Retro Funding 4: Deliberative process on the definition of profit

Retro Funding đź”´
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Optimism’s Retroactive Public Goods Funding (Retro Funding) has been initiated with the vision of impact = profit, the principle that positive impact to the collective should be rewarded. This principle serves as a North Star, motivating the creation of a more productive and sustainable ecosystem.

In previous Retro Funding rounds each Citizen conducted their own assessment of impact and decided how to calculate profit by considering the past rewards received by projects and deducting that amount from impact to arrive at a final OP allocation. In Retro Funding 4: Onchain Builders the Collective is experimenting with using a deliberative process to come to consensus on a definition of profit, which will be universally applied to the retro round. Badgeholders will no longer need to calculate profit, but instead, a collective definition will be applied and subtracted from each voter’s assessment of impact.

How the definition of profit will be applied in Retro Funding 4

  1. Collecting relevant information from projects: Within the Retro Funding application process, applicants are asked to provide relevant information on rewards they have received in the past. This information includes past Optimism grants, past grants from other ecosystems, revenue generated and past VC funding. Within the Application review process, it is verified that this information has been accurate; failing to accurately report past grants and funding will result in the removal of a project from the Retro Funding round.
  2. Deliberative Process: The outcome of this deliberative process will be a definition of profit for Retro Funding 4. The profit definition will be a formula, which characterizes how the rewards a project has received in the past should be considered when rewarding its impact.
  3. Citizens’ House Ratification: The proposed definition of profit will then be subject to ratification by the Citizens’ House. Ratification will require a quorum of 30% of eligible retro round 4 voters and 51% of votes to be in favour. Ratification will take place during Special Voting Cycle #23b (running from June 13th - June 19th).
  4. Calculating impact = profit: As an outcome of Retro Funding 4 voting, each project will be assigned impact rewards (in OP). To calculate Retro Funding rewards for each project, the ratified profit definition will be used to calculate the amount of past reward units received that are to be deducted from the impact rewards. The ratified profit formula will use inputs from project (see step 1) to define past reward units received for each project, which will be subtracted from the project’s calculated impact, resulting in a final OP allocation for each project.

Defining profit collectively instead of individually

In Retro Funding 4 the calculation of profit, defined by the deliberation and ratified by the Citizens’ House, will be automatically applied to the voting results. The following are motivators for defining profit as a collective rather than as individual Citizens.

  1. Predictability for Optimism contributors: For Retro Funding to achieve its goal in fostering the creation of public goods which drive value to the Collective, it is key for contributors to have predictability about the mechanics of Retro Funding rewards. The more predictable Retro Funding becomes, the more likely it is that contributors will do work with the expectation that if their work has impact, they will earn Retro Funding rewards in the future.
    Different applications of “profit” among badgeholders can lead to highly different voting results of Retro Funding rewards among projects, significantly diminishing predictability. By agreeing on a definition of profit, the Collective can increase the predictability of Retro Funding rewards for contributors.
    1. In a survey conducted among Retro Funding 3 recipients, 44 respondents evaluated the predictability of the Retro Funding rewards, giving an average rating of 1.6 out of 5 points. Here, a score of 5 indicates high predictability, while a score of 1 indicates no predictability.
  2. Reduce voting complexity for badgeholders: In Retro Funding 3, badgeholders voiced feedback that voting is a complex task, which can easily become overwhelming. In Retro Funding 3, badgeholders were not only asked to evaluate the impact of projects, but also consider the past rewards received by projects, taking both into account in their assignment of Retro Funding rewards. By agreeing on a definition of profit, badgeholders can focus on evaluating the impact of projects, reducing the complexity of the task at hand.

Using Deliberative Process for Collective Definition

The hypothesis for using a deliberative process to create the Collective definition of profit is that it can allow Citizens to align on a topic that would otherwise be difficult to come to consensus on. You can find out more about how deliberative processes work and their proposed benefits in the Experimenting with Deliberative Processes in the Collective post. Below are details for the Collective’s deliberative process experiment in Round 4. Participants may be provided with additional information, as needed.

