Reserve Delegate Program Trial Run - Review

[Raphael_Anode]

We have officially concluded three months of the Reserve Delegate Pilot Program on July 15th. This post summarizes what we learnt, what went well, what could be improved and where this might head.

Why run a delegate program?

First, to recap: Why does Reserve have a Delegate Program at all? Aren’t DAOs dead?

Short answer: No! They’re alive and well, but undergoing a deep, structural and epistemological renewal.

Reserve Protocol was, and still is in parts, a DAO factory.

Yield DTFs and Index DTFs are decentralized systems, governed by smart contracts like Reserve’s Governor Alexios or the new Optimistic Governor.

They depend on stakers, or recently vote lockers, to vote or at least oppose decisions they don’t agree with.

In the past, there had been multiple allegations that IndexDTFs are de-facto governed by ABC Labs and Confusion Capital’s holdings. In reality this was less prominent, because ABC Labs had below 20% of the votable supply in any DTF, but of course had substantial social capital and the resources to monitor and influence decisions.

Delegates are an obvious and time-proven way to decentralize decision making power and increase the diversity of viewpoints and expertise that go into these decisions.

Who are the delegates and what do they do?

With that background ABC Labs agreed to fund a three months trial-run of a delegate program, and six intrepid delegates stepped forward to govern four Yield DTFs.

The six delegates are:

• 0xd15c0 - Active in the Reserve community and author of the Reserve Growth Simulator

• Braden aka Sovereign Stack - one of the longest contributors to Reserve and Twitter and Forum powerhouse

• Eureka - a newcomer to Reserve and a prolific delegate to other ecosystems like Compound

• Ham - analytics wizard and one of the driving forces of ETH+ and lately eUSD

• R72 - Member of the Decentralized Ranger Force and Forum wizard

• Zeb - One of the driving forces behind the delegate program and voice of reason.

The four Yield DTFs that these six delegates engage in:

• bsdETH - ETH LST Yield DTF on Base

• ETHPlus - The seminal ETH LST / LRT Yield DTF

• eUSD - A Yield DTF used by UglyCash holders for yield on stables

• USD3 - A stablecoin Yield DTF

ABC Labs and Confusion Capital gathered their staked RSR on these four and delegated 60% of their voting power to three delegates per DTF. The delegates self-organized around the task and divided the decision making duties as follows:

How did they do?

All in all delegates had a total voting power of:

bsdETH

• Previous ABC/CC voting power (percent of staked RSR) = 7%

• Average quorum multiple reached = ~252%

• Percent to delegate = 4.2% (=60% of ABC/CC staked RSR)

• Tokens to delegate = 5.8M stbsdEthRSR (1.93M per delegate covering)

ETH+

• Previous ABC/CC voting power (percent of staked RSR) = 9%

• Average quorum multiple reached = ~187%

• Percent to delegate = 5.4% (=60% of ABC/CC staked RSR)

• Tokens to delegate = 47.5M stEth+RSR (15.83M per delegate covering)

eUSD

• Previous ABC/CC voting power (percent of staked RSR) = 18%

• Average quorum multiple reached = ~130%

• Percent to delegate = 10.6% (=60% of ABC/CC staked RSR)

• Tokens to delegate = 239.6M steUsdRSR (79.87M per delegate covering)

USD3

• Previous ABC/CC voting power (percent of staked RSR) = 19%

• Average quorum multiple reached = ~197%

• Percent to delegate = 11.4% (=60% of ABC/CC staked RSR)

• Tokens to delegate = 57.3M stusd3RSR (19.1M per delegate covering)

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Armed with real decision making power delegates voted on a total of 31 votes across two Yield DTFs.

During the three months trial-run, there were no polls on either bsdETH or USD3. Both of these DTFs still have considerable TVL. 4,6M USD worth for USD3 and 1,7M USD worth for bsdETH.

All four DTFs enjoy over 100% overcollateralization through staked RSR. As a refresher, this staked RSR acts as first-loss capital in the case of a depeg or if rebalances are costly. The latter has sometimes happened in the past, but auctions have become more efficient since, making staking RSR on Yield DTFs very secure. In the case of eUSD with 8% APY on staked RSR, it’s also very profitable.

All delegates voted on all their respective polls and provided rationales for all their decisions in their delegate profiles, which you can see on the Forum here.

