Secret Tax Discussion

Over the last several months there have been a lot of discussions about taxes on the secret network. I think it’s time to meaningfully continue the discussion about this, and to wrap it up and move forward.

So to kick things off I’m going to suggest new tax numbers and some reasoning behind it.

New Tax Numbers
9% Foundation Tax
4% Community Tax

Reasoning
With committees moving to getting funding and approval to the Community Pool from the Secret Foundation we have seen a lot more alignment within our community.

Over a short period of time this has shifted from the original vision of committees being fully funded by the chain, to some committees being partially funded by the Secret Foundation, and some committees having leadership decided centrally and merely ratified by the community via vote.

I think in the cases that the Foundation pays these leads is actually quite smart, because we have all found it difficult to fill vital roles when we solely rely on attracting the right talent for those roles from forum posts and waiting for people to show up. A consequence of this though, is a trend towards the pool acting more as a subsidy for roles that the foundation pays for.

It’s great that those roles are able to be competitively compensated with pool funds + the foundation, especially since the price dropped after the last batch of committee proposals came out. It should be noted that not all committees benefit from this. For example, the International Growth Committee and the SecretSwap committee have not benefited from extra payments from the foundation for their work.

Furthermore, one of the core things the foundation was supposed to be tasked with (exchange listings) has not been proven to be fruitful since the foundations inception nearly a year ago. Mainly for these reasons I don’t think 15% has ever been properly justified with hard data and results after nearly a year.

In my view it makes sense to increase the pool tax to make the pool able to handle this subsidy better + give a stronger incentive for things outside of just committees to use the pool. While also decreasing the foundation tax.

Other thoughts
I appreciate all the hard work the foundation has done over the last year 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 with IBC coming in September, that we should aim to discuss and further flesh out the numbers by October with the intent of changing the taxes then if the community supports it. My reasoning for this is that I don’t want to see this drown out the IBC launch and I recognize that there needs to be plenty of time to discuss.

I welcome all to participate in a healthy discussion about this.

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Hello moonstash,

Thank you for taking the time to follow and report on this progress. It’s hard to imagine the Foundation is only a year old.

For administrative purposes the Foundation Tax and Community Tax perform the same task. Is this correct? Generally speaking I feel like they both handle much of the administrative task of managing people and committees. This action directly supports the growth of the network. They onboard and develop artist, developers and engineers and place them in roles or groups?

My personal feedback is that this is overly institutionalized but that wouldn’t bother me if there weren’t a 13% combined tax to facilitate the process. Within reason, I support the idea of people coming together and adding value to the project and more money being allocated to places it can better reach the people and services tasked with roles.

Is there a current budget report that describes the specific amounts and distribution of funds?

What are the details of this tax and are they earmarked for certain types of funding requests? I’m curious who gets paid what and what tasks they perform. For example, what is the budget of the awareness committee and where can I see the different campaigns they launched? If people expect ROI for an app (as they should) why shouldn’t we expect the same from awareness or any other committee or spending proposal?

It was my understanding that a lot of this funding would go to the core developers and team they hired (centralized). Grants. Is this fund a part of the Enigma distribution and can someone help me understand how that was allocated and at what rate?

I find frustration in tracking all of the progress of institutions and it can be a pain point. It’s been a few years since school (institutionalization) and with the age gap it doesn’t feel right to put myself in the middle of such a rigid structure of norms and activities, but I am curious about the funding and where it all goes.

This isn’t about a grant on the Github for ENG?, but it is about where the community pool exists in comparison and where we vote on spending and how to prose and for what purposes and of course how much is being spent.

Can one of the committee’s build a pie chart? Is there a goal on how much funding we deliver to leads and other members vs engineers and developers or is it all earmarked for community?

Participation from everyone should be the ultimate goal of all of the spending and institutionalization of power and control and so I’m requesting more transparency.

If this report exists maybe we can link in to these discussions so people are reminded of the exact structure of spending.

I’d rather foundation tax is lowered to 10% and community tax remains as is, so that the offset is captured as increased staking rewards. There haven’t been many community spend proposals, and the pool isn’t anywhere at risk of being depleted.

At the same time, I’d like that at some point network inflation goes down, but I suppose that’s for another day.

No

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Thanks for adding to the discussion. I’m not opposed to merely lowering foundation tax and not touching community tax. I’m pretty flexible with this, but in the end I want a tax situation that is fair. My personal preference is increase the community tax to some extent, but If we end up with fair taxes i will be happy.:call_me_hand:t5:

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I think this discussion is a little premature as the Foundation transparency report including financial numbers will be released this Wednesday. That should give a better insight into the financial situation of the foundation, their holdings, spends, etc.

I will refrain from any comments until such information (to base a number on) is released.

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Agree with DumDi here, think the conversation definitely needs to be had but the numbers in the Foundation report may throw a wrench in things and it would also be a good opportunity for us to ask the Foundation on their view of their tax. If they’ve completed any forecasts at different tax levels, it may help us see how much we can lower it whilst ensuring they are solvent and with sufficient liquidity.

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A year into foundation existing isn’t really premature IMHO. The timeline i outlined for enacting seems rational and reasonable, starting the conversation now is important so it doesn’t take months once all the information is out.

I agree that the information is needed but it’s a choice that the information hasn’t already been out, there is no actual barrier that has prevented the information from being out a long time ago. So it doesn’t really make sense to wait to discuss it.

I’m not saying it is premature because of how long the foundation has existed. I think it is premature because we get the latest financial information in 48 hours. The discussion seems perfectly fine after the transparency report has been released.

I support this discussion occurring during the release of the second transparency report. Below is a list of outstanding questions from the governance call of the first release. I hope these are addressed in the second report.

