C4IP-27, C4IP-28: Code4rena DAO restructuring #137
Replies: 8 comments 16 replies
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As a quick note thanks to a question from @IllIllI000: Anyone who received tokens as a retroactive grant for DAO contributions can be assured that those exchanges will be treated fairly as well. |
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We should make sure to treat claim and storage wallets the same (ie what I signed the airdrop docs with is merely a claim wallet and will show empty in this calculation) |
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I fully expect we will. I think there are a lot of folks who have ARENA in wallets besides their original receiving address. |
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The ARENA token was an interesting experiment, but I agree that changing to a traditional organization may be more efficient at the moment. However, I believe that the DAO structure is superior in the long run, and I would like to see a relaunch of the token with more tightly bound economics and greater community involvement in the future. |
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Hi, I think the snapshot is better taken at the time of the announcement? I made a purchase at Dec 21 09:57 UTC, before the announcement but after the snapshot... |
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it seems last trade (before announcement) on UniV3 pool took place at Dec 21 at 10:48 UTC, so I think taking snapshot at Dec 21 at 12:00 UTC could be better. By the way, if someone trades after the snapshot, does it mean the trade does not count and has no effect on future buyback? |
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Ah, that makes sense. Expect a follow up on this question. |
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I have not yet claimed many Arena tokens which were provided as part of airdrop. Claimed those now. will those be considered for token purchase (considering snapshot already taken on Dec 21). |
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This is a great question. We have the numbers from all airdropped tokens and what should be unlocked, so the assumption is that people will want to claim all unlocked tokens prior to the exchange. The snapshot is most especially focused on those who bought via OTC over the last couple of years. |
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Cool thanks 😊 |
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How would LP positions (there's one pool on Polygon) be treated? |
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I don't have any quick answers but I expect we will have a call for edge cases to be identified as part of the process and work to ensure each edge case is treated fairly. |
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Two observations:
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Yes— when “governance” is in place you can’t just undo it with a simple vote. You absolutely need a disinterested majority. I understand this is a token and it’s different. But for the sake of sanity compare this to a corporation. If you had a small few that tried to do this— it’s why you have investor rights agreements, bylaws, etc. you’d be going through hell if a small few tried to do whatever they pleased |
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Additionally language such as “intended to be proposed” gives the org an out for never actually putting something forward. The points you lay out are great— but I’m a big believer that things should be done the right way. And that means coming with something concrete and seeking a disinterested majority instead of a small few doing as they please |
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Would be curious now to see the token purchase agreement. Does it specifically have an equity conversion right? |
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Again, intentions are good but the language and details are sorely lacking. Feels like not all token holders being treated equally and rightfully so with an investment— but ALL holders should be addressed in this proposal. Not a select few. IANAL but I would assume there are many holes in this plan. Words matter. And I don’t like the wording here. Also why are service fees being referred to as debt? It does sound like the token purchase agreement is lacking in rights and to make up for the capital injection you are issuing equity at the detriment to everyone else. |
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Ultimately, the point of this proposal was to make the case for the eventual discontinuation of support for the governance token and present the governance proposals necessary to accomplish that result. Cumulatively, the direction forward involves passing the two governance proposals currently up for vote and the passing of two governance proposals intended to be introduced in Q1 2024 or, more precisely, as soon as possible. I am glad that the points laid out in the post establishing the reasons behind this direction resonated with you – because they are fundamental to why this was proposed: to establish that discontinuation of support for the governance token was in the best interest of the future of the Code4rena security marketplace and to make clear that the primary interest driver (aka, the ability for participants to receive fair compensation for their contribution to competitive audits) would continue and be improved by committing to this path. Upon establishing the why, it was necessary to determine the how. Particularly, how could the governance token be discontinued in a way that was fair to all token holders. Inviting the purchasers of the governance token to join the C Corp was simply the obvious step to continue their involvement in the