Treasury Appropriation Proposal: Foundation Year 2 Budget

[system]

Summary

The Optimism Foundation’s future operating budget of OP is subject to governance by the Token House. Each year, the Foundation can put forth a budget proposal and the Token House may approve or reject it.

The Foundation was allocated a Year 1 budget in the founding documents of the Optimism Collective. It has to date used 5.21% of this Year 1 budget.

Therefore, the Foundation is symbolically requesting an additional 1 OP for its Year 2 (2023-2024) operating budget.

This vote is meant to introduce the Foundation budget approval process and set a precedent for future budget approvals.

This proposal will go to vote in Special Voting Cycle #12b on May 18th at 19:00 GMT.

Background

What is the Optimism Foundation?

The Optimism Foundation is a Cayman Islands foundation company. Its mission is to support the establishment of the Optimism Collective, the development of the Optimism ecosystem, and the technology that powers it.

The Foundation is one component in an evolving and ever-growing web of companies, groups, and individuals driving towards realization of the Optimistic Vision.

More information on the Foundation and its goals is available in the Optimism Governance Documentation.

Foundation Budget Proposals

The Optimism Foundation administers a portion of the token supply to further the Collective’s goals. This set of tokens will be referred to as the “Foundation Budget.” The Foundation Budget must be utilized in line with the overall OP Token Allocations, described in detail below.

This is the first Foundation Budget Approval proposal. The Foundation’s Year 1 operating budget was determined by the initial OP token allocations at the founding of the Collective on April 24, 2022. The core team decided on this allocation because they believed access to this portion of the treasury would would (a) give the Foundation the optimal leg-up to bootstrap and steward the Collective and (b) best position the Foundation to move more quickly along the Collective’s iterative path towards decentralization.

Going forward, any further budget for the Foundation must be approved by the Token House. As described in the Operating Manual, the Foundation may submit a proposal to the Token House once each year to request additional OP be added to the Foundation Budget.

Overall OP Allocations

The overall ecosystem allocations of the total initial supply of OP (as outlined in the governance documentation) are as follows:

• 858,993,459 OP (20%) to Retroactive Public Goods Funding
• 1,073,741,824 OP (25%) to Ecosystem Fund (Governance Fund, Partner Fund, Seed Fund, Unallocated)
• 816,043,786 OP (19%) to User Airdrops
• 816,043,786 OP (19%) to Core Contributors
• 730,144,440 OP (17%) to Sugar Xaddies (aka Investors)

Review of Year 1 Budget

In Year 1 (April 20, 2022 → April 19, 2023), 30% of the total initial token supply was made available to the Foundation for administration in line with the overall token allocations detailed above. In utilizing these tokens, the Foundation may not exceed 30% of the total supply, and may not exceed any individual category’s allocation limit.

The Foundation’s administration of Year 1 budget was as follows:

Category	Description	OP Distributed	% total supply OP	% Foundation budget
RetroPGF	Distributed in RetroPGF Round 2. More details.	3,916,618 OP (out of 10,000,000 OP granted)	0.09%	0.30%
Partner Fund	Distributed across 48 partners.	40,111,394 OP	0.93%	3.11%
Unallocated	Funded core protocol development, marketing, community programs, and operational services.	11,368,634 OP	0.26%	0.88%
Airdrops	Distributed via OP Airdrop #2. Details Airdrop 2 | Optimism Docs.	11,742,277.10 OP	0.27%	0.91%
TOTAL		67,138,923 OP	1.56%	5.21%

Token Distributions Outside of Foundation Budget

In addition, outside the Foundation’s Year 1 budget, but in keeping with the overall OP Allocations:

• 214,748,365 OP (5% of total OP) was distributed via Airdrop 1
• 60,425,931 OP (1.4% of total OP) was granted by the Token House via the Governance Fund, of which 53,489,103 OP have been distributed

Altogether, the Collective has distributed 335,376,391 OP, or 7.8% of total initial supply of OP. This information is available and updated in a public tracker here.

Details on Year 1 Budget

Grants made from the Partner Fund were used to provide services and tooling to the Optimism community, promote education, experiment with liquidity mining programs, drive consumer usage, and/or support Optimism’s governance system.

In RetroPGF 2, badgeholders voted to distribute 10m OP to 195 projects and organizations who provided some public good to the Collective. Distributions are currently ongoing, and just shy of 4m OP have been distributed to date. More details on RetroPGF 2 results and methodology available here.

Finally, Airdrop 2 distributed 11.7m OP to reward the delegation of OP tokens as an experiment to strengthen the Collective’s governance system. More details and methodology available in the governance documentation.