  • Breakdown of “Other Expenses”
  • Provide a Balance Sheet view on the transparency report date (disclose ETH wallet address and bank account balances)
  • Provide a best estimate look forward on the amount of funding needed to give community information to make tax decisions
  • Provide timeline on transition from SCRT based contracts to USD based contracts (payable in SCRT or stablecoins at time of payment)
  • Provide a pay scale or range for non-identifiable foundation paid work (community leads/co-leads)

With that said, I don’t think there could be any information presented that would support not lowering the tax. The foundation has 3m SCRT, a USD Bank Account (of X), ETH wallet address (with other assets). Without any information about what the foundation needs, I’m going to assume they’re sufficiently resourced for the time being. I’d support going to 4%. We could always raise it again or transfer funds from the community pool should it be warranted.

I’m fine with waiting for the transparency report, though it won’t change how I feel about the whole thing. I just have always thought 15% was too high, and 10% is my ideal amount. Keep in mind 15% was decided on when SCRT was worth significantly less.

A 66%+ reduction is ridiculously overkill imo and I’d much rather we have an overfunded foundation than underfunded one if I have to choose between 15 and 4.

I would rather have an over funded foundation as well, as long as we still have fair taxes. Based on the info from the first report, 4-9% is more than sustainable for the foundation. The 9% is a generous suggestion. If the new report changes things then i’m sure the conversation will adjust from there.

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If the tax was established at a much lower ENG or SCRT price and modeled after something that was meant to be fairly stable after ICO to get us in exchanges and provide working capital then when the price goes up as crypto often does, then this percentage should drop.

If we estimate they need $5M for their current function and they have $3M in SCRT and it goes to $30M the amount added could benefit from a sliding scale. I’ll keep that short and somewhat rhetorical as I’m waiting on more details about what the spending is in the ecosystem for other projects.

Tor stated that getting listed on good exchanges doesn’t involve paying the exchange money. Getting listed on exchanges was the primary reason why 15% made sense for any duration of time, we merely haven’t adjusted the tax in light of this information.

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Yeah, this could be overkill then. Those millions of dollars in tax and spending on either side if not allocated correctly, would drive price down and prevent adoption from happening.

  1. Developers wouldn’t get funded
  2. Investors would lose value

If they need $300k and it’s now $3M just shut it off and allow them to operate like any other CEO with stock options that has to perform and recruit app developers and get projects funded. I’m convinced now more than ever we need to take a deep look at this for a few days before anyone is jumping in and moving the needle.

It’s not premature. The tax was initially an arbitrary number without justification which was agreed upon when scrt price was much lower. Right now, the foundation is very well funded and hasn’t demonstrated that it needs more than what it currently has. We have yet to see a significant ROI with what the foundation is doing.

I also agree with a proposed drop to 4%. If the foundation needs more money, they can request from the community via voting. I do think that the community needs to be well funded, so we can funnel money to the foundation if they need it. At the end of the day the foundation is currently a private entity owned by a single person. The foundation has a lot of assets, if they need more, they can request from community when the time comes. As of now, they have plenty to work with.

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Agree with this take, it currently has plentiful of ressources accumulated through the 15% tax, keen to lower it to a more sensible 4-5% that can be revisited if they burn through their ressources (couple millions $) + future cashflows.
It’s not really a question of over/under funding to me, once they have a plan to deploy capital we can revisit. For now the conversations on how they plan to deploy the millions haven’t lead to a conclusive route, and there is no clear definition of the scope that indicates that it should sit on $10M+ chest + ~$1M/year revenue.

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Only reason I don’t propose lowering it to 4% or something like that is because I assume that:

a) a 90%+ drawdown in a bear market is possible (would make the SCRT treasury worth shit)
b) I assume the foundation will put those millions to use

I don’t support the foundation hoarding for the sake of. But in respect to b), only way I’ll have an answer is if someone from the foundation replies.

If the foundation has no plans for expansion in the near term, nor will be putting that to use, then that’s fine and I’d agree with everyone else a double digit percentage is not required.

Let’s not throw the baby with the bathwater. The foundation has been instrumental in supporting the network, and is often criticized for the wrong reasons (I’ve seen similar sentiment towards Enigma although that has improved in the last year). I’ve also seen justifiable criticism directed at the foundation, but none of it should suggest hurting their main funding source.

My position is that reducing the foundation tax so drastically would measurably hurt the network more than assist it. The foundation has been increasing its spendings and its efforts in the last few months based on an expected revenue stream. Arbitrarily shutting down their funding would impair their ability (and probably their will) to continue spending, and will also put in jeopardy initiatives they are collaborating on with the community and with Enigma - many of which are unpaid (e.g., SEFI executive committee).

We strongly oppose the sentiment here to reduce the tax to 4%. Our suggestion is to leave it as is, but in any case we will not support a decrease below 10%. I urge the community to understand our position. Let’s not shoot ourselves in the foot.

Also, regarding shifting more funding to the community pool – I think that’s been historically the most abused form of funding in the network and I’m concerned about increasing it without better processes on managing it.

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Thanks for chiming in with enigmas position.

I’m personally fine with 10% foundation tax.

My only other thoughts on this is that the foundation needs to take over all compensation for the committees that they currently use the pool to subsidize. leaving on chain funding for the committees the foundation doesnt make payments to.

This is to prevent those committee leads from double dipping / the foundation from using the pool to subsidize their expenses.

Hello, Guy.

I appreciate the transparency from the top on how they operate and looking forward to agreeing with a reasonable allocation for their initiatives. Thanks for taking the time to reach out to investors.