They also became prolific contributors to the discussions around their DTFs, and delivered high-quality observations. Examples are here, here and here.

In our opinion this is a very strong start.

• Governance participation is up, and participation feels meaningful, targeted and constructive, not just token posts.

• Delegates voted on everything without fail and provided rationales for their decisions

• Decision making power is more decentralized and more robust

• DTFs with delegation retain massive overcollateralization

Here’s an overview of the proposals delegates voted on.

Given the new distribution of voting power, we have seen that no proposal could have passed without delegate participation. This shows that delegates have already become an integral part of the Reserve Governance system.

All of this gives us grounds to recommend a continuation of the program.

What could be improved?

One area that lends itself to improvement is the DTFs covered by delegates.

USD3 and bsdETH had no polls in three months. We suggest keeping them in the current evaluation set for another three, and dropping them if no further activity happens here.

Could other DTFs be added? Index DTFs often lack the upfront governance structure to make informed decisions by delegates possible. This had changed for CMC20, where @Ham proposed governance improvements and stuck to the defined governance model and schedule.

The new AI DTF introduced a powerful concept called vote-locked RSR or vlRSR. Here RSR holders lock their RSR for vlRSR with a one week delay before it can be withdrawn again. In return vlRSR holders profit from appreciation of the basket and can veto proposals. In contrast to all other DTFs, the AI DTFs use optimistic governance, which means proposals by the optimistic proposer pass unless they are vetoed. Not voting means accepting the outcome (hence optimistic). Here delegates could keep an eye out for unaligned proposals and veto them before they pass.

Other potential improvements point at expanding the responsibilities of delegates. @0xd15c0 suggested that managing auctions and melting tokens could be good fits for technically versatile delegates. These are chores that are tangential to core ABC/CC work and could improve user experience by being acted upon proactively by engaged delegates.

This activity carries a very real cost for fees, and also requires specific expertise, but certainly within the skill set here. It would require reimbursement of fees at the minimum.

Token melting in Reserve Protocol is a mechanism that gradually distributes revenue to RToken holders by reducing the total supply of the RToken over time, while leaving each holder’s token balance unchanged. This causes the redemption value of each remaining token to increase. reserve.org

Once enough excess value has accumulated, delegates could also start revenue auctions.

The auction’s purpose is usually to sell the excess reward assets in exchange for another asset, most commonly:

• RSR (to reward RSR stakers), or

• additional basket assets that ultimately increase DTF backing.

Both activities could be triggered by delegates. In fact @0xd15c0 has already done so in the past month at his own cost.

We hope this thread can surface other areas for improvement that can lead to a revised and improved delegate program going forward.

Should the delegate program be continued for a further six months?

• Yes, continue
• No, this is enough

Do you support delegates taking on more DTFs via vlRSR?

• Yes, continue
• No, this is enough

Do you suppor delegates taking on responsibilities beside voting, specifically token melting and auctions?

• Yes, continue
• No, this is enough

[zeb]

There are enough positive impacts that have come about by this program that makes it worth for Reserve to maintain. Especially at the very low costs that is is having.

Adding extra DTFs sounds fine, especially with 2 DTFs currently having no votes going on. Us delegates can rearrange and make sure the work is better covered.

If more duties are added such as poll 3 however, then the contribution paid to delegates should somewhat go up. I am not aware of internal ABC salaries or such, but its very likely that whoever is doing this currently is a well paid person.

Furthermore, as it is now clear that without delegates the quorum’s wouldn’t even have been met, us delegates have become somewhat critical. This is both flattering that the team and community is trusting us, and also means there is real responsibility on the line.

1. Forward thinking, I would propose to have another round of Delegate elections/sign ups next time in 3 months, to make sure we do not get entrenched. These upcoming 3 months do not seem to change much, so no need to focus on it now.
2. If duties go up, and responsibility continues to be critical, the argument could be made for slowly increasing RSR rewards for the delegates to sustain interest and active governance. Hopefully doing so would also be attracting more RSR community members to step up and keep some healthy competition for this responsible task.

Some personal notes. As Reserve continues to develop more towards non-crypto focused indexes (which is understandable, but just not what I joined for), I will continue to evaluate if my time is worth spending within the ecosystem. My critique still stands, that ABC Labs is most needed for actual DTF BD and insights, but they do not engage on requests. This means that we as delegates can read reports and make comments all we want, but the trajectory of the DTFs is out of our hands.