future of Code4rena with the $ARENA no longer being supported. This was not a product of any ownership rights or equity rights associated with the tokens – by definition the token does not have those characteristics. It simply came down to a matter of fairness of how holders of the token should be treated. Fairness to the recipients of the tokens and OTC purchasers was an equally prominent concern as demonstrated by the conclusion that it would be unfair to rest on the terms and characteristics of the tokens to simply discontinue support for the token and dissolve the entity structure formed around holders of the tokens. Accordingly, finding a legally compliant way of purchasing those tokens was essential to the overall planning. We have consulted with our legal and external advisors and are confident that there is a path for us to propose a plan for the purchase of those tokens in Q1. However, the valuation referenced is not a simple calculation and there are a number of details that must be ironed out before we are comfortable putting forth an exact number. You rightfully called out the somewhat wishy-washy nature of this being “intended to be proposed” – but the reality is, until those details are finalized that is the language available. But our commitment to this process being done in a fair way is why we are working these issues and you can be assured that we consider resolution of this issue to be essential as a matter of fairness. The community comments above raised important points on moving the snapshot date and further establishing the need for edge cases to be considered in the finalized proposal. But that speaks to the mechanics of a fair treatment for token holders who did not purchase their tokens, not the presumption that identical treatment of all tokens holders is the fair treatment. In the initial post, we referenced current and intended proposals to demonstrate that the treatment of all token holders was considered as part of the overall direction forward. To do everything in one single proposal was not feasible and we are working on having all proposals finalized as soon as possible. |
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Mechanically speaking— how does this work. This vote undoes the governance token, so who actually votes on proposals going forward? I guess I’m just trying to understand what happens to the Q1 proposal beyond this voteOn Dec 27, 2023, at 1:47 PM, Sock ***@***.***> wrote:
Ultimately, the point of this proposal was to make the case for the eventual discontinuation of support for the governance token and present the governance proposals necessary to accomplish that result. Cumulatively, the direction forward involves passing the two governance proposals currently up for vote and the passing of two governance proposals intended to be introduced in Q1 2024 or, more precisely, as soon as possible.
I am glad that the points laid out in the post establishing the reasons behind this direction resonated with you – because they are fundamental to why this was proposed: to establish that discontinuation of support for the governance token was in the best interest of the future of the Code4rena security marketplace and to make clear that the primary interest driver (aka, the ability for participants to receive fair compensation for their contribution to competitive audits) would continue and be improved by committing to this path.
Upon establishing the why, it was necessary to determine the how. Particularly, how could the governance token be discontinued in a way that was fair to all token holders.
Inviting the purchasers of the governance token to join the C Corp was simply the obvious step to continue their involvement in the future of Code4rena with the $ARENA no longer being supported. This was not a product of any ownership rights or equity rights associated with the tokens – by definition the token does not have those characteristics. It simply came down to a matter of fairness of how holders of the token should be treated.
Fairness to the recipients of the tokens and OTC purchasers was an equally prominent concern as demonstrated by the conclusion that it would be unfair to rest on the terms and characteristics of the tokens to simply discontinue support for the token and dissolve the entity structure formed around holders of the tokens. Accordingly, finding a legally compliant way of purchasing those tokens was essential to the overall planning.
We have consulted with our legal and external advisors and are confident that there is a path for us to propose a plan for the purchase of those tokens in Q1. However, the valuation referenced is not a simple calculation and there are a number of details that must be ironed out before we are comfortable putting forth an exact number. You rightfully called out the somewhat wishy-washy nature of this being “intended to be proposed” – but the reality is, until those details are finalized that is the language available. But our commitment to this process being done in a fair way is why we are working these issues and you can be assured that we consider resolution of this issue to be essential as a matter of fairness.
The community comments above raised important points on moving the snapshot date and further establishing the need for edge cases to be considered in the finalized proposal. But that speaks to the mechanics of a fair treatment for token holders who did not purchase their tokens, not the presumption that identical treatment of all tokens holders is the fair treatment.
In the initial post, we referenced current and intended proposals to demonstrate that the treatment of all token holders was considered as part of the overall direction forward. To do everything in one single proposal was not feasible and we are working on having all proposals finalized as soon as possible.
