Foundation Tax Discussion 2022

Over the last several months the conversation around Secret Foundation taxes have once again again been discussed actively. So I’m starting this thread to keep that conversation moving towards action in 2022.

Some reasoning I can see

  1. Committees moved to getting funded from on chain and conversations around any of them moving back to the foundation have largely stalled.

  2. Requests for funding a varied range initiative types are trending towards asking the pool for funding vs getting funding from foundation.

  3. The Secret Foundation currently generates roughly $46,000 daily and $17,000,000 yearly in block rewards, and based on previous statements by Tor, in the current price range the foundation tax could be half without impacting the Foundations ability to operate.

Other thoughts

Much like the last time the tax was lowered, I appreciate all the hard work the foundation has done and believe the right people are at the foundation. So I don’t personally support any tax that is too low and I want to see their work continue while also having taxes that are fair and justified on the Secret Network.

Timing for Tax Changes

I think we can act as soon as we have enough consensus on a new rate to go to chain with a proposal, then let the governance process play out as we’ve done in the past.

I welcome all to contribute feedback on what the Foundation Tax should be and why they think it should or should not change in a healthy discussion. Thank you.

(Note: this is the discussion phase before a proposal goes on chain to lower the tax)

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Can we see where foundation budget currently gets spent?

They have a transparency report I’m not actually sure where to find it but I’ve seen it in the past.

yeah because some are extremely overpaid and those people aren’t going to be in favor of salaries coming back to reality

because people know they’re much more likely to get what they want from a community that votes anything vs the foundation

Yeah this is fine and all but what certainty do you have that current price range will remain as is considering everything that’s going on currently economically and geopolitically, and the fact that cryptocurrency is proving most definitely not to be a short-term hedge against inflation.

Trying to make any claims about the sustainability using the price when it’s been nothing but extremely volatile in the past 6 months isn’t a good plan.

In my opinion, Foundation needs to move to a non-profit model, which would bring the desired transparency we all want. The ZCash Foundation receives on chain funding and managed to do it so I don’t really see a reason for this not to work here. If that happened, I’d be fine with the % remaining as is (or lower it, I dont really care, if foundation is fine with it), as I trust the foundation a lot more than 99% of the community to apply it effectively.

Nobody knows what the price will be in the future, but we do know that it was stated in this range the tax could be half and be no issue.

See my above comment.

If they moved to a nonprofit model then they could keep significantly more of the revenue generated due to not having to pay taxes on it. In such an event lowering the tax could still be called for because they would inherently start keeping more money off the same intake.

Correct

Yet once again, and right after the previous statement, you state the sustainability of this change which is quite meaningless given we’re right at the supposed target price with extreme volatility (2 50%+ drawdowns from tops in less than 6 months).

In other words, how many weeks/months need to go by for you to request increasing the tax if it goes under? Just as an example, only 4 months ago, the price of secret bottomed at 3.7$.

Yeah, sure, agreed.

The main thing to remember about the current market is that we are already down 28% over 3 months. If a situation occurs where they don’t have enough because it seriously crashes further, then they would be best served requesting additional funds from the chain or a tax increase. What you said isn’t a show stopper really.

I would propose increasing it or support passing spend proposals to fund what they need. Just like I proposed fixing the bug when it accidentally went to zero.

Please understand if I agreed with them having no funding, then I’d of started a very different discussion :slight_smile:

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The question for me is: What does the foundation need?

It feels a little backwards for us to be trying to imagine the best % using some generic “X is too much, but Y is too little” thought experiment. If 5% is way way more than the foundation needs to operate, how are we supposed to know that. Maybe it is too little? If it is too much is the foundation going to tell us that?

Instead of guessing, I would like the foundation to present a budget in USD and a proposed buffer to account for volatility. Without this, I feel like we are throwing darts.

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Same old same old issues. We only are at the point of having to guess is because they have never asked for a specific amount of funding, only a % of inflation.

Tend to agree with Sandy here now. In the past when we were in scrappy growth mode I supported having practically unlimited resources and leaving it open ended. This caused some conflict I know, but it was truly what I thought was best to make sure things were over resourced. Now that we’ve had more time to settle in as a network I think we should expect a higher degree of accountability. I still don’t want to stifle growth, but a loose expectation of budget is entirely reasonable. X amount for marketing, y amount for employees compensation, z amount for market makers and exchanges, a amount for future salaries and HR growth, etc. doesn’t have to be perfect but at least a ballpark. I don’t even care to see the exact breakdowns.

That said I DO agree with Tor in that some conversations need to take place around scope of duties to eliminate confusion. That said however, it’s not an excuse to kick the can down the road indefinitely. Let’s get SLABS involved and all come to an agreement and how we can best support and resource the ecosystem. I love this network and all the diverse opinions and people in it. We need to not take these things personally and realize everyone just wants what’s best for the network and the future.

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Fist of all, I think we can all agree that the Foundation and all of its employees have delivered to the best of their capabilities up to now. Tor and folks have been representing at best the interests of all stakeholders of the ecosystem, and many have found inspiration in their work. Thank you guys.

Secret Network is now an essential part of the crypto space, recognised as the first private-by-default, smart-contract enabled blockchain.

