Tax Talk - A Sustainable SNF

It’s time to talk about tax!

I’ve spent considerable time thinking about how to create sustainability within the Secret Network Foundation, and modeling different scenarios. Unlike many layer 1 public good entities, ours has never had a dedicated token allocation, which could very easily hamper the long-term growth of the chain. Most chains rely on their foundation or association for support on essential strategies. For the year that I’ve been with Secret Network, we’ve been resource-constrained, meaning that many avenues for growth tactics were closed to us. I do appreciate the way it has trimmed our operations costs, and we need to keep that efficiency going. On the flip side, it has also limited the programs we can run.

So I’ve come to a strong conviction of the best way forward for this ecosystem, and I’ll share with you my reasons for believing this is the right path for Secret.

Summary:

  1. Boldly mint where no mint has gone before: SNF’s ongoing and future role is crucial to the ecosystem’s success. Early on, I was surprised to find out there was no initial token allocation and had to think long and hard about how SNF could be effective in creating a vibrant ecosystem, especially given the tax had also been cut. For a year we’ve made it work by being creative and committed, and I give huge props to our team for adjusting to a new way of thinking. But there is so much more we could do, and it’s time to leverage and amplify what we’ve learned.

So, to address this weakness in our ecosystem, we should mint a new batch of tokens specifically for the Secret Network Foundation, to be used for long-term strategic initiatives such as VC agreements, liquidity provision, dApp support, and other programs that will move the needle. Transparency and communication are a key part of doing this. Also, we are a bunch of data geeks who love to optimize and iterate on success. Results will be measured and reported - this makes it crystal clear what the funds achieve for the network and helps us steer clear of personal agendas or biases.

Ideally 16-18% of the total token supply is minted and allocated to SNF as a treasury fund for non-operational initiatives.

  1. Sustainability Tax: For operations, as I said before, our burn rate should continue to be lean. We are currently spending below $80k per month, but optimal budget will be $100-160K per month. To sustain this, SNF’s tax should be set at 12%, which is intended to fund people costs and normal operations at the current level with the current token price.

As the ecosystem grows, the tax may grow in value, but we don’t want to increase operational spending too high. How do we address this pitfall? I like the idea of a cap on operations funds based on token price. In practice, the excess SCRT collected from tax will either go to a burn program or to targeted strategies. I’m working on a model to show how this works (will share soon), but simply put, once the token rises above $1.00, the delta in value gets returned to the ecosystem instead of going into the SNF operations account.

  1. Community Tax: As we have seen consistently, including quite recently, the community pool is often a target/catalyst for community disagreement and in-fighting, so increasing the pool tax is probably not a good idea right now. Over time, the community has grown more open to guidance and administrative support from SNF, even asking SNF to lead in strategic initiatives such as seeding liquidity. I think we should keep the community tax at 2%. Raising it above this level would also create too heavy a tax rate in combination with SNF’s sustainability tax. At the same time, we want to protect the community’s ability to innovate and propose projects and participate in growing the ecosystem, so keeping the current tax is important.

Community projects are ideally focused on testing innovative ideas, encouraging broad participation from others in the network, and not held to the same expectations of ROI or effective results. The best ideas come along when it’s okay to fail, and we have an incredibly talented and creative community that needs that sandbox to build in without fear of consequences.

Summary:
These three elements - mint, SNF sustainability, and community funds – must be considered for their shared effect on the overall ecosystem. We have a tokenomics discussion in progress that considers additional factors such as inflation, gas, and validator economics, but a clear model for sustaining ecosystem growth gives a solid foundation for the tokenomics discussion.

I look forward to hearing your feedback.

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First, thank you, Lisa, for initiating this discussion and for all your hard work over the past several months. The partnerships you’ve secured, such as with Unstoppable Domains, SilentSwap, the work you’ve done to get Secret mentioned in outlets like Forbes, and the behind-the-scenes efforts you’ve undertaken, have been no less than impressive.

