Neuron Fund Design Flaw Proposal

As I’ve been reflecting upon the NNS in abundance as of late, my attention has been drawn to the Neuron Fund, as I’ve noticed many “design flaws” and “attack vectors” within it.

This proposal sets out with the objective & intent to signify the removal of the Neuron Fund, until solutions are thought out, discussed, proposed, and imposed, before reenacting the Fund. I am hopeful this will also inspire further conversation regarding the validity of these concerns, solutions, and the best path forward given the scenario we’ve put ourselves in.

The primary “Attack Vectors”, or, “Design Flaws”, that I see within the Neuron Fund, are as follows, in no particular order;

  1. Front-running
  2. Liquidity Availability
  3. Proportional Contribution
  4. Tax Evasion
  5. Portrayed as Investment Opportunity
  6. Participants Inability to make Robust Decisions

Alone, each of these projects present formidable challenges, but the conglomerate create a major vulnerability for not only the SNS projects utilizing the framework, but the NNS itself.

The remainder of this proposal aims to address how exactly these attack vectors & design flaws are perceived as such, offering an in-depth explanation for each of the listed concerns.

Front-running of Neuron Fund Selloffs

Currently, when it comes time for the Neuron Fund to sell their allocation, it is done through a proposal.

Meaning; when the Neuron Fund participants have decided they’d like to sell their positions, they have to create a proposal, to the entirety of the NNS; which undergoes a 4 day voting period, assuming it does not pass with an absolute majority (has not happened aside from proposals DFINITY votes for).

With this being said, upon the proposal being submit to the NNS - the intentions of the Neuron Fund are immediately made transparent - and invite front-running over the 4 day voting period.

Front-running occurs when someone with prior knowledge of a transaction takes advantage of that information to execute their own transactions for personal gain. In the context of the Neuron Fund, individuals can exploit the transparency of the proposal to anticipate the actions of the fund and engage in front-running during the voting period.

As such, this inherently jeopardizes the Neuron Funds profitability & security - as it includes important information that must be accurate, to ensure the correct distribution of Maturity after a selloff.

Lack of Liquidity for Neuron Fund Selloffs

A crucial step in the Neuron Fund is the sell-off of acquired Assets.

This is currently done by market-selling to a DEX upon the successful execution of the NNS Proposal that enables the Neuron Fund to sell its treasury.

Something that isn’t considered within this model however, is that this scenario requires more liquidity to be within the DEX liquidity pool, or in order books, than input to the Treasury.

If we look at examples of past Neuron Fund Contributions, it can be denoted that ~333k ICP was contributed within Openchat’s SNS sale, while ~250k ICP was contributed within Kinic’s SNS Sale.

Contrast to the vast ICP contributions from the Neuron Fund, there is no liquidity pools for either of these tokens.

Both are completely reliant on a supply & demand order-book based market maker.

$CHAT for example, has seen ~585k ICP Volume since its genesis, with only 6 of 17 weekly candles showcasing an influx of volume, rather than an outflow.

On the other hand, $KINIC has seen roughly ~3K ICP volume since Genesis, with both weekly candles showcasing an outflow of volume.

Alternatively, if we look at Liquidity Pool based DEXs within the network, it can be noted that there is a grand total of ~300k USD in liquidity.

With this being said, when the Neuron Fund does in fact go to sell its treasury, it will decimate liquidity through sheer slippage - as there is simply not enough liquidity to acquire such a position size in the manner the Neuron Fund has been designed. It may be stated that this isn’t a concern now, however, I’d disagree, as proactive measure needs to be taken before we put ourselves in an irreversible scenario.

This again, results in direct unprofitability to participants, and opens vulnerabilities within the SNS DAO being sold off, as a 51% attack on voting power become much more viable within this scenario, due to forced price action.

Proportional Contributions by the Neuron Fund

Currently, when the Neuron Fund Contributes to a sale, it allocates the entirety of the maximum allocation contribution to the sale the moment it’s generated.

This is flawed due to the fact that SNS Sales have a minimum, and maximum threshold - meaning the maximum threshold is assuming the absolute best case scenario.

As the Neuron Fund contributes in respect to the maximum allocation, rather than the minimum contribution, this creates a scenario in which, a proposal may not pass due to community contribution - but solely for the fact that the Neuron Fund contributed its maximum allocation, rather than its minimum.

This was showcased within Kinic’s decentralization sale, in which the Neuron Fund contributed 50% (~250k ICP) of the minimum contribution of 500k ICP, under the assumption the that the sale would reach its maximum contribution - to then only collect ~510k ICP total.

Meaning, if the Neuron Fund had contributed proportionately to the sale in respect to the minimum allocation, Kinic would have only only raised ~380k ICP, leaving them short ~120k ICP, in turn resulting in the failure to earn approval of an SNS DAO generation.