  1. A subset of 50 Citizens will be randomly selected to participate in the deliberative experiment. Randomly sampling individuals to make governance decisions (also called sortition) is common practice in deliberative democracy as higher quality discussion can be had with a smaller, but still representative, sample of the population. We will also experiment with sortition in retro round 6.
  2. This subset of Citizens will deliberate on a topic of relevance to Retro Funding Round 4. The deliberation is facilitated by Missions Publiques and RnDAO, both teams specialized in designing and running deliberative processes in settings ranging from European Commission to the Cosmos ecosystem. This subset of Citizens will be provided with balanced information on the topic to be debated in advance of the deliberations. Participants will work in two sessions:
    1. Thursday, May 30 from 16:30-18:00 UTC time (12:30-14:00 Eastern // 9:30-11:00 Pacific)
    2. Thursday, June 6 from 16:30-18:00 UTC time (12:30-14:00 Eastern // 9:30-11:00 Pacific)
  3. Between the two sessions, the community will be able to comment on the draft output of the deliberation on the governance forum. Comments by the community will be used to inform the ongoing discussion. In addition, moments of the sessions will be opened to the full Citizens’ House. This allows for the broader community to better understand and trust the decision-making process. The full Citizens’ House will ratify the output of the deliberative process before Round 4 voting begins. The Foundation will prepare a definition of profit, which will be applied in case the ratification of the policy recommendation by the deliberative process fails.
  4. The ratified outcome will be incorporated directly into Retro Funding 4’s impact metric calculation to allocate resources.

This thread will be used to provide updates on the R4 deliberative process experiment as it evolves.

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To ensure that this sample was not tampered with ex ante: To set our seed in the code that randomly samples 50 badgeholders, we will use the first 3 integers that appear in the Ethereum block hash at height 19826301 (approximately 1 hour from this post).

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Will all badgeholders receive a note of whether or not they are part of the sample?

Will there be a chance to opt in or out, and will other badgeholders be substituted for those who may opt out?

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@joanbp great questions –

Badgeholders who were randomly selected to participate were contacted via email on May 9. They do not have to participate and can opt out if preferred (though we hope they will join!). If we need to fill more spots we will randomly sample another batch at a later date.

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Do airdrops count as past rewards? Do they need to be included in the application review process?

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Hey @Baiqi! We’re not capturing airdrops as part of the application process. Dependent on what the deliberation decides, we could capture airdrops in the future

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Gm! Reminder that Session 1 (of 2) of the Deliberative Process is happening today. If you have been selected (via lottery) to participate, you should have received preparatory information via email.

If you were not selected to participate, please stay tuned for a summary of Session 1 on the forum in the coming days. We’ll invite you to share your reactions to the decision from Session 1, including completing a brief survey that the Deliberative Process participants will take into consideration during Session 2 next week.

After Session 2, you should plan to vote in Special Voting Cycle #23b (June 13-19) to ratify the definition of profit decided by the Deliberative Process.

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This is very well done. Kudos.

But, I have two critcisms (probably too late).

  1. I’m not sure use the word “profit” is such a good idea. “Profit” already has many, many meanings and connotations in the real world. Adding another meaning is a recipe for confusion among people who are only tangentially paying attention. Even this document itself reveals this potential problem in that (a) there is a need to define “profit”, and (b) the concept being discuss (profit) is referred to as “past rewards” at one point. Perhaps “past rewards” is a better term. (I’m sure it’s too late.)

  2. The document assumes that the reader knows why one would want to subtract “profit” (or “past rewards” – see how much clearer the discussion becomes with this term?). I think, and forgive me if I’m wrong, that the subtraction is to account for previous rewards that paid for the work completed prior to that payment. In that sense, the reward for the current round is a reward for only that work done since the last payment (from any source)

Total Impact - Payment for previous impact == Payment for impact since last calculation

I’m not sure if my understanding is correct, so please excuse me if it isn’t…but…the fact that I’m not sure is why I think the above document needs an explanation of why the subtraction is happening.

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Session 1 recap

Thank you to everyone who participated in yesterday’s first session of our deliberative process experiment! While we can’t speak for badgeholders, it was an eye-opening and valuable experience for the Foundation observers. The first session focused on the inclusion of different categories (past Optimism grants, past grants from other ecosystems, revenue generated and past VC funding) in the profit definition. The session gave us new perspectives on:

  • the need for more clarity / consensus on the purpose of Retro Funding Rounds before the concept of “impact = profit” can be effectively discussed
  • the level of complexity and nuance in defining each category discussed

We are working with the facilitation team to adapt the second session, scheduled for Thursday, June 6 from 16:30-18:00 UTC time, based on learnings from the first. We will also consider the addition of a third session, based on badgeholder feedback. Thank you to everyone who participated!

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Session 2 recap

Last week, we reconvened for the second session of our deliberative process experiment. Based on participant feedback, the second session focused on providing more foundational context on the purpose of Retro Funding, digging into the nuance of category details specifically as defined in Round 4, and the practical considerations of the profit definition as applied in Round 4.

At the end of the session, participants voted on which categories should be included in the profit definition. A third, and final, session will focus on the weighting for each included category to be applied in the Round 4 profit definition.

The third session will be hosted on Thursday, June 13 from 16:30-18:00 UTC time. The recommendation coming out of this session will be up for ratification vote in the next Citizens’ House veto period (June 20-26th.) More information on the ratification will follow shortly. Thank you for your continued participation!

