically, grants that are locked for one year are the only grants where I could consider a deduction to avoid double dipping (If you are applying with the same impact that you proposed in the Grant). Thank you for allowing me to be part of the process, it has been very interesting.

[jackanorak]

I think as a practical matter we shouldn’t even be discussing the immediate implementation of kneecapping teams like this until we can properly measure and reward impact. Until project teams are able to reap the full value of the impact they’re having on this ecosystem at this critical, early stage, this strikes me as a conversation more about vague notions of fairness, ‘deservingness’, and pie splitting than about what will materially benefit the Collective. Meanwhile, if we underreward impact and overdeduct grants, you end up zeroing out the projects that have actually contributed, which in my view is much more detrimental than double-counting (which, again, isn’t a thing here).

From a fact-finding perspective, last RPGF we saw a massively skewed distribution of OP away from actual onchain impact, which is why we’re running the experiment we are now. We haven’t even seen the full results of our attempt to use onchain metrics for this one. Wouldn’t it make more sense to run this experiment free of confounders (and yet another chilling effect on project interest) before rushing this implementation?

At minimum, when we’re making determinations on what’s important to back out, we could first be having conversations with badgeholders to ensure they have full context on what the grants are for and to whom they go. Even in this chat I’m seeing wildly different definitions.

If we’re speaking about where are are at this stage, when we talk about projects that are contributing but need disproportionate distribution because they haven’t gotten grants, exactly which projects are we talking about? Who’s had a major impact and is poised to do so this coming season but is at risk of missing out on benefits here? Or are we getting ahead of ourselves and instead putting ourselves at risk of taking oxygen out of our growth?

[Joxes]

As a citizen, I voted No on the proposed profit definition.

I support many of the arguments for why not implementing this definition is appropite. While I can understand and partially agree with considering Grants as a variable for allocating Retro Funds (not talking about the approach presente), ultimately, I suggest being extremely careful about the signal we are sending here.

As it is mentioned above, in the past, Grants at Optimism have taken an approach where they do not entirely seek to allocate all the project’s value via the Governance Fund, which ensures that in terms of accountability, not everything is responsible for the grant program but also makes projects look to deliver+make real impact inmediately. So anything lacking in funding is supplemented and more in Retro Funding, if executed well (it was suggested somewhere to divide 50/50%). So, risks of failure are still presented for any project: total resources spent vs. any return.

This means that Grants are treated more as subsidies for things that the Optimism ecosystem really wants to see working and is willing to partially finance, nothing to do with committing gains/impact rewards upfront. In the specific case of Growth and Experiments, I believe it is more related to measuring impact after the incentive program ends as a factor to determine if the project maintains some user retention, rather than penalizing them simply for having received a boost via Governance/Foundation Funds.

So, I see two key interrelated aspects in order to have more effective iterative processes:

• Predictability about the funding roadmap: I don’t think it’s entirely good that projects that have already applied for a grant are suddenly notified that they will be deducted a percentage of whatever they have done afterward. Even if the Retro Funding strategy pivots to take this into account, this invariant should be informed first in order to the next grants program accomodate for.

• No more isolation: looking at the big picture, all this discussion looks more like a demostration we need more coordination between both houses, Token and Citizen. I believe that any OP grants program should have partial synergy with Retro Funding, or things will continue to fall out of sync.

For all these reasons and considering that Retro Funding 4 has had a series of radical changes in other areas, I believe it is appropriate to go forward with the fallback definition.

[jessepollak]

I voted Yes on this ratification.

Prior to voting, I read all of the prereads, the summaries, and the comments in this thread up until this point. I found the deliberative process to be thoughtfully run and also found the conversation here to be positive and inspiring. I am grateful for all of the hard work that went into both the upfront deliberative process and all the responses that folks have written out here.

I found my personal perspective on the specific subject matter at hand to be a very close call — on one hand, I do believe that we should be weighing upfront grant funding as a component of overall reward, on the other hand, I also observe that we are very early in our ability to understand cause + effect, measure impact, and really understand these systems. Weighing it all out, I came out at probably 52/48 in favor, similar to @spengrah.

That said, what ultimately gave me the confidence to vote Yes is the belief that we are playing an infinite game and that action produces information that will help us play that game in a better, more just way.

We decided to run a deliberative process. That process was thoughtfully run. That process gave us an output.

Is that output perfect? Absolutely not. The output is controversial and complex and not 100% clear. But that’s exactly what we predicted when we started the process and why we ran the process in the first place. This is the hard work of incrementally building new governance systems that work better than anything our world has seen before.

I vote Yes to stand behind that process, embrace all the learnings we get from it (and the output that it got us to), and make our next process + systems better with those learnings. Onwards!

[cheeky-gorilla]

I voted no on this, because I feel strongly that “revenue” should be deducted as well. I also feel that a “no” vote is the most efficient way to instigate that change.

Let me explain:

My original dream outcome* for RPGF was that it would allow public goods projects - despite generating no revenue! - to be valued based on how much RPGF they’re expected to receive in the future. This could create a virtuous cycle where investors pursue investments in public goods projects that have the highest potential to do good, knowing that their “return” would come from RPGF. This would also allow these projects to create tokens, which would be valued based on expected future RPGF, providing earlier liquidity to founders and investors if needed.

Obviously for the above to become a reality, there needs to be significant and reliable capital available for RPGF, and I think we all hope that OP will get there…! But this dream outcome also requires RPGF’s eligibility criteria to allow projects to (1) receive VC investment, and (2) create tokens / do ICOs.

Now, given the above, and the fact that VC investments are a sort-of loan that needs to be repaid, I agree with not deducting that.