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Proposal

The Optimism Foundation is symbolically requesting an additional 1 OP for its Year 2 (April 20, 2023 → April 19, 2024) budget.

Rationale

The Foundation has adequate funding left over from its Year 1 budget to continue its role as a steward of the Optimism Collective for the next twelve months.

In April 2024, the Foundation may submit a new budget proposal to the Token House for review.

Looking Ahead

Going forward, the Foundation expects to use the Foundation Budget left over from Year 1 in support of the four Collective Intents established as part of Governance Season 4, and in line with any updated Collective Intents the community aligns on in following seasons.

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As this is the first instance of a Foundation Budget Proposal, feedback on the structure or contents is welcome.

[polynya]

I will symbolically vote Against this proposal as the Foundation has significantly underdistributed tokens and creating a larger supply overhang than projected. Particularly given $OP’s challenging tokenomics to begin with, it was imperative to at least get a wide distribution in the early days, to bolster some confidence in the token, and this hasn’t happened anywhere near the degree implied in Year 1.

As per initial projections, roughly ~9.5% or ~400M OP should have been distributed to users via airdrops. However, only 11.7M was, since Airdrop #1, and a total of 226.5M.

I understand that this is an evolving process and the projections are just that, but Foundation’s handling of OP’s token distribution and lack of clarity has undermined confidence in the $OP token.

For me to vote For on this proposal, I need detailed projections for Year 2 and moving forward, and the measures taken to ensure they will be met within an acceptable margin of error. Of course, I’m referring to categories directly under the purview of Foundation like RPGF and Airdrops. Without accountability and standards, these proposals are meaningless.

[jengajojo]

Thank you OP foundation! I second @polynya 's request for Year 2 projections and measures to adhere to the planned emissions. Additionally, I’d also like to understand why the Year 1 emissions did not follow the initial plan?

[polynya]

@polynya

I will symbolically vote Against this proposal as the Foundation has significantly underdistributed tokens and creating a larger supply overhang than projected. Particularly given $OP’s challenging tokenomics to begin with, it was imperative to at least get a wide distribution in the early days, to bolster some confidence in the token, and this hasn’t happened anywhere near the degree implied in Year 1.

As per initial projections, roughly ~9.5% or ~400M OP should have been distributed to users via airdrops. However, only 11.7M was, since Airdrop #1, and a total of 226.5M.

I understand that this is an evolving process and the projections are just that, but Foundation’s handling of OP’s token distribution and lack of clarity has undermined confidence in the $OP token.

For me to vote For on this proposal, I need detailed projections for Year 2 and moving forward, and the measures taken to ensure they will be met within an acceptable margin of error. Of course, I’m referring to categories directly under the purview of Foundation like RPGF and Airdrops. Without accountability and standards, these proposals are meaningless.

As the above mentioned request was ignored, I have voted Against this proposal. I will continue to hold Foundation’s work in distributing $OP tokens to a higher standard.

[bobby]

Hi @polynya, thank you for the thoughtful response.

I agree the Foundation has not distributed as many tokens as originally expected.

Our intention was not to mislead anyone, but rather to be a responsible steward of our existing budget for the benefit of Optimism. There are a couple factors that contribute to this:

• We want to be able to prove good ROI on token spend. We have been carefully following the analytics put out by OP Labs to understand incentives and grants’ effects on TVL, transaction volume, and gas fees. We’ve also applied similar analysis to Partner Fund distributions and Airdrops #1 and #2. We want to be able to prove that OP distributions are moving key ecosystem metrics, which has not always been the case, and this has affected the velocity with which we distribute tokens.
• Market conditions have affected the number of quality targets for OP. The graph linked above was shared as an indication of total possible spend, and the market reality has pushed us away from the max distributions displayed there. We acknowledge that this should have been communicated more clearly and proactively to the community. While farmers are persistent, the bear market means explorers and new-to-crypto users who may benefit most from incentive programs are also in shorter supply. The Foundation is instead focused on programs that target builders, through our Collective Intents, the recently launched Foundation Mission (RFP) program, our ideas list, and work on RetroPGF.

Going forward, we’re committed to sharing a clearer framework for how the Foundation evaluates OP spend based on ROI. Our goal is to be able to express target metrics for token spend across tx/OP, TVL/OP, gas/OP, addresses/OP, delegatedOP/OP, or a combination of those metrics, and to report back on how distributions measure up against these targets.

We’ve published an estimate of future annual token spend, but these numbers are just estimates, not commitments, and actual token distributions will be determined by the Foundation’s ability to develop distribution programs with good, measured ROI.

