[BIP-1] Operating Framework for Balancer DAO

Authors: Solarcurve, Mog, LuukDAO, Xeonus, and mkflow

Table of Contents
I. Introduction
II. Process for Funding Service Providers
II.1 Domains of Operation
II.2 Key Objectives
III. Accountability Mechanisms
IV. Contribution Funding Pathways
V. Delegate System
VI. Voting
VII. Risk Assessment
VIII. Specification

I. Introduction

This proposal aims to outline how the funding and accountability process will work for any entity wishing to contribute to the Balancer ecosystem. To recap the journey so far, in early 2022 subDAO’s were formed to give community contributors a formalized structure with clearly defined domains. More recently, the DAO has chosen to incorporate a foundation in order to engage with service providers who require formal contracts.

This framework aims to deliver the following benefits:

  • Streamlined process for funding service providers
  • Clear and decentralized accountability mechanisms
  • Creation of a delegate system to enable a transparent dialogue between proposers and large token holders

II. Process for Funding Service Providers

A service provider (“SP”) is an entity with a budget attached to it, managed by one or more Leaders, that coordinate and pay contributors working to achieve one or more long term goals in the Balancer Ecosystem. When choosing to pursue funding as a SP or through the Grants program, a rough guideline is short term or one off engagements requiring $100k or less should go through Grants. A longer term engagement or one with a cost beyond $100k should be pursued as a SP.

To keep things simple, the terms “service provider”, “working group”, and “subDAO” are considered synonyms and interchangeable. A SP can be an incorporated legal entity or simply a loosely organized group of anonymous Balancer contributors. In order to interface with the Foundation a legal agreement is required so any SP taking advantage of the Foundation must be a legal entity or a natural person.

SP’s have an option to make their funding proposal through the Foundation. If it is made through the Foundation, the Foundation will create the funding proposal on the forum on behalf of the SP. The SP is expected to answer any community questions or concerns raised on the forum. Funding will be distributed to the Foundation’s wallet on a quarterly basis and from there distributed to the SP on a defined monthly basis. If the SP does not go through the Foundation then funding will be distributed directly to the SP on a quarterly basis.

All funding proposals must include “Domains of Operation” and “Key Objectives”.

II.1 Domains of Operation

Examples of Domains might be core protocol development, partner integrations, marketing, business development, front end, community, etc. While some overlap is acceptable (multiple SP’s operating in the same Domains) it is generally not an effective use of DAO funds to have multiple marketing teams or multiple teams managing the community for example. Clearly indicating Domains of Operation and the expertise an SP brings to that Domain will reduce inefficient overlap and help to increase coordination in the event of necessary or useful overlap. Having multiple SP’s building front ends might represent a useful overlap, for example.

Each SP should make clear how they will handle record keeping and the handover of those records in the event they are offboarded. If an SP proposes to enter a domain of operation already occupied by another approved SP, the proposal should outline how they plan to coordinate efforts to avoid the DAO paying double for the same work. It is expected that the work product of each SP is made available to the community on a regular basis.

II.2 Key Objectives

Key Objectives should be high level goals the SP plans to work towards and accomplish during the funding period. If appropriate, these might be broken down into a list of specific tasks. It is important that the DAO have a clear idea of what the SP is doing while also leaving enough flexibility for innovation and efficiency. Providing success metrics will also ensure the community can easily evaluate performance.

Finally, a brief overview of how the funds would be spent is the last requirement. In the event of an SP requiring additional funds before the end of the funding period a supplemental budget request can be made in the same format as a regular funding request. An estimate of the SP’s monthly spend should be included which will be used to calculate the quarterly distribution of funds.

All SP’s going through the Foundation must upload a copy of their “Service Level Agreement” or SLA to ipfs and include the link in their funding proposal.