—Reply to this email directly, view it on GitHub, or unsubscribe.You are receiving this because you commented.Message ID: ***@***.***>
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This vote does not undo the governance token. There is a lot of context here provided on the big picture move, but the only things the votes specifically initiated here do is (1) reverse C4IP-21 for purposes of reallocation of those funds and (2) establish a DAO/UNA wallet. These are prerequisites for future votes on the token buyback and wind down. Until the wind down, the tokens are still votable. |
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Got it— all sounds great. I’m on board
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Background
From day one, Code4rena has met the challenges of the US regulatory environment because of a shared belief in the principles of decentralization and an understanding that the same high standards we pursue in securing code must also be upheld in our compliance.
Maintaining these high standards includes making honest evaluations of what’s working and what’s not. Code4rena’s competitive audit has become a mainstay within the crypto industry, and it got there because this organization was founded on the principles of decentralization. However, the $ARENA token itself has provided limited benefit that has been outweighed by the added complications.
What is changing?
After extended discussions with token holders, advisors, and our own experiences, we have reached the conclusion that the best path forward to continue Code4rena’s mission would be for the DAO to:
As someone who would not have been part of Code4rena absent its roots as an open organization, I have historically defended the importance of the DAO and governance token as part of our ideal vision for a decentralized security marketplace commons. I remain convinced that community collaboration remains essential to the continued success of Code4rena and that governance tokens represent an effective and innovative mechanism for empowering productive decentralization within a community. However, for reasons specific to Code4rena, we believe our mission and the members of our community would best be served by a discontinuation of support for the governance token.
As discussed in detail below, this new direction provides significant operational improvements and tangible benefit to all Code4rena participants and community members going forward. It should be noted that these proposals do not prohibit another attempt at a community token in the future. The evolution of the Code4rena security marketplace and changes in the regulatory environment could ultimately justify another version of a token.
The governance proposals and planning steps around this new direction were undertaken in a manner designed to treat ALL token holders fairly and we intend to propose a token purchase in Q1 of 2024 for the $ARENA tokens held by airdrop recipients and OTC purchasers as part of the overall discontinuation of the governance token based on a token-holder snapshot of Dec 21 at 00:00 UTC.
What won’t change?
Code4rena will remain an open organization guided by the same principles we have held since day one, to:
We will continue to build on the structures we have created in line with these principles including working groups, independent judges, and our Supreme Court.
While adhering to the principles of Code4rena, the direction proposed will allow us to significantly reduce costs and operational complexity, allow for increased tooling and support of security services while expanding sponsorship opportunities which would directly increase the revenue opportunities available to wardens and judges.
Why?
There are three reasons we intend to make this change:
1. Complexity and costs
To date, Code4rena has spent a significant amount of money on legal and expert consulting, primarily related to our organizational structure. But more than just the cost, this planning has required a significant investment of time and effort that could be redirected to the development of the security marketplace.
The structuring undertaken first with the Foundation and then the UNA solved immediate and necessary compliance obligations. However, an inherent dissonance between the operational requirements of competitive audits and the governance token itself remains.
The Code4rena security marketplace would not be served by rapidly turning the responsibilities and compliance obligations over to the community at this stage of the project lifecycle (and the same brain drain would occur by taking active and contributing members away from their focus on improving the audit process and focusing on the technology) and the continuation of our intended path of progressive decentralization presents a challenging slog which fails to advance the core goal of the organization -- greater security for the overall ecosystem -- and in most cases, makes this goal harder to achieve by adding significantly more friction and organizational overhead, slowing down our ability to innovate.
2. Token incentives
Code4rena has enjoyed product market fit and demand for the paid services of all relevant contributors. The award structure of Code4rena, which predates the existence of the $ARENA token, has resulted in more than three quarters of generated revenue being transferred to competitive audits participants (i.e., wardens, judges) directly based on the algorithmically weighted value of their contributions.
As a result, the $ARENA token has had minimal, if any, impact on ensuring Code4rena remains the commons of the competitive auditing landscape. Platform revenue distributed to wardens and judges alone has proven to be a sufficient draw to support participation and involvement in the community around the Code4rena security marketplace.
3. Token governance
A cursory review of historical actions and votes taken by the DAO illustrates that governance has been little used, meaning the token has failed to achieve its core purpose.