The Foundation will commit to providing a mid-year report in November 2023 to update the community on how we’re tracking against those estimates in advance of next year’s annual budget proposal. In the case that we are not tracking to hit the estimates above, the midyear report will be an opportunity for the Foundation to sync its decision-making algorithm with the broader community.

We continue to welcome tactical or strategic feedback on how token allocations could be used to help support the Collective and grow Optimism’s ecosystem. For example, your idea here on delegate bonding curves may make a great RFP and is a helpful suggestion to focus distributions on providing real value to the Collective.

Thank you, as always, for your feedback.

[polynya]

Appreciate the response. As I’ve mentioned before, the damage caused by withholding supply is far greater than being worried about farmers. Farmers will always be there, and the good news is they’ll distribute tokens out to real investors in very short order. I understand this is subjective, but it also depends on the magnitude of the problem, of course - and at 1 year circulating supply being only 7% is indeed a massive problem, even moreso with the insider unlocks coming up shortly, which will become a significant portion of circulating supply. At this stage, the focus should be on distributing tokens to a representative circulating supply and rebuilding confidence in the $OP token with greater transparency. My symbolic dissent vote stays, and I hope things improve significantly for Year 2 so I can come back and vote For enthusiastically next year.

[cryptoAYA]

Greetings,
Despite weeks passed from the voting days for this proposal, revising and reviewing this proposal gives me thrilling sense.

[Griff]

I’m voting against as well but for a different reason.

I think it’s fine that we hold back the airdrops until the attestation station and other reputation systems are in place…

But i’m voting no on this because symbolic proposals are a waste of everyone’s time…

Why spend the time writing this forum post and making everyone read it to send out 1 OP? We all have better things to do.

Not to mention… I don’t see multiple delegates supporting this proposal… I thought that was a requirement for a vote?

[Oxytocin]

@Griff

Not to mention… I don’t see multiple delegates supporting this proposal… I thought that was a requirement for a vote?

Proposals from the foundation do not currently need delegate backing I believe

@Griff

But i’m voting no on this because symbolic proposals are a waste of everyone’s time…

Time isn’t the real concern here in my opinion, the real problem is the capital inefficiency that is occuring from making such a symbolic vote onchain.

Here is the onchain vote. I don’t see an easy way of seeing the number of individual voters, but I stopped counting after around 250. Each vote costs around .4 dollars in gas give or take (it can go as high as 1.3 dollars, according to another delegate). At current prices, this means that the combined gas spent to symblically send 1 OP easily passes 60 OP , all paid from each individual’s ETH balance. Aka, this vote costed at least 6000% more to the community than the value at stake.

I know this is not a problem specific to this vote, but issues like this are significant blockers for Governance Accesibility, which has been voted in as a Collective Intent . From what I’ve seen on the onchain voting thread some solutions are being explored, but I really recommend we refrain from these symbolic votes for now. They are hurting inclusivity and in and could lead to long-term consequences due to missed votes hurting people’s delegate profiles and future Attestation scores.

[polynya]

Some Foundation proposals (e.g. Treasury Appropriation) are exempt from requiring delegate approval, and I do think symbolic votes are useful in gauging support for Foundation’s actions. Most delegates support, while I do not, and dissenting voices can sometimes be useful in pushing the Foundation to do better (and judging by Bobby’s response, they are determined to do so).

I understand the desire to wait for better airdrop mechanisms, but the magnitude of supply overhang for $OP, with ~93% still pending circulation, is the worse evil IMO. Even an ineffective airdrop is sorted out by the market in short order; a supply overhang, lack of clarity and loss of confidence has long-term detrimental implications for the $OP token and by extension the Optimism collective.

[Gonna.eth]

@polynya

but Foundation’s handling of OP’s token distribution and lack of clarity

I disagree with this quote. Many times foundations reaffirmed this was an evolving process and the first distribution chart was an intention.

@polynya

I need detailed projections for Year 2 and moving forward

How can you experiment and have a detailed distribution at the same time? Looking at how governance has evolved, we went from every delegate vote on every proposal to subcommittees and intents. Are you able to predict this sort of thing?

@polynya

As I’ve mentioned before, the damage caused by withholding supply is far greater than being worried about farmers.

Do you have some metrics to back this?

@polynya

Farmers will always be there, and the good news is they’ll distribute tokens out to real investors

Curious to know how this happens?

@polynya

the focus should be on distributing tokens to a representative circulating supply and rebuilding confidence in the $OP

The focus should be to bring builders, public goods, and great ideas in. Make the ecosystem robust and full of use cases. I feel capital won’t move if they just see governance debating on the circulating supply of a governance token.

[polynya]

@Gonna.eth

I disagree with this quote. Many times foundations reaffirmed this was an evolving process and the first distribution chart was an intention.