III. Accountability Mechanisms

We must ensure any funds disbursed from the DAO treasury are used transparently and in service of the Balancer Ecosystem. Ultimately veBAL holders are responsible for ensuring SP’s are delivering enough value to justify the cost of funding them. We propose the following rules for holding SP’s accountable:

  • All SP’s must hold monthly community calls in any online venue of their choosing as long as it is open to the public. Failure to hold a monthly call will prevent the Foundation or the DAO from disbursing future funds. The recordings of these community calls must stay available for at least 3 months after the community call has wrapped up.
  • In combination with the monthly community call, a monthly summary must also be created which details progress towards each “Key Objective” outlined by the SP in their funding proposal. This should be posted to Balancer’s forum in advance of the monthly community call.
  • Anyone can make a forum proposal to the DAO to stop the Foundation/DAO from disbursing future funds to the SP. Such a proposal should include: SP in question, reason to halt funding, supporting evidence, and any other comments.
  • If the vote passes, all future funding to that SP will be halted until a new funding proposal is successfully approved. If it fails, funding continues as normal.
  • There will be an internal monthly meeting with mandatory attendance by at least one representative of every actively funded SP. The goal of this meeting is to ensure all SP’s are strategically aligned across the ecosystem. Ideally each SP should keep their representative the same month to month.

Every member of Balancer’s community shares responsibility for ensuring SP’s that receive funding from the treasury are acting in the best interest of the Balancer ecosystem. The rules outlined above empower every community member to act if they feel an SP is no longer acting in that best interest. The Foundation is an agent of the DAO and must honor the outcome of any legitimate snapshot vote, subject to any applicable Laws/Acts and Regulations.

IV. Contribution Funding Pathways

V. Delegate System

While anyone can initiate a proposal to stop funding a SP it is large veBAL holders who have the strongest incentive to ensure SP’s are delivering value. The creation of a delegate system will lead to a more transparent and productive dialogue between proposers and those with large voting power. We encourage anyone interested in being a delegate to present their platform to the community in the new “Delegate Citadel” section of the forum.

VI. Voting

Delegates and token holders should not vote in favor to fund or against to defund a SP that they are working for or affiliated with. Additionally, SP’s should not compensate token holders monetarily in exchange for their votes (do not bribe on funding or defunding proposals).

There will be a third voting option added to snapshot to cover the case of a SP being affiliated with many large veBAL holders and thus failing to pass a proposal to fund them because so much voting power cannot vote in good faith. For each SP funding proposal, there will be “Yes”, “No”, and “Abstain”. It is expected that delegates and any token holders with a potential conflict of interest regarding a particular SP will only vote for “Abstain” if they choose to vote at all and provide the reason for doing so.

VII. Risk Assessment

There are various risks to the ecosystem that could arise from the adoption of this proposal.

  • A veBAL token holder might work for a SP (or the SP might have holdings of veBAL itself) and vote in favor of funding the SP despite this conflict of interest.
  • A SP might get funded and not follow through on their key objectives. With funds sent on a quarterly basis, this could result in a sizable loss of funds.
  • Balancer sees multiple SP funding requests and if all were funded this would represent an unsustainable burn rate.

The way to mitigate these risks is to foster an active and engaged community. Conflicts of interest should be declared up front to prevent any appearance of impropriety. Unknown or new SP’s might want to request a lower funding amount and/or utilize milestone based payments as a trial period. If milestone based payments are utilized they should be overseen by the Grants Service Provider. Delegates and those community members who handle management of treasury funds should speak up about the impact funding SP’s will have on the treasury - and it is a good idea for each SP to include their assessment of that impact in their proposal if they can.

The responsibility for stewarding the Balancer ecosystem towards a bright future lies with veBAL holders and delegates. We could try to create many rules to address many possible scenarios but we see value in creating a simple and flexible framework for funding all kinds of Balancer contributors.

VIII. Specification

If this proposal passes, the following will be in effect:

  • Any future funding proposals must adhere to the guidelines as described above. Please find an example template here.
  • The Ops subDAO will dissolve at the end of the second quarter. After salaries are paid for June, any remaining funds will be returned to the DAO Multisig. All powers held by Ops will return to veBAL governance.
  • This proposal will mark the start of a new tracking system, BIP or Balancer Improvement Proposal. When a proposal is added to snapshot it will be given a BIP number - consider this proposal to be BIP-1.
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Thanks for leading the creation of this Proposal @solarcurve! This is a good outline.

