CIP-6: Funding for development Services - Service Agreement

CIP: 6
title: Funding for development services - Service Agreement
author: Chris
status: Draft
created: 2022-03-10

Update 24/03/2022

This proposal has been moved to the voting phase. Voting is available on cow.eth snapshot here

Simple Summary

Following the successful passage of the GnosisDAO Improvement Proposal to spin off the Cow Protocol Team, 14.75M USDC were raised from VCs, partners and angels, passing KYC, and sent to a Safe controlled by CowDAO.

This proposal asks for the payout of a first installment of these funds to benefit Cow Services LDA, the new entity of the Cow Protocol Team, which will act as Service Provider in order to ensure continuous development of the “Cow Suite” (Cow Protocol smart contracts, services, solvers and CowSwap interface and integrations).

To be operationally independent from Gnosis and to continue contracting and employing the talent needed, the team has incorporated a Portuguese development company - Cow Services Lda.

More concretely, this proposal asks for 6M USDC for Services for one year, as laid out in detail below. A budgeting estimate for the year is also included in this proposal as well as the associated roadmap. Further, you can find suggested terms at the end of the proposal, to give this Service Agreement a legal framework.
Note that this proposal is not subject to any of the funds raised via the community options, which amounted to an additional treasury of 748 ETH; 13.8K GNO and 1.6M xDAI for CowDAO.

Motivation

Our motivation is to fulfill CowDAO’s vision of a decentralized future where digital assets can be traded in a fair, efficient and reliable manner among people and communities around the world. Our mission is to build a protocol that becomes the most user friendly and price effective way to exchange digital assets, enabling all users to trade securely and know their trades are protected.

By successfully passing GIP13, GnosisDAO gave rise to the CowDAO. CowDAO is now a standalone DAO with the goal of building, maintaining and advancing the Cow Protocol as well as its graphical user interface(s). CowDAO has the financial means to do so and to be fully independent of GnosisDAO or any related party.

This CIP proposes a way forward to use parts of the funding to dedicate to this purpose and ensure that the team that has been working on the CoW Suite is financially enabled to continue to do so while effectively spinning out of Gnosis. Starting 1 March 2022, Cow Service LDA is financially liable for its operations and will reimburse Gnosis for accrued expenses. In line with the founding vote of CowDAO, it is proposed to leverage CowDAO’s USDC, which was raised from VCs/partners and angels, went through KYC and amounts to 14.75M, for the purpose of funding the continuous development and operations, over the course of several installments. This proposal is asking for a first installment of 6M USDC from 1 March 2022 - 28 February 2023.

We consider this CIP critical to ensure ongoing development of the CoW Suite and for keeping a competitive edge within the decentralized exchange ecosystem. We do encourage other teams to apply as Service Providers also.

Service Agreement

I.a Included services

  • Code development and design based on the roadmap (cf. 1.b);
  • Continuous improvement of the existing product and user experience;
  • Executing relevant user research and proposing roadmap adjustments based on its findings;
  • Hosting relevant interfaces, upkeeping and housekeeping of this forum available at forum.cow.fi;
  • Providing public data analysis dashboards;
  • Community management via Discord and Twitter as well as hosting frequent community calls;
  • Representing, promoting and taking part on behalf of the Cow Suite in conferences as well as providing marketing and promotional material and “swag”;
  • Any other assistance and advice that may be provided by Cow Services Lda staff members’ expertise, e.g. computer engineering, design as well as relevant project management;
  • Effective outsourcing to specialists and external parties;
  • Additional, non-product related, operational overhead for running a company and an effective team.

I.b Development roadmap

The roadmap is defined by the team in alliance with the CowDAO itself, by means of forum discussion and individual improvement proposals. It’s the responsibility of CowDAO and its members to propose and decide the way forward - we want to comply with this ethos: it’s important to keep this roadmap flexible to adjust to community voices and successful proposals, changing competitive environments as well as improving and changing technological advancements.