It’s about the magnitude of deviation.

@Gonna.eth

How can you experiment and have a detailed distribution at the same time? Looking at how governance has evolved, we went from every delegate vote on every proposal to subcommittees and intents. Are you able to predict this sort of thing?

Projections, not distribution. Also, as I specifically mentioned, this is for the areas under Foundation’s purview and predictable, like Airdrops, RPGF, Partner Fund etc. This does not apply to Governance Fund, obviously, which is more prone to experimentation.

@Gonna.eth

Curious to know how this happens?

Farmers sell on the market to investors.

@Gonna.eth

The focus should be to bring builders, public goods, and great ideas in. Make the ecosystem robust and full of use cases. I feel capital won’t move if they just see governance debating on the circulating supply of a governance token.

This thread is about treasury appropriation by Foundation. Fortunately, Bobby has done a good response about acknowledging the mistakes made, and how they are striving to do better this year. It’s not quite enough for me, personally, but it’s progress, and I’m happy to leave this thread at that. We can discuss bringing builders and public goods at a more appropriate venue.

Lastly, certainly there’s subjective opinion here - particularly the magnitude of damage caused by withholding supply, or how far distribution has deviated from projections. I’ll happily agree to disagree.

[ETH3333]

Disappointing, although you have cooperated with some big organizations (coinbase, OW, etc.) this year, but people don’t have much nostalgia for OP,because you are fooling that the strongest partner is the community not the resources，looking at what is being discussed in various communities, it seems that your OP has been forgotten in history, but you still want to change the time and amount of token distribution, which is tantamount to slow death, quietly ARB, TVL is several times that of OP , and then look at the ecological projects on the chain, not to reflect on how to get the attention and support of the community, but to engage in some seemingly lofty things

[v3naru_Curia]

I would like to express our support and cast vote in support for the Year 2 budget proposal put forth by the Optimism Foundation. We appreciate the Foundation’s role in stewarding the Optimism Collective and recognizing the current issue in the foundation budget to continue its operations.

However, we also share the community’s concerns about the Foundation’s handling of OP’s token distribution. The discrepancy between the projected and actual distribution of tokens during Year 1 has raised questions about transparency and confidence in the $OP token.

Thanks @bobby , for shedding light on the factors that led to this distribution discrepancy. It is reassuring to know that the Foundation is taking steps to address this issue by pledging to provide a mid-year report in November 2023, as well as a more transparent framework delineating how OP spends are evaluated based on ROI with respect to distribution. These measures are crucial in bolstering accountability and equipping the community with a better understanding of the Foundation’s decision-making processes. Looking forward those commitment in the near future!

[Blockford]

You’ve made some interesting observations. I tend to agree with you.

[lefterisjp]

I tend to agree with the things that @polynya mentioned and happy to see Bobby post a response.

But if you do not need any funding why do we need to each pay ~$.23 in gas to send you 1 OP by voting for this proposal? The proposal and this whole on-chain voting system feels like such a waste of time and money as I already mentioned here: It Is Time For On-Chain OP Voting - #13 by lefterisjp

I will also vote with a dissenting voice but to ask you guys to:

1. Get rid of symbolic on-chain votes. Check my post above explaining why.
2. Give true governance to the OP-holders. I know it’s a gradual process but a year on it seems we still mostly rubber stamp what the foundation wants. It feels like the foundation is in almost total control. This needs to change and fast. Onchain voting should be for onchain actions. Which means we the OP holders should have full control for it to make any sense.
3. Try to improve the OP distribution as @polynya mentioned.

[Bcoin]

Got it , so Treasury for PR and Community , it’s so good

[itublockchain]

By examining the Foundation Budget data for Year 1, we found the distribution of the budget is insufficient. The Foundation seems to fail the distribution and cause a larger token supply overhang, as only the 5.21% is distributed.

We appreciate the Foundation’s response for the concerns, however despite mentioning the main focus is on supporting builders via RetroPGF and Partner Fund in the response, we think the distribution of both category is still inadequate.

Treasury Appropriation Proposal: Foundation Year 2 Budget

Hi @polynya, thank you for the thoughtful response. I agree the Foundation has not distributed as many tokens as originally expected. Our intention was not to mislead anyone, but rather to be a responsible steward of our existing budget for the benefit of Optimism. There are a couple factors that contribute to this: We want to be able to prove good ROI on token spend. We have been carefully following the analytics put out by OP Labs to understand incentives and grants’ effects on TVL, trans…

For Year 2, we believe the distribution process must be more detailed, wide and transparent. We decided to vote “against” on the proposal to show our concerns.