We have never really had a well-resourced foundation on Secret that could fully realize our ambitions. A proper treasury, resources to invest in mutually beneficial deals with dapps, professional run liquidity initiatives, the right leadership, these are things people have talked about for a long time. With your leadership through SNF, I am extremely supportive of this plan.

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A 16% token mint feels very high, but a 12% tax for operations seems fair. Doing this requires some amount of trust in the SNF’s leadership. However, Secret needs a strong SNF to succeed, and I trust Lisa’s. So even with the large token allocation, I think this is a good plan overall.

Godd luck!

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Thank you Lisa for putting this up! We’ve seen great results from your Leadership, I’ve stepped up through your leadership and have contributed more than ever since I joined Secret Network with limited resources, and of course, there’s more we could do with more resources.

Thank you Lisa for all you do, I support this proposal!

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Coming from a previous DAO whose Foundation was well funded and held an allocation, I can say to ensure our nimbleness and success this kind of strategy seems crucial. I look forward to the continued discussion and happy the community is open to finding a solution! Cheers to the future of Secret Network’s success!

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Seeing the efforts of SNF become well-funded and sustainable paired with the powerful team we have is something I wholeheartedly support. Lisa has proven herself over the last year. I have personally worked with her and can say that she is the real deal. I agree that an ask like this needs to be paired with strong leadership and experience that reflects success, and I believe we have that at SNF with Lisa at the helm, and the core team of people who have worked throughout this transition.

I have been in the space a long time and I can not think of another foundation that functions well without an allocation and sustainable funding model.

I also like the fact that there is a ceiling on the tax revenue here,

This is something that can add value directly back to the community in various forms, and ensure the sustainability of the foundation, while not over-funding it. We all want the price to go well beyond 1.00; the higher that goes, the more value gets pushed back into the community.

The SNF team has reduced spending, and increased efficiency to do far more with far less for the duration of Lisas’ time here. I have seen it close up, and I believe it is time to see how much better we can do with a warchest.

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Have always believed a very well funded Foundation is needed for these things, and have been vocal in the past about supporting them. People did not trust previous leadership, but my stance has and always will be the same as objectively this is what’s needed to move the needle.

16% token mint sounds very high. I know we’ve had issue with tax in the past, but perhaps a lower initial mint and a re-engaged tax is the answer. If the needle doesn’t move with some of these efforts it’s not clear to me that throwing more money at the problem will solve it. The tax atleast gives the community some control and some ability to see results over time.

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I am personally supportive of this idea.

Can we just make sure to have public disclosures of the allocations in which you are going to hold this new funding amount. As in what is VCs, LPS, dAPP support. This is more so for the full proposal, i am ok if this is still revised post funding too based on market condition.

Some locking mechanism in escrow of some kind would be a better play so that 100% of this assets are never under single address or a target of security issues since 16% of circulation is about 47,732,800SCRT.

One question i have is this is not going to be spent for Development or Dev funds as SLABS is already achieving such purposes?

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First of all I would like to say that I appreciate the work the Foundation has done over the last year, even though we will probably never agree philosophically, I still see a significant improvement over the previous Foundation.

I would also like to confirm that 20% tax ( community + foundation ) is absolutely fine, other networks are at similar numbers ( for example Akash community tax is 40% :smiley: )

But I have 2 comments:

  1. What goals does the Foundation set and what will be the exact job description of the Secret Foundation, when proposing any funding from the community ( which this is basically ) must always be precisely defined the job description of the entity that will receive the funding ( if you do things on more so of course it does not hurt )

  2. Even though I am ok with Tax I don’t like the amount of 40m SCRT, for a Secret Network project that has been live for a bunch of years it doesn’t seem reasonable and I would think about a lower amount at least for the this year ( for example 20m SCRT ), if the community recognizes that you are successful in your work let’s adjust the amount to 40m for example next year
    At the same time how exactly will the funds be used, can you give some examples?

  3. What about public goods such as DAODAO which will basically be standalone in the case of Secret Network and will require an entity to handle it?