This again opens up vulnerabilities to Neuron Fund participants, and the general participants of the SNS Sale itself - as the minimum contribution threshold represents the final barrier & vote of confidence to successfully generate an SNS Sale.

The Evasion of Taxable Events

While it may not have been intended, this mechanism directly evades taxable events.

This is due to the fact that the Neuron Fund can only draw from liquid Maturity, that could be spawned, but instead is utilized under the guise of “Maturity” - which is conveniently not tracked within either Blockchain Explorer (ICScan or IC Dashboard), or the NNS itself.

The lack of transparency presents two issues - being the inability gauge how much maturity was used in the sale, and how much is received from off-loading the position. Which in turn leaves all maturity to fall under the umbrella of a singular taxable event, being the spawning of staking rewards.

Utilizing the USA as the example jurisdiction (however, many jurisdictions apply similar laws), given the abundance of open court cases against DFINITY within the region, the following taxable events are directly evaded;

  1. Spawning of ICP Rewards
  2. Conversion of $ICP to Token
  3. Spawning of rewards from SNS Tokens
  4. Conversion from Token to ICP

I’d also be willing to make the arguement that Maturity Modulation only exists to avoid Switzerlands “Wealth Tax”, but that is another topic.

The Portrayal of an Investment Opportunity

As of present, not only the SNS, but the Neuron Fund are presented as investment opportunities, within DFINITY-published documentation.

Given the SEC has been pursuing DFINITY & ICP regarding unregistered securities, promising any form of profit or investment on behalf of the work of others, should obviously be a red flag.

The screenshots below represent the state of documentation, of which can also be found in “Resources”.


Participants Inability to make Robust Decisions

Given Neuron Fund Proposals are voted on by the entirety of the NNS, rather than specifically the neurons who have contributed to the Neuron Fund - it creates a gatekeeping aspect, in which the entirety of the NNS gets to decide when an acceptable time for Neuron Fund participants get to offload there position, or participate in a sale.

This is inherently flawed, as the responsibility of the entirety of the treasury, is then entrusted within the hands of entities who, for lack of better words, may have “no skin in the game” in regards to the Fund itself.

Concluding Thoughts

In conclusion, to be quite frank, I think the best route here is simply removing the Neuron Fund, whether it is temporary or indefinitely, until valid solutions for all proposed consequences are imposed & enacted, but I’d love some feedback & other opinions.


Written by accumulating.icp


Going to tag a few relevant parties to keep this conversation on track from the start this time🙃

@bjoernek @diegop @lara

I agree that documentation needs to be updated to remove the word "investment ", while replacing it with words like acquiring utility tokens to participate in the project’s governance.


I don’t agree with your statement that kinic has sent out votes every month, which is their labor success. It’s hard for them to go out and play. Hope the community chives can provide more ICP for this kind of project. :face_vomiting:


Many thanks for sharing your thoughts on the Neurons’ Fund. I have the following feedback:

Regarding point 1 & 2 [Selling of tokens]: Agree. Details are not fully designed yet. Your concerns should be considered in design enhancements. Note: The Neurons’ Fund currently doesn’t dissolve any SNS neurons or sell any SNS tokens.

Regarding point 3 [Proportional Contribution]: Agree. A proposal is already tabled to address this, as detailed in this forum post [link].

Regarding point 4 [Purpose of the fund]: Disagree. I would like to clarify that the purpose of the Neurons’ Fund is to aid the bootstrapping of the SNS DAO ecosystem. As we can see from past and planned SNS launches, it played an important role for interested SNS projects in launching their SNSes.

Regarding point 5 [Documentation]: Agree. The wording should be enhanced for clarity on the Fund’s participatory nature. I will look into this next week.

Regarding point 6 [Decision making]: Disagree. The design of Neurons’ Fund allows flexibility in participation and decision-making. SNS projects can specify their participation preferences in the SNS proposal, and NNS neurons can opt out anytime.

Concluding, my view is the following: You highlighted several valid points which should be considered in subsequent refinements of the Neurons’ Fund. Given its critical role in bootstrapping the SNS ecosystem, it’s prudent to implement these enhancements step by step.


Thank you for taking the time to answer. What are your thoughts on temporarily pausing the SNSs until the NF is fixed? From my perspective, it appears that each of them (Kinic, EMC, Hot) is receiving more than 50% of the funding from the NF, which seems economically unsound. Additionally, it is going to be unfair for the upcoming ones after the change (point 3) is applied.


Goodmorning @bjoernek

I appreciate both your timely response and your opinions in regards to this matter, as it is to my understanding that you have essentially designed the Neuron Fund to date (there may be other parties involved, but this is how it appears from public facing documentation).

It seems as though we’re in general agreeance, however I just wanted to touch on a few of your points.

I’m not saying that the Fund purposefully went out of its way to avoid taxable events, but the fact of the matter is, it certainly does.

While I recognize the assistance this fund has provided to achieving SNS DAOs minimum contributions - all “Maturity” utilized, is “Maturity” that could be spawned.