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I want to thank everybody involved. This is a very important proposal.

I am curious what the community thinks. Especially about the risk assessment. We tried to make it as safe and sound as possible - also in terms of conflict of interest regarding veBAL holders / SPs / contributors.

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I think the accountability mechanisms could be expanded upon. The way its laid out now it looks like an SP can do whatever they want as long they hold monthly meetings and post a summary. Sure, someone can put up a vote to stop future funding, but if they already received months of funding in advance, the damage has already been done.

How can we ensure that SP’s are held accountable for deliverables? I’ve seen way too many situations in defi where SP-like entities end up burning through money incredibly fast with very little to show for it, and no one says anything until its too late. What protection does the DAO have against SP’s that assure us they can execute on a plan on time and budget but fail to do so? I expect some SP’s to be asking for double digit percentages of our treasury so we need to be extremely careful, we don’t have much margin for error.

I would like to see incentives aligned between Balancer DAO and the Service Providers so that the more success SP’s bring to Balancer, the more SP’s benefit i.e. KPI based payments. Maybe this aspect is better decided on a case by case basis though.

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The max funding any service provider can get in advance is three months so that caps our risk here.

KPI based payments is possible, though we are limited to tapping the DAO Multisig for funds once a quarter per service provider. Otherwise overhead for the multisig would be too great. Other problem with this is SP’s would be paid after the work is done or after a positive impact is observed - these SP’s have their own contributors which likely cannot work weeks/months without being paid with the chance they don’t reach their KPI targets and never get paid.

I would note this option was not discussed in the working group, but along the same lines we have requested “success metrics” that the community can use to judge the performance of an SP. The community would be updated on these on a monthly basis. As you say though Mike, we rely on the community to make a proposal to stop funding if the SP is not performing according to these metrics and that is not guaranteed to happen. Some members of the working group pushed for an “Accountability Committee” to be formed who would be empowered to oversee SP’s and could act without requiring a governance proposal. Ultimately this idea did not make it into the final proposal.

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Disclaimer: I am covering Balancer at Messari.

This is a really good idea, not surprised Balancer DAO is again leading the charge on this stuff. As DAOs mature and grow, there is going to be a whole service economy developed around them. Having structure to your process around SPs makes a ton of sense.

From an SP perspective, the monthly calls can be extremely helpful if interactive. Our experience so far with decentralized communities is that it is a bit difficult to create good feedback mechanisms. Part of that is on us as we build/define our product offering but part is the decentralized nature of DAOs. But it’s important to make sure DAOs get good value for what they pay for and of course for SPs to make sure they are providing that value. Monthly calls could help.

Regarding risk 3 - As part of its annual budgeting, Balancer DAO could define a maximum percentage of the treasury to SP funding for that year. Still a risk of funding too many projects but at least there is control around an unsustainable burn rate. A limit would also help the DAO prioritize SPs, knowing there is only a fixed budget.

Blockquote

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While I agree that these changes move the Balancer ecosystem more towards a decentralized model which is the ultimate goal I am a bit worried that there could be a few actors in the future that may look to take advantage of the system that will be put into place. I share some of the same thoughts as @Mike_B. I am however glad to see that funding will be limited to quarterly tranches because that was unclear to me, I was thinking SPs could ask for up to 1 year.

I also agree on the “Accountability Committee” idea, that they shouldn’t have the power to act without governance approval, but I do feel the responsibility will fall upon certain individuals to call out SPs for not acting according to their mandates. If they don’t act many quarters of less desirable outcomes will persist. My gut feeling is that there should be some form of “steering committee” that helps move everything, in the right direction and package information until the initial framework/SPs are in place (veBAL still formally deciding), then that committee gets dissolved (not sure what timing would be right though).

some examples without filtering noise:

  • what is multiple SPs request to do the same work at the same time, it’s mention above overlap should be kept to a minimum but who enforces this? the voters?

  • what if a new SP comes in and wants to undercut another SPs price for the same, do both proposals go up? does the existing SP get any credit for work done? voters are supposed to know all that?

