RetroPGF 3: Conflicts of Interest & Season 5 Citizens

Retro Funding Missions đź”´
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Examination of Potential Conflicts of Interest

As outlined in the Code of Conduct and badgeholder manual, the Foundation has reviewed a randomly selected sample of 55 badgeholder ballots for potential conflicts of interests. Within the sample, no violations of the Code of Conduct were identified.

There was one instance in which a badgeholder registered a vote of “0” on a project that was among their disclosed conflicts of interest. However, as this action will not result in any benefit to the badgeholder, this will not be considered a conflict of interest.

In addition to reviewing a random sample of ballots, there has been one case of a disclosed conflict of interest violation: Lightclient, who’s a member of the Protocol Guild, voted for Protocol Guild, knowingly violating rule 2d of the Code of Conduct.

2d. Badgeholders should not vote for organizations where they expect any portion of funds to flow to them or any projects from which they derive income

As result, Lightclient’s voting badge will be removed following RetroPGF 3.

As a reminder, the Foundation currently enforces the Code of Conduct in the Citizens’ House. The Token House is experimenting with enforcement via an elected Council. The results of that experiment will be evaluated and may be replicated in the Citizens’ House in the future as the Foundation reduces its involvement over time.

Citizens’ in Season 5

As was done following RetroPGF 2, Citizens who did not submit any votes in RetroPGF 3 will lose their voting badge. In total, there were 133/145 badgeholders who voted in RetroPGF 3.
With the removal of citizens who failed to vote, and who violated the Code of Conduct, there are a total of 132 Citizens with voting rounds until further updates are made to citizenship.

The Foundation is actively working on the concept of citizenship and preparing for the next round of citizenship distribution.

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As stated, I haven’t tried to hide the conflict of interest or voting pattern in any way. I fundamentally disagree with the self-deal clause as it’s written. For one, the language is not binding:

Badgeholders should not vote for organizations

Clearly “the foundation” is the arbiter though, so they can have decided how they will interpret it. Wasn’t this supposed to be decentralized? And aren’t I supposed to be fully suspended only after “sustained or repeated violations”? Seems like they managed to omit a vote on stripping me during the last session. Fair enough.

Beyond arguing language semantics, there needs to be reasonable caps on what constitutes being associated with an organization for income purposes (the SEC says 10% ownership is an insider.)

My split percentage is 0.88%. I don’t think under any traditional framework I would be considered an insider. But for arguments sake, what if my split was 0.01%? Does this still constitute self-deal? What if I am a rainbow user with XXX points and I voted for Rainbow kit?

As more projections and more badgeholders join rpgf, this needs to be made clearer.

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Ultimately it’s unfortunate they feel the need to remove me instead of having a positive engagement about how to improve RetroPGF.

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As an RPGF voter in round 3, I agree with what @lightclient is mentioning here. It is unclear to me how to interpret what an “insider” here means and 0.88% does not seem like a “conflict of interest” under any major jurisdiction I am aware of. Let’s have a proactive discussion rather than suspending people for no reason.

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+1 to all of this. Another, less drastic response, could have been to modify the total funds being sent to either PG, or geth, another significant RPGF recipient which @lightclient is a member of, rather than removing his badge. The OP collective has lost a very valuable perspective in judging RPGF applicants for a relatively minor (arguable) break of rules.

Additionally, this response creates the incentive to hide COIs, rather than be more transparent. The lightclient <> PG conflict was made apparent because of both lightclient’s full disclosure (which other RPGF voters could have taken into account when voting), as well as the onchain nature of PG. OTOH, an RPGF badgeholder who is privately an investor/advisor/etc. to a recipient is far less likely to get flagged for this, especially as RPGF grows, even though their COI may be far larger.

Full disclosure: I’m a member of Protocol Guild, which benefited from @lightclient’s large vote towards it.

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Should it not be Warning or Temporary Suspension? Especially in a case like @lightclient who arguably has better insight into the Ethereum development ecosystem than almost anyone (bar @timbeiko and a few others)?

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There are a few problems here:

  1. I’m not sure where 10d. can actually be found, the closest item in the Code of Conduct is actually 2d..
  2. The language surrounding 10d or 2d is quite clear, and yes @lightclient did (whether intentionally or not) violate that clause.
  3. It’s extremely unclear what the actual process for violations are, as outlined in the Code of Conduct, and thus I believe this needs to be dramatically reviewed, and re-written.