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As a badgeholder who was not randomly selected to participate in the deliberation process, I read these things with a strong sense that I am missing out on really valuable context.

In future, I wish there could be a way to give all interested access to at least audit such processes. It feels to me like very important foundational work is being done here, and those of us who are not in the room where it happens will never know the full origin story.

Sometimes limiting discussions to smaller groups is unavoidable, of course, but given that only around 30 badgeholders are active enough to regularly vote on the ratification of token house decisions, might it not be possible to allow all those active people to participate in something like these deliberations (if and when they have the time and energy to do so)?

…I think that’s an incentive worth considering as it could benefit both individual badgeholders and the collective.

It’s hard to argue with a practice of inviting on a random basis, but it would be good to ensure that the most active participants actually get the chance to stay in the loop and build context for their participation. This would also be a way to strengthen the sense of belonging and citizenship for those who are so inclined.

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We plan to publish links to the info kits provided to participants before each session as well as session recordings (which don’t include the breakout rooms, unfortunately) as soon as the final session wraps up. so as not to interfere with the experiment while ongoing. We’ll also join the community call on Tuesday to give another overview of the process, discussions, and recommendation coming out of the experiment. Agree that it is important to share as much context with non-participants as possible, especially in the context of the rest of the badgeholders being asked to ratify the participant’s recommendation during the next veto period.

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Session 3 recap

This past week, we reconvened for the third, and final, session of our deliberative process experiment. The result of the vote following Session 2 was to deduct only Optimism grant funding from impact (retro rewards.) Accordingly, Session 3 focused on what percentage (0% - 100%) of Optimism grants should be deducted from retro rewards.

Feedback during the session surfaced the need to further breakdown the Optimism grants category into three subcategories:

  • Token House growth grants, which are passed through to end users
  • Token House builders grants, which are locked for one year
  • Foundation grants and Missions
  • *Past Retro Funding is not included as the evaluation period begins after the end of Round 3

At the end of the session, participant votes resulted in the below profit definition for Round 4:

Impact - ((10% * Token House Growth Grants) + (45% * Token House Builders Grants) + (25% * Foundation Grants)) = Award in OP

The Citizens’ House will vote to ratify this definition in the veto period running from June 20th - June 26th at 19:00 GMT. Given the timing of Round 4, if the proposed definition is not ratified, a fallback plan proposed by the Foundation will be implemented instead. The fallback plan is to only consider impact, which means making 0 deductions for profit in Round 4. This fallback plan is informed directly by the deliberative process experiment, which surfaced the level of complexity, nuance, and effort required to accurately define profit and the challenges in verifying self-reported profit data which is oftentimes not publicly disclosed. Rather than re-launch the project sign-up process and/or implement an onerous bureaucratic application process in an attempt to collect granular disclosures, we believe it is preferable to exclude consideration of imperfect profit disclosures entirely in Round 4. You can see the ratification proposal here.

In order to share context and learnings with the badgeholders that were not randomly sampled to participate in the deliberative process experiment, we share the below resources:

This Miro board was used to collect input in all three sessions.

These resources will also be linked to from the ratification vote so that badgeholders may use them as a reference.

Deliberative process experiment recap

The Foundation team found the deliberative process to be an eye opening learning experience and is excited to fully assess the results. Below is a preview of the full survey results to be shared in the fall:

  • “How, if at all, do you feel your views on the topic changed as a result of
    participating in the deliberative process?” 4.0 / 7 at the end of Session 3

  • “To what extent do you trust the opinions of other badgeholders?” 5.5 / 7, an increase from 4.5 before Session 1

Below we share a sampling of quotes from badgeholder participants about their experience:

  • “Hearing everyone’s perspective is already shifting mine.”
  • “I’m not sure it always changes peoples minds, but it does broaden their view.”
  • “All of the arguments here were really good arguments and can’t wait to discuss more.”
  • “This process helped build a lot of empathy for the design process.”
  • “I was skeptical of this process in the beginning… but it was really was useful to have conversations with badgeholders and share context, even if we don’t end up with radically different outcome than expected, the shared context was really valuable.”
  • “If governing means considering as many things as possible to arrive at the best decision, then this group governed wonderfully. I don’t guess that I agreed with all of the final decisions, but my voice was heard. And I heard others voice their thoughts. Overall, the experience was wonderful.”

We will share a full retrospective on the experiments conducted in Round 4 - Round 6 in the fall, and share findings with the community, as we evaluate their applicability in Round 7+. Participants shared valuable feedback about how future deliberative process experiments may be improved. If results indicate additional deliberative process experiments should be run, after conducting a full retrospective, a Foundation Mission Request will be issued to support an open application process for potential facilitators.

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Thanks for recording, this for general? @lavande