The stipend we as delegates get is for sure not the reason for me to stay, it simply makes me a tiny bag holder of RSR. Not enough to do something interesting with or stake, but also would feel bad selling it as a little extra for the month’s spending. So currently what mainly keeps me here is that from the feedback I continuously get from other community members is that my time is valued, appreciated and needed. And as I am partly to blame for this program altogether, I will stay on. Let’s see what another 3 months gives us and if by then our responsibility is noticed and if more community members appear that could potentially take over my place. Or if the situation generally has changed altogether.

[ham]

Thanks for leading the delegate programme and putting this together @Raphael_Anode. Some of these statistics are really powerful: 100% delegate participation and the fact that no IP would have reached quorum without delegate support!

My personal experience reflects this, I’ve definitely enjoyed the increased participation the delegate programme has provided, both on the forum and at the execution stage. I try to be as accurate and impartial in my work but previously felt like a single point of failure for the Yield Protocol given the lack of governance participation. If data was stale, numbers were calculated incorrectly or execution windows were missed errors would have been pushed live or proposals would have been delayed. The delegate programme has supported my work significantly, with independent discussion taking place, proposals numbers being checked promptly by other delegates prior to the RFC moving to the IP stage and DTF auction and IP execution being monitored closely. Beyond the practical benefits, it’s fostered a much greater sense of community participation and shared accountability throughout the governance process.

Programme Expansion

I agree with @zeb that vlRSR should be added to the programme. To me it’s the logical next step given the new AI product suite is the core teams main focus and expected main growth lever over the next 3 to 6 months. While the AI DTFs use optimistic governance for basket changes, the DTFs will still have some DTF changes that follow the standard governance flow (like the recent mandate update proposals) and require the monitoring of optimistic proposals and veto if necessary. While distribution and institutional partners are a higher priority for growth, a reliable and diverse governor set should be table stakes for a decentralised product like this and would likely be expected by institutional partners in the DD phase.

Compensation and Reimbursement

In regards to compensation, I believe the current level is adequate and matches industry standards but should be reconsidered if participation drops. With regards to triggering auctions and executing IPs, I believe delegates should be supported more. Reimbursement of gas fees is an option, although this would increase the administrative overhead of the team member supporting the programme. Instead, I suggest the core team designate a team member who can be notified by delegates to process expensive transactions using company wallets and funds.

Programme Timeline

If it is decided that the programme will expand to include vlRSR, I propose that the programme is extended for a further three months, for 6 months in total. This would allow an additional nodal point to review the programme and iron out any issues that have arisen due to the expansion. After this point a 6 monthly cadence can be considered with elections every 6 months to mitigate entrenchment as @zeb suggests.

Team Participation

Finally, just want to echo another of @zeb comments on team engagement.

My critique still stands, that ABC Labs is most needed for actual DTF BD and insights, but they do not engage on requests. This means that we as delegates can read reports and make comments all we want, but the trajectory of the DTFs is out of our hands.

I share this concern. Without meaningful engagement from the team, even highly engaged and knowledgable contributors such as Zeb may eventually feel that their input is not influencing outcomes. Over time, that risks discouraging participation and making it harder to retain the kind of knowledgeable delegates the programme depends on.

While the delegate programme has so far focused on the Yield Protocol and core team members have been focused on growing the Index Protocol, I would welcome further participation on proposals especially if the programme is expanded to cover vlRSR. Community participation should grow from the inside out and be led by the team and core contributors in the early stage.

[zeb]

Thank you ham for echoing those points. Appreciated.
Also for the record, if any of the delegates deserves more RSR for their work, its Ham. But I deeply hope he is getting some other form of rewards already outside of this program.

[R72]

Thanks for the extensive review and write-up of the three-month trial period. I enjoyed being part of it and the fact that no proposal could have made it without the active voting participation of delegates is a strong and compelling improvement compared to the time before the Reserve Delegate Program Trial Run.

So yes, I am fully in favor of continuing. In general happy with the compensation if the workload remains as-is. Also in favor of taking on vlRSR delegation as an experiment to see how this best works in an Optimistic Governance context.

Area of improvement: agree with the responses above that Reserve feels a bit absent in this delegation program so far. Would be interested in how they feel about the program so far and what they would like to see going forward.

[0xJMG]

Nice work guys! Strengthening the case for community governed index products while getting more participants in the mix.