I’m not very into this department as I’m not sure what the “right” amount is, but when this will be done I think a detailed specification of where money goes to would be very important since we can’t handle too much selling pressure. Also I think we need people from the outside that can see the inside like a board to get everything going the right direction.

If we need this for VC’s for example I fully support this. I can’t wait to see price going up finally and I’m really happy about the current partnerships we’ve made.

I do think we need to set some standards regarding marketing and I hope extra allocations can help this as well.

I do think we should allocate more to online marketing and campaigns and some proffesionalism in the content we make as well. As I see a lot of ROSE ads and NEAR protocol ads on X.

Thanks for the hard work guys :rocket:

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What happened to prior pools - was there a desire or attempt for it to be implemented perpetually?

I agree that any project needs a strong development team and governance for improvements and marketing/education.

Greetings Lisa,

This post right here outlines some of my high level concerns on governance:

My initial inclination is such a large capital allocation cannot exist in a vacuum as a casual conversation. There is a whole host of questions that need to be answered I think for SNF to take such a large leap forward.

1. How much control will community have over SNF funds & structure?

I belive for this large of funding being discussed, SNF needs to operate as a DAO where the community has control over the DAO funds. SNF wins become Secret Network wins because they are perfectly aligned. Who controls funds should not be separated from the mandate of the underlying org. That is to say, even if SNF has the perfectly correct mandate and the right team to execute, the long tail risk of the community not having custody of funds is simply a ticking time bomb of misalignment.

Additionally, what are the checks & balances on the board & SNF? What ability does the community have to claim custody of funds from SNF or veto uses of funds? Who is on the board? Dos the community have the ability to interact with who is on the board & SNF?

  1. Budget

For this large of a potential mint or inflation tax, we would need to see a crystal clear breakdown of strategy and how more funding plays into making that strategy successful. Additionally, do we have evidence that the current budget strategy has been effective? Do we have evidence that more money in the current flywheel of strategy would accelerate things?

  1. KPIs

For the community to trust empowering an organization with this many resources, I think a retrospective on the successes & failures of the past is key. Additionally, why do we need to go so big so fast? What about a compressed shorter trial run with sufficient resources + clear KPIs. If successful, scale up the experiment even more. Jumping straight to massive funding feels like it is rushed & skipping an intermediary step where as a community we can have the data to be comfortable with such a funding initiative.

  1. Funding Cycles

If SNF is truly a publicly funded organization that wants to be as aligned with the community as possible, then I think annual funding cycles that are quarterly disbursed from the board would seem like an ideal structure (with community having ultimate custody rights & abilities).

  1. Impact On Tokeholders

We have not seen a potential change to tokenomics this big since…well…ever? The sale & use of these tokens need to have crystal clear rules & timelines, we cannot have opacity when it comes to this large of a funding ask.

Boldly mint where no mint has gone before: SNF’s ongoing and future role is crucial to the ecosystem’s success. Early on, I was surprised to find out there was no initial token allocation and had to think long and hard about how SNF could be effective in creating a vibrant ecosystem, especially given the tax had also been cut. For a year we’ve made it work by being creative and committed, and I give huge props to our team for adjusting to a new way of thinking. But there is so much more we could do, and it’s time to leverage and amplify what we’ve learned.

I would advocate for boldly giving on-chain tools & power to the community where no SNF has gone before; the more controls & power that are given the community, the more comfortable we will be with giving such a large amount of capital. And while some people may have the gut instinct to say: “…hey, Secret Network is in a tough spot via market cap such that we need to be willing to take a risk…”

I would be in agreement except that I fully believe we need to slow down enough to not recreate the problems of the past by imbuing the current situation with the right tools, checks, and balances such that we can aggressively trust an organization to fully pursue Secret Network’s best interests while being fully aligned with the community from every perspective (custody, incentives, structure, etc.).

Get SNF away from being an off-chain organization, to being as on-chain as possible. If that is done, we accelerate our ability to make large capital plays. And in the interim, my vote would be for a smaller scoped experiment that involves (1) More capital (2) Scoped time frame (3) Realistic KPIs. If all of the above is delivered, at that point I would then I would say “screw it lets go for it”.