But as I mentioned at the start, I feel that revenue should be deducted. Not deducting revenue puts public goods projects which cannot generate revenue on unequal footing with other projects that can. To be clear, my intention is not to exclude projects that generate revenue, just to reward them less. I would love RPGF to incentive projects to maximize their potential to do good, as opposed to pursuing revenue opportunities.

I do understand that deducting revenue could get messy (having to attribute revenue specifically to OP/superchain usage), and might lead to creative accounting which muddies things. I believe this is partially why only OP grants were included in the proposed deduction, since such data is easy to get. I also fully realize that this proposal’s fallback is not scalable and will lead to inconsistencies in badgeholder voting, but that is precisely why I prefer it in the short term - since I know it will force us back to the drawing board to find a better solution asap.

So for the avoidance of doubt: I 100% agree with having deductions, and to that extent, this proposal is a step in the right direction. However, this proposal also codifies that revenue will not be deducted, which I disagree with strongly enough to vote against the whole thing.

*I realize my “dream outcome” may be naive, but that is why I wanted to become a badgeholder: to push in that direction! Until that disqualifies me from being a badgeholder, that’s what I’ll keep doing.

[amer]

I voted to ratify.

While the proposed percentages don’t reflect exactly how I think deductions should be made, I fundamentally believe that deductions should be made for past transfers (as I shared throughout the deliberation process). I agree wholeheartedly with @Griff on why the deductions should be made. Ultimately, the goal of this is to reward impact and any OP builder grants are a form of reward. If the impact is determined to be much greater than the initial grant, then the project would be awarded accordingly.

One area where I disagree with the proposal: I don’t believe that Growth grants which are passed off to end users should be deducted at all (i.e. 0%). This doesn’t seem fair, especially as growth grants could be quite large; even a 10% deduction could negate any RPGF award that a project has earned.

Ultimately, I think the most important thing is acknowledging that these changes are not final. We are experimenting and iterating honestly and openly. We are on the cutting edge of governance. In order to discover the best systems, we must keep learning and adapting. We’ll learn from these changes and continue to improve. @jessepollak put this beautifully above. This is ultimately why I’m voting to ratify even though the proposal isn’t fully aligned with how I see things.

It was a pleasure participating in this process! Thank you to everyone who made it possible.

[philknows]

I voted to ratify this and very much echo some of the comments made by @jessepollak and @amer made.

Ultimately, I think it would be disingenuous to the work that was put in place to have a forum + process of deliberation and also to the validity of the votes during the deliberation process if we ended up not implementing what we’ve already voted on during the process. This to me would endanger the spirit of the whole deliberation process if we rugpull the collective results and decide not to ratify.

I agree that improvements should be made to the deliberation process and perhaps some voters were not fully aware or had full context of what they were voting for - but that’s an improvement point for RPGF5 IMO.

I don’t think this is a result that is perfect nor should we expect it to be. It should be expected that these numbers or even the categories of deduction will change in the future based on data we collect this round. It’s very much an iterative process. I think it was most important that we have a place and process to vet highly controversial and divided ideas to understand various viewpoints. For the most part, this was done and we voted to do something (even if it’s not right or perfect).

I would encourage those who chose not to ratify to think about the spirit of this process and refrain from denying the results of the deliberation just because the results didn’t reflect what you wanted.

[dmars300]

I voted yes.

• I think we should definitely consider past grants & revenue for the final allocation of RF.
• Although I don’t agree on all numbers of how deductions work, I think experimenting with this is worth it. We’ll learn from it even if this doesn’t pass, we are learning through the deliberative and Ratification Process. So this is great.
• I’d love to take a more active role on the next convo around this.

[jackanorak]

@philknows

to have a forum + process of deliberation and also to the validity of the votes during the deliberation process if we ended up not implementing what we’ve already voted on during the process.

This opinion is based on an incorrect premise. The Deliberative Process wasn’t designed to ratify any initiative but rather to escalate proposals to a badgeholder-wide vote. The expectation is not (and should not be) to have the Citizens House rubber-stamp whatever is escalated.

@philknows

I would encourage those who chose not to ratify to think about the spirit of this process and refrain from denying the results of the deliberation just because the results didn’t reflect what you wanted.

I would argue that speaking out and voting against what you think is bad policy is exactly in the spirit of this process; otherwise we would not have a ratification step that encourages voters to look deeply at the content of the Deliberative Process, not just the results. This is not the time to shut down conversation.

---

One thing I’d like to add to my posts above, as I’m worried I wasn’t clear: this is certainly an important issue that demands (and has gotten!) a lot of thoughtful discussion. We’re at the start of what will definitely be an ongoing conversation as our understanding of impact and profit evolves, and I’m not categorically against deducting all proactive grants, particularly if we can establish a framework that links Token House and RF grants.

The point I’m making above is that as an advocate for this program’s growth and sustainability, I see little practical upside and pretty substantial downside from moving from discussion to policy action, especially considering how arbitrarily determined the final recommendations were and the Foundation’s own admission that we’re not yet ready to define Profit.

Okay, I’ll stop for real now.

[fujiar]

I Vote No

I choose to reject the ratification of the profit definition for Round 4 because I feel there are critical elements that have not been adequately addressed in this proposal, particularly concerning revenue. I believe that revenue should be part of the profit calculation to ensure fairness between projects that generate revenue and those that do not. Excluding revenue from the calculation could place public projects that cannot generate revenue in an unfair position. Additionally, I am concerned that the proposed definition is not ready for implementation and could create bigger problems in the future. By voting “No,” I hope we can return to the negotiating table to find a better and fairer solution for all parties involved