A Call to Action: Using the NNS for Growth
Problem Statement:
Today, ICP suffers from two separate problems that we believe could be improved with a single silver bullet. Those two problems are as follows:
- The incentive to upgrade ICP by meaningfully participating in governance is low
- The demand from dApp developers and end users to use ICP is well below what the Internet Computer is capable of
Let’s tackle each problem separately.
Governance on the IC today follows the liquid democracy model. Stakers are encouraged to either vote directly on proposals or follow “named neurons” who can vote on proposals on their behalf. The theory is that such a system can be self-regulated and self-improving since experts will develop followings and named neurons will upgrade the protocol over time.
The problem with the system as currently designed is that no-one is properly incentivized to participate in governance. ICP has very few “named neurons” and all its members are doing it as a hobby, part-time so to speak. The most promising - CycleDAO - which had some of ICP’s most luminous technical minds has since fallen into oblivion because its members simply were too busy to vote on important matters.
We have only one named neuron - Synapse.vote [formerly ICPMN] - with members who spend a significant time out of their day debating in the forums. As a result, Synapse.vote has a disproportionate amount of the voting power. But it too suffers from the same problems as CycleDAO. There’s only so much time that Synapse.vote members can really take out of their day to focus on governance issues.
As a result, ICP’s governance is overly centralized and filled with apathetic voters who want their token to moon but can’t be bothered to do the work to improve the system.
The problem of governance in ICP can be said to fall into the category of the Tragedy of the Commons. When folks are not individually incentivized enough to improve the system as a whole, often the system languishes. It’s the reason why we need the government to build roads and we can’t rely on private individuals to build them.
The second problem besetting ICP today is that there is low demand from dApp developers and end users to use ICP. One could spend all day wondering why that is. The spectacular flop during launch? The poor performance of the Dfinity marketing team? The manipulation of bad actors to thwart Dfinity’s tech? Probably the answer is all of the above, but ultimately it does not matter. What matters is that we are here now and have a big problem to solve to get the world to pay attention to us.
Why does this matter?
If ICP does not fix the demand side of the equation, it will fade into oblivion. And if ICP cannot fix the incentive to participate in governance, the protocol will not autonomously upgrade itself. After all, the DFINITY Foundation expects its voting power and influence over the network to decrease over time.
It is definitely not a foregone conclusion that demand generation will just pick up on its own, or that voters will spend half their day making meaningful contributions in the forums, and it is simply a sad fact that the best technology does not always win.
The Internet Computer community should not be complacent. The protocol has suffered from a year of disastrous PR and collapsing token price. Many in the media don’t even know about all the incredible things happening on ICP.
Today ICP enjoys a technical superiority that may not last. Well funded competitors such as Solana, Avalanche, Aptos or Mysten may use their war chest to upgrade its technology and take over ICP’s technical lead.
Peter Thiel is famous for saying the following:
“Superior sales and distribution by itself can create a monopoly, even with no product differentiation.”
Proposed Solution: An NNS Treasury + NNS Foundation
ICP holders today have a superior product with inferior distribution. If we fix distribution, we have a chance at winning.
By inferior distribution, I mean ICP has been unable to appeal to a broader audience. ICP needs to focus on growth to expand its appeal and improve incentives among the following constituents:
- Application Participation [NOT ENOUGH DAPPS]
- Developers
- End Users of applications
- Protocol Participation [NOT ENOUGH GOVERNANCE]
- Stakers
- Named Neurons
We believe we can achieve this goal of growth through the creation of an NNS treasury + an accompanying NNS controlled foundation.
NNS Treasury
The NNS controls everything to do with ICP including its monetary policy. If it wants to, the NNS can mint ICP through inflation out of thin air.
By creating a treasury controlled by the NNS, the NNS could endow itself with resources to spur growth. Some examples could include:
- Demand Generation
- Marketing
- Branding
- Developer or End user acquisition
- Governance Participation
- Paying members of named neurons to vote
- Paying developers to implement community driven proposals
Should we consider driving decentralization as part of the scope of the treasury? Perhaps. This should be subject to discussion from the working group as it’s a tricky question.