Thanks for your time & effort,

-Carter Woetzel (Leader Researcher @ Shade Protocol)

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Hello everyone, Thank you Ms. Lisa Loud for your nonstop contributions to the secret network foundation. Understanding the value of a women is a must to be successful I say. Since you have arrived you brought a lot of life to the community and, I like the proposal you presented to the community. The only concerns that I have is similar to what Carter has posted about making sure that the community are a part of the funds and structure. The community voice has to be Consequential the article that, he posted touches on a lot of the things. The community needs to be successful and the things to avoid keeping a community from going down and losing its reputation and becoming. A dead token is losing power because the community not represented nor involved in decision making if we don’t keep control of the supply and control it someone else can come in, as a malicious actor or even go rouge, and just destroy. Everything so it’s very important that the community have a say so in the funds that’s getting distributed to SNF DAODAO Will be perfect for transparency for the community members as well as voting on proposals.
Thank you again Ms. Lisa Loud for your Contributions to the community

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Based on today’s governance discussion, the DAODAO project is a few months behind schedule with no clear long-term maintenance plan communicated. It lacks various features, and no commitments have been made to add them. So, DAODAO currently does not seem viable for long-term use. Awaiting an update that address these concerns, but none have been provided yet.

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Update: Carter confirmed there is no commitment for any maintenance long term for dao dao beyond volunteer based maintenance.

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I would love to help with the long-term maintenance plan. besides school I have a lot of time on my hands, voluntary to help with the base maintenance is a task I’m willing to tackle. I did a little research, and I will be able to help with I am familiar with that DAODAO. Hopefully I’m on the right track with this topic. I’m open for Discussion more about moving forward with the DAODAO base maintenance.

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I wish multiple organizations could compete for the taxes mentioned above with a mechanism like ive designed here: Free market Public goods | Buidls | DoraHacks.

Competition is how we gain forward momentum. Its the gas y’all

It is woven into the very fabric of life’s design and is as vital for organizations as it is for organisms.

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Cross posting my thoughts from a telegram discussion:

  1. SNF has shown it can continue working and be prudent where needed yet still effective (atleast on some verticals). It has a lean team thats clearly dedicated to the chain and doing their best - I would 100% support a proposal to keep funding the current line-up as a bare minimum.

  2. None of the effort so far however has come with clear KPIs and or transparancy reporting. Recent quarter had a report but i think the community is looking for more performance insight. So for now there is no continued data on effectiveness, this makes assessing wether spending more is a good thing very hard.

  3. There is not yet a clear mandate for the SNF or a set of goals they are committing to which makes fundint it a strange proposition. It needs to be clear what the purpose is before we start talking numbers. We also need a revised mandate or goal statement from Labs to assess where SNF is truly playing and how much support they need fo fulfil this.

  4. Transparancy/acountability/Foundation setup. To my knowledge SNF still has no real board and overall transparancy is lacking. There is no world in which the community approves a large token allocation if there is no diverse board setup and some form of community ownership or involvement directly in the organisation. Yes Lisa has a honest history and i am sure has the best intentions but we cant rely on that to mint $10m+ of tokens.

So - we just dont have the info and SNF just does not yet have the reputation.

a Tax would likely pass and give the foundation time to fix both of these items so we can build a truly aligned org within the next quarters.

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It’s an interesting idea, @zenopie, but there is no other competent party competing for the tax. Several people have suggested forming a DAO, but given the historic management of the pool—with committees related to growth, and even others, outright failing and the majority of funds squandered without delivering any tangible product or delivering on promises—this notion doesn’t seem likely. Competition for these roles is meaningful only when it involves people who deliver results, with experienced leadership. Show me a group even remotely capable of handling SNF’s duties, who hasn’t already tried and failed, that wants to and I’d be interested in hearing about them. As it stands, there are no competent, organized parties with any proven track record of success who have presented themselves as an option.

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I agree all good points.