What's next?
On behalf of Code4 Corporation, I will be making the following governance proposals to the DAO:
C4IP-27: Token Cleanup
In conformity with the proposed restructuring and discontinuation of the $ARENA token – this governance proposal reverses C4IP-21: Code4rena Treasury Diversification.
The tokens purchased will be returned to the DAO treasury until the final proposal in Q1 of 2024, at which time we anticipate that these tokens will be burnt as part of the discontinuation of support for the $ARENA token.
The $6 million in USDC will be payable from the Code4rena UNA. However, as the UNA has already transferred the USDC from this transaction to the Code4 Corporation as service fees – the Code4 Corporation will take responsibility for satisfying this debt, which will occur through the issuance of Code4 Corporation stock to all redeeming token holders promptly upon the passing of this proposal.
This governance proposal is now live at https://www.tally.xyz/gov/code4rena/proposal/102761796458029542035128288088760239989267315627420502044454209557626987469879?chart=0
C4IP-28: Establishment of a DAO/UNA Wallet
In conformity with the proposed restructuring and discontinuation of the $ARENA token – this governance proposal clarifies C4IP-1,2,3,4,5: Constitution, DAO bootstrapping, reimbursements, token sale · code-423n4/org · Discussion #13 · GitHub, C4IP-9: Replenish Code4 Corp funding for Apr-Sep 2022 · code-423n4/org · Discussion #22 · GitHub, C4IP-11: Fund Code4 Corp for July-December 2022 · code-423n4/org · Discussion #38 · GitHub, C4IP-14: Fund Code4 Corp for October 2022 - January 2023 · code-423n4/org · Discussion #58 · GitHub, C4IP-18: Fund Code4 Corp for Feb-Mar 2023 · code-423n4/org · Discussion #84 · GitHub, C4IP-22: Fund Code4 Corp for Apr-Sep 2023 · code-423n4/org · Discussion #99 · GitHub and C4IP-26: Fund Code4 Corp for Oct 2023 - Mar 2024 · code-423n4/org · Discussion #117 · GitHub.
Consistent with the intended operational flow at the time, the listed proposals authorized execution of service fees paid to the Code4 Corporation. Although the budgets and purpose of the funds deployed by Code4 Corporation remain accurate, the service fee has been concluded as unnecessary in consultation with our advisors as competitive audits themselves predate the introduction of the $ARENA token and the ownership of competitive audits belongs to the IP held by the Code4 Corporation. This position results in greater clarity regarding the payment of tax, responsibility for the informational reporting and other compliance obligations.
Accordingly, the Code4rena DAO/UNA contains only the $1,934,209 in funds from the 2022 $2,450,000 sale of tokens, less the $515,791 of taxes paid. The $1.9 million will be contained in a wallet maintained by the DAO/UNA’s current administrators to be utilized as directed by future governance proposals.
This governance proposal is now live at https://www.tally.xyz/gov/code4rena/proposal/31514901581525296983220632956016429685698554996113581437215457284910388590657?chart=0
Future proposals
The following governance proposals are intended to be proposed in Q1 of 2024:
A proposal to purchase the tokens from holders whose tokens were granted through the initial airdrop. This proposal is also a question of fairness to the members of our community who received tokens for participating in competitive audits. While the membership in the DAO/UNA and the terms of the airdrop provided no rights to compensation or ownership – the standards of fairness through which we evaluated the overall strategy dictated that we offer a purchase of the airdropped tokens to the degree it could be done in a legally compliant way. The specifics of this proposal are still being finalized but this governance proposal is expected to be ready for proposal in early 2024 and will be snapshotted to Dec 21 00:00 UTC.
A proposal to dissolve and windup the DAO/UNA including the settling of any tax debts, outstanding obligation, the burning of all tokens in the treasury and the distribution of any remaining assets in a taxable transaction to the Code4 Corporation for the purpose of continuing to support the development of the Code4rena security marketplace and competitive audits.
Conclusion
We are excited to share this culmination of a great deal of planning and welcome any questions you may have on this matter.
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