How Would Such a Treasury Get Funded?
There are three options to fund such a treasury:
- Increase inflation of all neurons
- Reduce staking rewards from all neurons while keeping inflation constant
- Reduce the staking rewards from only non-voting neurons (or another group of neurons)
The benefit of the third option, as proposed from @Kyle_Langham, is that this funding mechanism does not penalize voters who are engaged in governance. As such, it aligns incentives to get neurons to properly participate.
How Big Could an NNS Treasury Be?
The potential to raise funds that could be put to a productive use is enormous given how valuable the NNS is ($1.57 billion worth of ICP staked at current value). The proposal to redirect ICP from non-voting neurons could in theory place 1M ICP a month into a NNS treasury without increasing the overall pre-set inflation rate of ICP (10% going down to 5% over 10 years). 1M ICP a month is $6M a month. That’s a lot of money! Just imagine how many great initiatives could be funded with such a large honey pot accumulating…
Potential Problems with NNS Treasury
While the potential for growth with such a war chest is huge, so too is the potential for abuse. Cryptocurrency is rife with fraud. One cannot go a single day without reading about a hacker or an imposter stealing funds.
It is a foregone conclusion that bad actors will try to claim NNS treasury funds for themselves. Maybe an OFAC state-sponsored group assumes a false identity to get funding.
It is naive to assume that a war chest of funds can be allocated to anonymous groups. We live in a world of regulators who insist on KYC and AML procedures to make sure bad actors don’t get funding.
It is also hard to think of how accountability and transparency of funds could be enforced in a system whereby an NNS treasury existed in isolation. Let’s say a good faith actor was able to claim funds but spend them inefficiently. Who would be there looking over their shoulder to determine if they had spent the funds as they said they would?
And then finally, one would be remiss to not mention the risk of inflation getting out of control. If the NNS voted to increase inflation in order to fund the NNS treasury, that could have a disastrous impact on the price of ICP.
Ultimately, the prudent thing to do would be to start the treasury small and iterate from there. But starting small is still not sufficient. We need proper oversight to prevent fraud.
NNS Foundation
It is our view that an NNS treasury cannot work without a foundation that works alongside it to oversee its operations – with full time employees who are properly trained and incentivized to do the work.
Such a foundation would be dedicated to growth and to overseeing the proper functioning of the NNS, including the treasury.
The foundation would make sure that a bad actor doesn’t get funding. That grant recipients are who they said they are. And they would be subject and accountable to the NNS itself.
Potential Problems with NNS Foundation
Of course, adding in an NNS Foundation has the potential to massively centralize the power of the NNS into a single body.
Additionally, it is unclear to us at this time whether it is truly possible to create an institution that is answerable to the NNS as it lives off-chain. The code is not law in the real world and people can choose to break the laws of the institutions we set. We can say that the leader of this foundation must be elected by the NNS every four years, but what does that actually mean if they flout those rules and get away with it?
Any design must keep this in mind and have checks and balances. Perhaps it is better to not call it “The NNS Foundation” but rather the first of many foundations that the NNS can help fund and support. That way the foundation does not need to pretend to be official but rather just a private organization that is contributing to the goal of the Internet Computer much like Dfinity. Given the DFINITY Foundation does plan to decentralize various components of the organization over time, this could (and eventually will) be one such decentralized component.
Whatever the design, what is clear is that the establishment of a foundation would require a lot of work. That’s the whole point. Whoever is up for the task of making this a reality needs to make it a full time role. What that person looks like could again be a good topic for the working group.
Summary
To re-state, the problem facing the ICP ecosystem is twofold:
- The incentive to upgrade ICP by meaningfully participating in governance is low
- The demand from dApp developers and end users to use ICP is well below what the Internet Computer is capable of
We believe NNS can turn both of these around by resourcing itself with a treasury that makes inflation productive. All that said, a new foundation will need to be set up dedicated to growth to ensure that the treasury is not abused.
All these are just ideas to further the growth of a NNS treasury. Ultimately a working group will need to be established to hash these ideas out and land on a consensus. With great resources come great responsibility and the only chance this has of succeeding is if there is general buy-in from the community.