Focussing on #3
In the Code of Conduct, at the top of the page, clearly stated that:

The page then continues to state a series of violations, and steps for how these things are enforced. It honestly reads very poorly, and I could argue that Accountability and No Self-Dealing should be enforced under the Enforcement table found within the Code of Conduct, because it’s not explained what a Severe Violation actually is.

Technically speaking, if we’re to follow the way @lightclient was treated, under No Self-Dealing: 2a if you did not disclose any potential conflicts of interest prior to voting, you should be removed as a badge holder.

After taking a very quick glance through the RetroPGF forum, very few people actually fully disclosed COIs. Especially since a COI is so loosely defined, advisors, and board members should be held to the same level of accountability that founders/employees/contributors/contractors/consultants/etc are held to when disclosing a COI.

The point I’m trying to make, is these pages are extremely messy, need to be overhauled and moved to something more permanent (eg: gitbook, github docs, idc), and not the OP forums where they contain 50 link backs to several pages that are constantly updating.

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Temporal suspension is more suitable for such violations of conflict of interest.

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+1 to everything here, but particularly on disincentivizing disclosure/COI…

This seems like an extreme reaction to an unclear situation that should be clarified… At worst this is a minor infraction that was clearly not malicious. Suspension should be the most severe punishment, IMO, and I’d lean towards no punishment but clarification.

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Disclaimer: I am an engineer at OP Labs, and I’m speaking on my own behalf.

I agree with @lightclient 's points. The language around the self-deal clause as it sits does appear to be non-binding. OP governance, unless I’m mistaken, has also not defined what an “insider” is considered to be in the context of the CoC. In addition, @lightclient does not seem to have made any active effort to hide his affiliation with the Protocol Guild.

The CoC directly states “Optimists must avoid conflicts of interest where possible and mitigate their impact when not possible.” Lightclient fully disclosed his conflict of interest. The CoC also does not seem to define clearly what the process for violations are.

+1 to the concerns around disincentivizing the disclosure of COIs as well - this sets a very bad precedent. I personally advocate for this violation to be lowered to a warning, and for the rules around self-dealing to be refactored to align the incentives around disclosing COIs as a badgeholder.

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First of all: I also think it would be worthwhile to consider a temporary suspension or warning for @lightclients here, as this is not really a case of malicious intent.

That said, I don’t find the argument convincing that just because your split percentage is quite low, it shouldn’t be considered a conflict of interest.

RetroPGF’s Endgame is to create an investment market around public goods projects participating in RPGF Rounds, basically making public goods an investable “asset class” for VCs and angels. This would necessarily entail that some public goods projects have agreements entitling angel investors to x% of the RPGF earnings of a project.

Now, is it really okay for an angel investor who is also a badgeholder to allocate OP to the project they have invested in? Even if their share is only 1%? I don’t think so, and while the relation of Lightclient <> PG is obviously in many ways different, the financial upside to the individual for allocating an outsized OP amount is the same in both scenarios.

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Also adding in my two cents, as I’m seeing a lot of confusion and contention around the funding of communities (protocol guild, bankless, etc).

This feels like a problem to discuss and solve versus a ban that feels like we’re kicking the can down the road. Seems that openly discussing what to do about communities in general in retroPGF should be done before the next round (more contentious than VC backed companies imo).

I’m seeing that I’ll run into similar issues too, if Bytexplorers continues to grow and some of my members are delegates who end up on the list of some split I create, are they now incentivized not to vote for the community? So basically then the community experts can’t opine on their own communities? Or delegates shouldn’t be added to a communities funding split?

Also appreciate that this might be an unnuanced take from me since I’m not deep in the forums right now.

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The way I see it, the rule does say it includes any kind of income, so even a small amount like 0.88% seems to go against it. I think it would’ve been a good idea to give a warning first and then have a conversation about this whole thing to clear it up. Though, I’m not really sure what the usual steps are.

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Feedback on the Code of Conduct and input on how the Citizens’ House should deal with conflicts of interest is always welcome, and we appreciate the community’s thoughtful discussion here. While we’re iterating on the rules and parameters in governance, the Collective must abide by existing policies (e.g. Code of Conduct). If an individual, or group, disagrees with a policy, they should still abide by it and propose future changes. A system in which each individual only abides by the rules they themselves agree with is not sustainable.