Meaning there is no reason to group Maturity into the Neuron Fund, as it is already liquid, and could simply be spawned, and utilized in the form of ICP.

Hence why I say, while it may not be intended, it does in fact directly evade taxable events.

Currently, there is ~20m ICP in the Neurons Fund. Let’s assume best case scenario, this equates to 40m VP - which is about 10% of VP.

If Neuron Fund participants want to participate in a sale, or sell their positions, they have to request the other 400m VP allows them to.

Therefor this does not allow them to robustly make decisions, as others are the ones making the decisions for them, whether it’s to use their funds, or allowing them to sell their position.

While they can choose to simply opt out of the box, that does not allow you to suddenly manage the assets the Neuron Fund controls on behalf of you - you’re still at the mercy of the NNS.

I apologize for extrapolating, but it feels a bit open ended, so I have to ask - would you agree that it is reasonable to temporarily remove, or postpone involvement of the Neuron Fund until these issues are resolved?

My perspective is as follows: The Neurons’ Fund, though it can and should be further improved, is already instrumental in supporting the SNS ecosystem. As such, it should remain available for interested SNS projects and participating NNS neurons. Concurrently, work on enhancements can proceed (such as matched funding) without interrupting its operation.


So in essence you believe the reward (being the ability to participate in SNS sales, with what could be liquid ICP, without having to spawn it & creating a taxable event) outweighs the risk (being the legal liability & vulnerability to the entirety of the NNS on multiple fronts, the insecurity of liquidity, over-inflated Neuron Fund contributions, and the fact that the Neuron Fund is essentially a “Honey Pot”)…?

Maybe we need to create an exit for American Neuron owners who have issues with the risks being taken. A lot of us don’t have this level of risk tolerance.


True, however an “emergency disburse” proposal was floated, and they didn’t like the thought of that.

So the alternative is simply not creating functionalities that put DAO participants at legal risk - or at least addressing design flaws when they’re raised🙂


Good post! @Accumulating.icp

However I would not waste my time reasoning with DFINITYs decisions in Forums since those who make the decisions barely use the forums. They are informed by the informants and moderators [ His Majesty’s Royal Guards ]

It would be a better use of your time if you could create a website like and post these findings there. We would gladly help you in this process and contribute our resources.

We do not want law enforcers to come after us later while swiss based organizations enjoy the financial leniency by exploiting loop holes. So we share this sentiment with you.

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Points out flaw that compromises the entirety of the NNS from a legal standpoint

“Hahah back with another schizo thread I seeee - leave our world class developers alone, they can do no harm!”

I find it hilarious that the moderators let you go on & on, diverting so many topics (I wonder why🤔)

Would love to hear a stance on this from DFINITY, the people who designed & implemented the function, not you while you have nothing productive to say.

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Road to Hell is Paved with Good Intentions

Well glad to see you’re here too borovan. We thought you’d be busy building your game to make world a better place. You’re giving us mixed signals.

Does this mean we are friends?

About the “Schizo” part, We’d prefer to be Schizo’s any day over morally bankrupt DFINITY insiders :rofl: :laughing:

It’s quite disheartening to witness the number of changes required to serve Americans, given that their system tends to lean toward a sort of socialism for banks and institutions, adversely impacting the retail sector.

Don’t misunderstand me, action certainly needs to be taken. It’s not the fault of US retail investors that their government operates in such a problematic manner.

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This proposal is now live within the NNS & can be found below;


Fighting with options like Following other neurons or Neurons’ Fund is taking for fools everyone who uses this option (because it’s only optional, choose to use).
It’s like banning the production of combustion cars in the EU by 2035, just because the climate is breaking down and people are “too stupid” to buy electric cars of their own free will (even though they aren’t as green as their proponents say).

Anyway, on topic: changing the nomenclature from investments to providing utility tokens in exchange for temporary governance rights would be really good.

So where would OpenChat, Kinic and HotOrNot be without the Neurons fund? I mean, I know Dragginz jumped the queue but we were still considering a SNS launch and the Neurons fund would have been a part of that

My only gripe is that it doesn’t work with Ledger yet!

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Considering the ICP used in the Neuron Fund is Liquid Maturity that could be spawned as ICP - if the participants of the Neuron Fund wanted to invest in the specific sales you’re referencing, they would simply spawn their maturity and participate in the sales.

Even if you assumed fund participants are completely passive, that still leaves these SNS projects with hundreds of thousands of ICP.

I understand the thought of millions of ICP in funding sounds lucrative to many, but we have to balance the risk vs reward - and I feel as though this makes the entirety of the NNS liable from a legal perspective (given jurisdictions have determined DAO participants are responsible for DAO actions).

This specific option puts the entirety of the NNS at risk from a legal standpoint, and SNS projects at risk from a security standpoint - I’m not “taking anyone for a fool”, I’ve recognized an issue that jeopardizes everyone, and I have raised awareness.