  • SP wants to work on implementing something, some new features, but needs Blabs to work on it, but Blabs doesn’t have the time, however that SP is funded because voters don’t know that until after the vote passes

  • SPs making a very well thought out proposal with what ends up being unrealistic goals (taking on too much at one time), getting paid a lot and not being able to deliver, and it is more that this will be spread out of a much longer timeframe, but this happens a few quarters until someone wises up

It just seems that we are moving from a semi-rigid framework to something that is pretty wide open. My fear isn’t for tomorrow it is for months from now, and while it is nice to think that all SPs and voters have the best intentions i’d hate to see something slip through that rekts the ecosystem. I don’t yet know all the costs associated to spinning up this model, but I keep asking about it because BAL is just coming off all time lows and nobody knows when the bear market will end.

I don’t want to sound like an alarmist and I admit I am not an expert with DAO frameworks, however I did want to write a little about how I was feeling. I do like the idea about trying to lock in an annual budget, but without ever going through this exercise i’m not sure if i’d or anyone would know the appropriate value.

last thing, in terms of quorum for voting, should one address ever be able to pass a vote on its own? i know people could split their veBAL across multiple wallets but i’m wondering if it makes sense to have quorum some % above the largest holder or top 5 address or something.

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You mention a steering committee but that veBAL would still formally decide. The answer to all of your concerns is “trust veBAL voters know best”. This proposal was written with that mindset. We could run into some messy or difficult situations - it will be up to veBAL voters/delegates/the community to navigate Balancer through them.

The other option is form a steering committee that is in control of what SP proposals can go to a vote - they would be responsible for addressing everything you outline as a concern. veBAL voters just act as a rubber stamp. I am personally against this but I do believe some working group members support this idea. I think it is important not to erect artificial barriers or assign gatekeepers - the more transparent and simple the process for becoming an SP is the more likely we are to attract high quality operators imo.

Anyway I will address your scenarios briefly.

  • what is multiple SPs request to do the same work at the same time, it’s mention above overlap should be kept to a minimum but who enforces this? the voters?

If we see two simultaneous proposals to pursue “Marketing” for example, it is expected this would be questioned during the discussion phase by the community. However if that doesn’t happen and both votes are approved then voters believe there is value in having two SP’s doing the same thing.

  • what if a new SP comes in and wants to undercut another SPs price for the same, do both proposals go up? does the existing SP get any credit for work done? voters are supposed to know all that?

This might be a couple different scenarios. If we see two proposals to do the same work and one is 10% cheaper, it is up to the community (or voters) to consider if this reason alone is the deciding factor. Cost is only one factor among many and probably not the most important I would say.

The other scenario seems to be one SP has been funded to do something and is doing it. Another SP proposes to do the same thing but cheaper. This new proposal is voted and approved. Now two SP’s are being funded to do the same thing. If a proposal is made to de-fund the first SP and it is approved then no further funding would be distributed from the DAO Treasury. Do they get credit for work done? Yes as each SP is paid in advance each quarter - unless they are utilizing milestone based payments, in which case it is a fair point that they could be terminated without getting paid.

Voters should understand all of this I would say.

  • SP wants to work on implementing something, some new features, but needs Blabs to work on it, but Blabs doesn’t have the time, however that SP is funded because voters don’t know that until after the vote passes

The current rule that says the specification of a proposal must be clear still applies to SP funding proposals. If an SP requires work from Balancer Labs in order to proceed that proposal would not go to a vote without an affirmation by Balancer Labs that they agree to do that work. If an SP pretends they have the expertise but it turns out they don’t, this is a fair point and a risk the community must be vigilant to protect against. This is why I suggest using milestone based payments for an SP that has not established trust with Balancer’s community.

  • SPs making a very well thought out proposal with what ends up being unrealistic goals (taking on too much at one time), getting paid a lot and not being able to deliver, and it is more that this will be spread out of a much longer timeframe, but this happens a few quarters until someone wises up

It is fair and I would argue this is already happening to a certain extent. Sooner or later the financial situation of the treasury will deteriorate to the point where hard decisions must be made if we continue spending money and seeing no positive results. I’m not sure what solution there is here really - either voters/community become quite picky with who we choose to fund or we wait until we are forced to be picky due to not much money left.

