Author: Michael Bland
Progressive Decentralization of TrueFi to Date
TrueFi was created to become the open-source financial infrastructure for facilitating uncollateralized lending of digital assets. Since its launch in November 2020, the core team has been executing on a progressive decentralization step plan for turning the ownership, control, and future development of the protocol over to the community through the creation of the TrueFi DAO (the “DAO”).
From the start, TrueFi has sought to make decisionmaking public and community-driven. TrueFi has explored new ideas in a public Discord (now home to nearly 25,000 members), debated them in a public forum, and polled stkTRU holders on potential next steps via Snapshot. Though primitive, this early governance design has seen dozens of motions proposed and passed by stkTRU holders.
As the TrueFi protocol has matured, so has its governance process: first, with the migration to on-chain voting and stkTRU delegation in April 2022, and next with the introduction of a DAO-managed TrueFi Foundation in June 2022.
Since the vote to claim ownership of TrueFi’s smart contracts passed with overwhelming support, in TrueFi’s first binding on-chain vote, the protocol’s future is now more than ever firmly in the hands of its community.
To continue moving TrueFi’s decentralization efforts forward, this proposal seeks to approve the transfer of TrueFi’s key assets to DAO control, as well as the formalization and funding of the TrueFi Foundation.
Next Steps: Approving and Funding the TrueFi Foundation
Now, we are excited to (i) propose the formation of the TrueFi Foundation (the “Foundation”) and (ii) finalize the transfer of TrueFi’s assets and intellectual property to the TrueFi DAO.
The Foundation will be tasked with a very limited set of responsibilities and objectives to help support the continuing decentralization of the protocol, manage all off-chain processes, and support the protocol by effecting the on-chain will of the community. In short, the Foundation will operate with a specific set of enumerated powers and all other responsibilities will be left to the DAO members.
A pure on-chain DAO was initially considered, but due to the uncollateralized nature of the lending activity on the protocol there are simply too many off-chain processes that do not yet have workable on-chain solutions. These include, but are not limited to, credit underwriting, off-chain credit agreements, and pursuing defaults. The TrueFi protocol is greatly positioned to provide these on-chain solutions, so a future where the TrueFi DAO exists solely on-chain is possible.
As proposed below, the TrueFi DAO will allow the protocol to freely develop and grow under the guidance of DAO members, without relying on the management efforts of the core team or a centralized corporate structure.
Proposal Overview
The TrueFi DAO being proposed today will be a hybrid-DAO that accomplishes two primary objectives:
- Establishes on-chain governance of the open-source smart contracts and code, and
- Establishes on-chain control of an off-chain entity that is limited to an enumerated set of powers.
The TrueFi Foundation is incorporated as a BVI company limited by guarantee without share capital.
Enumerated Powers of the Foundation:
- Manage off-chain corporate responsibilities.
- Contract with DAO-approved service providers.
- Act as the initial administrative agent in TrueFi’s decentralized lending architecture to pursue defaults unless DAO members approve an alternative administrative agent.
- Maintain a multisig to veto governance transactions in the timelock for emergency purposes unless DAO members remove this functionality.
Interim Foundation Board Members: Rafael Cosman, Alex de Lorraine, and Masahide Hoshi. A new slate of directors will be elected by DAO members in the coming months.
TrustToken, Inc. (the “Core Team”) transfers the following assets to the TrueFi DAO:
- “TrueFi” and “TRU” trademarks.
- All TrueFi smart contracts.
- All TrueFi social channels (Discord, Discourse, Forum, Twitter, etc.).
- TrueFi domains and front ends (www.truefi.io, www.app.truefi.io).
- All TRU tokens in the Community and Incentive allocations and 40M TRU tokens from the Future Team allocation.
Initial Budget: Initial funding of $1.7M USDC from the Core Team to cover DAO operating expenses for approximately 6 months, at which point a determination will be made on whether additional funding is required.
TrueFi Foundation Proposal
The TrueFi Foundation is a fully independent entity incorporated in the BVI as a company limited by guarantee without share capital. The members of the company are known as “guarantee members” who contribute a certain amount of value to the company and, in return, have their liability limited to the amount contributed.
In order to become a legal member of the TrueFi Foundation, and therefore a member of the TrueFi DAO, a TRU holder must contribute 1 TRU token to the Foundation as their form of guarantee. This action will whitelist their wallet to vote in DAO governance, elect the Foundation’s board of directors, and control the TrueFi protocol’s future. This legal formality should provide all DAO members with limited legal liability up to the amount of their guarantee (1 TRU) and create a safe working environment for the TrueFi community to efficiently develop the protocol without the fear of personal liability being attached to their protocol contributions.
The current slate of board members will act in an interim capacity until TRU holders have had enough time to formally join the DAO and put their own names forward as potential board members. A total of five (5) board members may be elected in the next election via ranked-choice voting. Two of the newly elected board members will serve 1-year terms and the remaining members will serve 2-year terms.
Powers & Responsibilities of the Board
The Foundation’s board will have a very limited mandate in the TrueFi ecosystem. They will only have the specifically enumerated powers provided above. All other areas of responsibility and power are reserved for DAO members to effectuate through the TrueFi DAO governance process.
Checks & Balances: the Board Multisig
DAO members may terminate a board member at any time by a successful majority vote (50%). If an attempt to terminate a board member fails, then all subsequent attempts to terminate that board member will have the successful vote threshold increased by 10%, up to a maximum successful threshold of 80%. This may dissuade a governance attack to remove board members.*
The Foundation’s board of directors will maintain a multisig with the power to veto governance transactions that are in the timelock. This veto power is intended to be used only in emergencies and should provide a necessary signal to DAO members that the proposal may have some critical issues that need to be addressed before it can be implemented.
After any successful veto, the board shall publicly explain their decision in the TrueFi Forum. Any board member that votes in the affirmative to veto a governance transaction may be removed through a simple majority vote for a period of two (2) weeks after a successful veto. This increases the feedback loop and should ultimately hold board members accountable for their limited use of the board veto power.
This system of checks and balances will (i) provide additional security for the TrueFi protocol and (ii) allow the protocol to efficiently scale in a responsible manner, all without introducing a centralized authority that takes ultimate control of the protocol away from DAO members.
Next Steps
This proposal is the beginning of a broader discussion around DAO construction and DAO governance and after reviewing this proposal, please head over to the #dao-general slack channel for further discussion and analysis.
A final proposal will be put up for a Snapshot poll on Friday - September 2, 2022. If the Snapshot poll passes, the TrueFi Foundation board members and the Core Team will begin executing on the proposal and provide periodic updates to the community in Discord.
Questions & Comments
What is the TrueFi Foundation’s relationship with the Core Team?
The TrueFi Foundation is not formally affiliated with or owned by the Core Team. As a company limited by guarantee without share capital, the company is controlled by its guarantee members. All DAO members will be formal guarantee members of the Foundation. Rafael Cosman and Alex de Lorraine are currently part of the Core Team and are only acting as interim board members until the DAO members elect the first full slate of board members at a future date. Both Rafael and Alex hold TRU tokens.