We’d like to respond to some of the points raised in this thread:

  • The Foundation warned lightclient multiple times that this behavior would be considered a violation of the CoC. lightclient confirmed receipt of the messages, disagreed with the Foundation’s assessment, and continued to cast votes that they knew would be in violation of the CoC. In a public discussion during the voting period, multiple badgeholders have also voiced their opinion that this is a violation of the Code of Conduct and should be avoided. Following several warnings of a Code of Conduct violation, a temporary suspension has been issued, resulting in the removal of the voting badge for the next nearest RetroPGF instantiation, or Round 4 (see CoC). Lightclient is still eligible to receive a voting badge in future RetroPGF rounds.
  • On the feedback of unclear language used in rule 2d, as it states in the CoC: “We ask that Optimists please act in accordance with the spirit of the Code of Conduct and refrain from exploiting loopholes that may exist.” The intent and applicability of rule 2d were clarified several times in public and private conversations with lightclient.
  • While the Code of Conduct is currently enforced by the Foundation in the Citizens’ House, the Collective is experimenting with a decentralized process in the Token House. Dependent on the learnings of this experiment, a Code of Conduct Council may be implemented in the Citizens’ House.
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I’m of a similar opinion that we need some more clarity on conflict of interest.

Voting for direct self compensation is pretty clear, but what about indirect? Are badgeholders unable to vote for protocols they believe are valuable, and have used, if they think they may end up receiving future Op-based token incentives provided by the protocol, funding from RPGF allocations? This may dis-incentivise badgerholders from participating in the ecosystem, to protect their voting rights, but may also make them less familiar with ecosystem protocols.

I agree we need third party policing of Conflicts of Interests; something more decentralized. Badgeholders voting on potential badgeholder conflict of interests is itself a conflict of interests. Not sure if badgeholders should even be voting on the code of conduct council participants.

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could you clarify the “eligible” term please? It is a 1 round (RPGF4) voting suspension and his voting badge is reinstated automatically for RPGF5, or voting rights reinstatement will be TBD by another foundation process/discussion?

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I think the real issue is less about the 0.88% conflict of interest and more about being told explicitly that as a recipient of Protocol Guild, @lightclient needs to abstain from voting for Protocol Guild.

The Foundation has a hard job, but they have to enforce the rules, no matter who breaks them.

  1. Lightclient asked for the rules to be clarified
  2. The rules were then made clear by the Foundation & validated by other badgeholders
  3. Lightclient broke the rules anyway.
  4. The Foundation enforces the rules.

I don’t know what else could expected.

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Since many people seem to be commenting here let me also throw in my 2 cents as both a token and citizen house participant of Optimism governance.

The facts are pretty clear.

  1. This is was a clear CoI violation. Lightclients voted with all of his 30m OP allocation for PG, of which he is a direct recipient. Did not bother researching a single other grantee. The badgeholder manual is clear: “should refrain from voting for things where they will receive any portion of the reward”.

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  2. Lightclients actually asked in the public badgeholders TG where both other badgeholders and foundation reps were in, if this action would constitute a CoI violation. We all told him it would. He tried to argue that the language is open to interpretation. That the word used should be “must” and not “should”. Or that he only gets <1% of the PG allocation. The answer was still that this would be a CoI violation and not to do it.

  3. Despite that he did it knowing he is breaking the rules and that the vote would not count.

This suspension is the only logical and justified outcome.

I am a quite vocal critic of Optimism governance and the foundation. You all know this and see me here in the forums. Not now. Here the proper action was taken.

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This is harsh, and should at the least be referred to the Code of Conduct Council when it’s live. IMO, the right measure would be a X days temporary suspension, plus disqualifying Lightclient’s vote from this round; but a permanent removal is too much. [Correction: lightclient is eligible to receive a badge again in future rounds, so at least it’s not permanent]

Also suggest updating 2d. from “any” to something reasonable, like “not more than 2%” or whatever. Crypto will have many DAOs and guilds, with some of its most valuable contributors being part of them.

Particularly at a point where the so-called Citizens’ House is a tiny handful of people who invited each other - basically a nepotocracy - the last thing we should do is rush to alienate said most valuable contributors.

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