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I guess the main point that i didn’t explicitly write out was trying to help proposal writers structure proposals before going to vote rather than just pushing everything to a vote. i guess this is a collective job by the community for whoever wants to contribute

can this one be spelled out more bluntly? it seems there will still be some responsibility by certain members of the community to take proposals to vote. it isn’t the same as onchain voting where anyone with a certain amount of voting power can take a proposal to vote, so there is still some level of voting control.

who is the we in this situation? if it is voters, who is going to make them aware of the potential consequences of their actions when the SP is going to have a bias towards being funded. by the time voters realize it could already be too late. i also don’t like putting a system in place where you could be forced to be picky because there isn’t much money left. steps should be taken along the way to make sure the treasury isn’t drained, for instance if we are going to 2x - 5x the annual costs this should be known up front as aggregated information rather than have it drip in over 5 proposals over a few months then you realize in month 5 you’ve 5x your annual spend

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Going to butt in during the current discussion and say I wholeheartedly approve this proposal. As for being picky with a proposal, this is how businesses operate. Business’s need to operate at the lowest possible cost while garnering the highest quality service. It is up to the veBAL voters to decide which SP is going to accomplish that mission and it is up to that SP to show that it can accomplish what it says it can. If after one quarter they don’t deliver, than the DAO always reserves the right to end funding. I don’t see any issue in this.

As for SP’s being motivated to receive funding, that’s the point. Whatever SP is applying for payment believes they can do the things they’ve outlined and in order to continually receive funding they need to deliver. It’s up to the DAO to hold them to those standards. I see no reason to include additional governance structures on top of this as it will be up to the DAO to hold these SP’s accountable. I think we’ve all proven here we can properly call out people for not doing the job that they say they will.

As for total expenditure is that not up to the Treasury subDAO to report in on these SP reports that we have already spent “X” amount of $ on Marketing, why do we need to spend an additional “X” amount of $?

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As for total expenditure is that not up to the Treasury subDAO to report in on these SP reports that we have already spent “X” amount of $ on Marketing, why do we need to spend an additional “X” amount of $?

My current plan is for the primary functions of the treasury subDAO, namely handling protocol fees and running the weekly discussions about the treasury, to be rolled into a “Community” service provider. It will not be an explicit requirement that this SP comment on the impact of an SP proposal to the treasury as you describe. However, I expect members of the community SP like myself will certainly bring such issues up on our own.

Just wanted to clear up this slight misunderstanding :slight_smile: otherwise good post sir and thanks for contributing to the discussion.

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Thank you @solarcurve @Mog @LuukDAO @Xeonus @Mkflow for your hard work on this proposal.

I see this as an important step toward a more decentralized and resilient future state for the Balancer ecosystem. A service provider model lets the flow of Balancer core contributions come from multiple independent entities that are incentive aligned and held accountable by the DAO. This proposal would set the conditions in place to allow this to occur via natural evolution.

There’s a tough trade-off here between wanting to protect the DAO from foreseeable negative scenarios and wanting to have a framework that’s generalizable and welcoming to diverse contributors. As a community we need to decide where we want to be on this spectrum.

If we think, as it appears the working group does, that there is more net value in flexibility and relying on the community to use discernment and take action to fix problems, then the existing proposal seems pretty good in achieving that. The more rules we introduce into this system, the more complexity they create.

If we think that more protective controls are needed, as I read @Mike_B and @zekraken’s comments to suggest, we could think about solutions that would mitigate the most crucial risks to the system.

There’s a catch 22 between ensuring that SP’s will deliver value for the money they receive and ensuring that SP’s that take the leap to assemble a team of contributors will be able to offer stable jobs to the people they recruit. We want to give contributors the opportunity to get off and running in solving important problems for the ecosystem.

I don’t see a way around paying SP’s in tranches, but perhaps a way that risk can be mitigated is by requiring SP’s who have no proven track record of delivering value to the Balancer community (or other communities that we know well) to first complete a trial project/period before they can be approved for a more significant project/funding amount.