After reading all messages and discussions here on the forum, but also on Discord Gov calls or on the gov TG group, it seems that most of the voices we hear are in favour of moving to the next step in the growth of the ecosystem, through a rearrangement of the Secret Foundation.
Only a governance vote can give us an answer on the true community desire, as many opinions are not voiced to avoid political repercussions.

Imho, I would appreciate if the vote happens once all stakeholders have discussed around a table: the community, validators, the SF and SCRT Labs. I understand that Guy (SCRT Labs) would be available only in two weeks, so ideally, the vote would happen after that. In any case, I am looking forward to that meeting.
If the proposal is submitted to vote on Tuesday, then be it, as it would be in line with the requirements of the Code of Conduct. In any case, the involved parties had 1 week to commit to discussions.

Beside this, a focus of the discussion should be on “What do we do if/when the tax is lowered to 0%”.

Here bellow are some points that I thought of regarding a reorganisation:

  • If the vote passes, and Foundation Tax goes to 0: I would be in favor of the reallocation of these revenues to the community pool (10% additionally to what the community pool is already earning). Our community pool is at the moment very small compared to other ecosystems’, and this would give a better revenue stream, allow more aggressive community funding and enhance what I would call “the ecosystem’s financial decentralisation”.
    I hear that the Foundation has enough liquidity to run while we move to the next step, but the lack of financial transparency does not allow us to evaluate the runaway. It would be good if someone from SF could do a financial statement on this point.

  • I would suggest to liquidate the actual Foundation and start a real NPO based either in the US in a state with crypto-friendly regulations or in Singapore (This is where the Cronos, Luna Foundation and others are based. My former company’s financial office in Asia is also there, so I can always get some lawyer contacts if we need).

  • Fund this NPO by the community pool on a yearly basis after the presentation of a roadmap and a budget, and include the committees in this foundation, as both scopes can be redundant.
    This would allow the foundation to become a community led organisation, with reporting duties, mandatory financial audits and yearly reevaluation of the budget and objectives.

I insist on the yearly budget and roadmap, because less than a year would lock us in a short-term vision that is not compatible with an ecosystem growth.

Let me know what you all think of these points, and happy to elaborate if needed.

Waffle

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Through the normal discussion process several Network participants have stated they would support 0%.

I’m told a proposal will come out for 0%

Here is a guide for anyone who wants to submit it.

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I disagree with sending funds to community pool. Seems like a waste to me. We could always raise the community pool percent later, but as of now it is not used to where it makes sense to do IMO.

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The tax would be sent to the community pool for it to fund the foundation on a yearly basis.

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If we shifted to this model, hypothetically, I think it could be beneficial to take another look at how we deploy community pool funds so that we can figure out how to most effectively deploy them, and be relatively liberal about it.

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Ahhhhhh I see. In that case I agree.

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This is novel and eliminates the need for someone human to take custody of the funds and then donate them to an NPO which was a roadblock that was mentioned once or twice in the past. Would need to think more about the logistics but it’s an interesting work around if needed.

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Regardless whether or not these funds will be used i think it would be the best option to move any percentage removed to the community pool for 2 reasons:

  1. A slight staking yield increase is nice but will not yield any crazy returns for the community in short or long term, potentially it just yields more sell pressure. The community pool however can invest these funds in the best way possible to yield more long term opportunities.

  2. Moving a yield that a user doesnt have anyway is less of a barrier then removing a yield he/she has. Simply put there is no way we can guarantee people to vote yes on losing >1% of the current staking APR to fund the community pool. Simply moving the Foundation tax however will be an easier vote.

I think the “financial decentralization” argument Waffle mentioned makes a lot of sense in doing this, our community pool is… Tiny!

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Just as a thought for everyone in this discussion:

How about lowering the foundation tax to 0% and the secret foundation should now also be doing funding proposals in the same way as it’s done with the education, governance etc. committees? Is this a good middle way instead of haggling with the percentages?

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It looks like voting on this proposal is scheduled to end in under a week (on April 26th).

First of all, I find this timeline disheartening because the soonest all stakeholders noted they could meet was April 27th. Voting on this proposal means making a decision before all stakeholders can come to the table to discuss.

Additionally, with the network actively entering its next phase of growth, I do not believe that now is the time to reduce re-investment.

Sure, a 1-2% increase in annual staking rewards might sound nice, but I personally would like to see us aim much higher than that through greater on-chain adoption.

For example, three goals were laid out for 2022:

  1. 100 new projects building in the Secret ecosystem
  2. Hundreds of thousands of new users onboarding onto Secret Apps
  3. Multiple Secret Apps achieving 10,000+ active users

I simply do not see how any of these goals are achievable with such a dramatic decrease in funding to one of the network’s largest contributors, particularly considering funding to this entity was already reduced 33% less than a year ago.

It would be one thing if this entity had not already proven itself by helping to secure a Tier 1 US exchange listing (Kraken) along with $225m in ecosystem funding from some of the industry’s most respected investment firms (DeFiance Capital, Alameda Research, etc.), but this is an entity that has been with the network since the beginning and has routinely delivered.

Overall, I do not believe that this is a decision that we should take lightly, and certainly not before all parties (Community, Validators, Foundation, and SCRT Labs) can come to the table to discuss.

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