I find this idea interesting and worth more discussion if those who are concerned about burn rate getting out of control see this as a useful solution.

A challenge I see on this point is that when one SP makes a proposal to do activity ‘X’, veBAL holders would not necessarily know if another SP intends to also propose to do ‘X’. So voters can have a bias toward the first proposal they see regarding ‘X’. Of course it’s unrealistic to have all SP’s who want to do ‘X’ to appear at once and make their proposals at the same time so that voters can make an apples to apples comparison. I don’t have any great ideas on this.

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On the whole, we are in support of this proposal and believe that this is a big step forward for Balancer to decentralize further. There are a few tweaks that can be made to slightly improve the requirements of SPs but in all, we believe that Balancer is a great time to accept SPs.

Other commentators have brought up some good points, and we believe that the stated three months is a good length of funding that an SP can receive in advance. We have outlined a few improvements to the SPs and how they should summarize their work on a monthly basis, so it is easier for community members to stay updated on every aspect of the SP necessary. They are only rough templates but it will make it easier to prevent future funds from being disbursed if any malicious situation arises.

III.Accountability mechanism

“Anyone can make a forum proposal to the DAO to stop the Foundation/DAO from disbursing future funds to the SP.”

We believe there should a basic template to follow

  1. SP in question
  2. Reason to halt funding
  3. Supporting evidence
  4. Other comments

Monthly summary of expenses

Summaries should include budget statements to identify how much money is actually being spent, when they use third-party software or contractors. This is more leaning on treasury management and accounting, but it is useful for the community and VeBal voters.

  1. How much did they spend
  2. Difference in the proposed amount
  3. How much do they expect to spend next month
  4. Other comments

A rough template for monthly summaries so SPs know what to include, but each SP has a different task so might add or omit certain categories. A template helps because most SPs will present their information in a similar manner to other SPs.

  1. Overview (how are they reaching their key objectives)
  2. Next Steps
  3. Budget Statement (template above)
  4. Other comments

These templates simply act as a guide but will streamline the process for individuals or SPs when providing updates. I believe they help with transparency, but each SP is free to do as they wish, but this template shows the bare minimum of what we as a DAO should accept for monthly summaries and budget statements.

Representatives at internal meetings

  1. Should we not keep the same representative for a period of time such as 3 or so months then they can rotate around? It promotes a better work relationship across SPs instead of meeting a different individual every so frequently, which is great but can hinder work progress.

VII

“Unknown SP’s might want to request a lower funding amount and/or utilize milestone-based payments until they earn the trust of the community.”

Small edit here, but I think we should use the phrase “Trial period” or “Test period” here. It is a common phrase used in the workplace and makes it easy to understand.

“As part of its annual budgeting, Balancer DAO could define a maximum percentage of the treasury to SP funding for that year.”

I think this is an interesting idea and can explore more, but right now I think this would be good as a rough number rather than something that is set in stone by the DAO.

Delegates at Balancer

We are putting a lot of trust into VeBal holders, especially delegates to catch any bad actors. A delegate’s role will become a much more important role, and we should consider incentivizing delegates to help retain/attract them to Balancer. I will spin up a separate thread soon exploring this.

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Thanks a lot for all the suggestions. I incorporated many of them to the text. My plan is for each approved service provider I’ll make a sub-category on the forum for them where they will post their monthly summaries and I’ll add your templates for the summary and budget in there for them to use.

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https://snapshot.org/#/balancer.eth/proposal/0xddc02cdfaf4463a5ced26a79fd43b8fc9b8caefef0fde54c482b968359f7288c

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Given the exciting developments of Balancer protocol towards further decentralization with multiple SPs as suggested in this post, Balancer Labs sent 1.9M BAL to the Balancer DAO, which is over half of the BAL in the fundraising fund prior to this transaction (~3.7M BAL). As Balancer Labs focuses 100% on writing smart contract code, we believe the DAO will greatly benefit from these funds for supporting the protocol in all the other areas that SPs will work on.

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