The core focus of the team for the next 3 months:

  • Improving the user experience, including but not limited to:
    • Work on new WETH flow that doesn’t require users to manually wrap their Ether anymore;
    • Improved prices & support for more liquidity sources;
    • Improved price estimates;
    • Improved execution speed;
    • Decentralization of solvers: defining the rules of the game;
    • Improved documentation;
    • Improved & more consistent messaging;
  • Token Utility:
    • Closely following existing and future proposals on COW utility and implementing them (for example fee discount for COW token holders; LP rewards; incentive programs and more).
  • Governance:
    • Improving the Snapshot governance space and adapting it to passing proposals (for example adjustments in case COW becomes transferable).

Features that might follow after the improvements mentioned above are in place:

  • Adding support for EIP2612 (allowing gasless approvals);
  • Deployment on selected Layer 2s;
  • Canonical batches;
  • Limit order interface;
  • Improving the Batch Explorer and adding more information;
  • Adding more information to the CowSwap UI (eg user surplus, trading charts etc., subject to user research).

I.c Budget

For a full year - 1 March 2022 - 28 February 2023, the USD budget estimate comprises the following significant positions:

Team compensation: 2.8m
Future contractor compensation: 0.5m
Third party development services: 0.8m
External tooling: 70k
Network fees (gas): 120k
Marketing, business development: 150k
Expenses (e.g. business travel etc.): 120k
Operational (legal, accounting, bank accounts): 100k
Provision for tax purposes: 1.4m

The team

The team that plans to build the CoW Suite has been doing so previously (as part of Gnosis) and is dedicated to continue working towards making the protocol successful. We have carefully recruited and will continue to do so in the future. The team is led by Anna George on the product and by Felix Leupold on the engineering side. You can find both their recent EthDenver talks here, where Felix speaks of becoming a Solver for Cow Protocol and here where Anna speaks about why DAOs should use CowSwap. The team consists of 22 full-time positions (and is currently hiring for additional 9 open positions). The team’s expertise include roles such as cryptographer, mathematicians, user researchers as well as business development, marketing, operations and HR. Furthermore, we have built up a suite of ecosystem, legal - and academic advisors who will help us achieve the success of the Cow Suite. Meet the team on Discord.

Rational

It is the intention to further decentralize the team with anyone who wishes to work directly for CowDAO or a sub-DAO. For the moment, it is difficult for single contributors to work directly for the unincorporated DAO. While we strive for decentralization not only on product level but also organisationally, we see this proposal as a workable solution in the meantime. The first order of business for decentralizing “more” is for the CowDAO to incentivise other players to build relevant integrations on-top such that “third party development services” as outlined in I.c. above can also be paid out by the DAO in future (currently there is also a CIP for a Grant Program in the Forum, which could be a first step in this direction).

II Terms of the Service Agreement

Validity

  • This Service Agreement and any following Service Agreement is subject to the successful passage of the Governance Mechanism set in place by CowDAO (and as defined in the implemented Participation Agreement or any updated version thereof).
  • The commencing of the Services is effective per successful passing of the proposal, retrospectively starting from 1 March 2022.
  • The Services shall be deemed concluded if either the funds are exhausted or by 28 February 2023.
  • There is no automatic extension or renewal of this Service Agreement.
  • The agreement cannot be terminated within the one year period (counting from 1 March 2022).

Compensation

  • The fee for the Services described above is 6,000,000 USDC (six million).
  • The fee corresponds to an estimate of the sum of all costs borne with the performance of the Services starting 1 March 2022 and comprising an entire calendar year, based on a time and material basis.
  • The costs incurred with the provision of the Services to be considered are the direct and indirect costs.
  • If in doubt, the fee is considered to be split equally across calendar months.
  • The Company may review the fee according to actual costs incurred on a monthly basis, proposing changes and amendments, which in turn will be subject to the Governance Mechanism and therefore approval by CowDAO.
  • Any request for changes or amendments will be accompanied by a justification of prior costs borne (time reporting).

Payment

  • With the successful passing of the proposal CowDAO agrees to a pre-payment of the fee and is not subject to further invoices.
  • Unless Cow Services asks for further compensation due to incorrect estimation there will not be a detailed time reporting.
  • The fee is to be transferred from CowDAO’s Safe at the successful passage of Phase II.
  • The wallet it will be transferred to will be included in Phase II.

Scope

  • Some of the line items mentioned in the budget may decrease in the future, some may increase over the coming year. The rate is calculated as expenses of 500,000 USD linearly throughout the year. Hence, 2023’s pre-payment for January and February accrue to 1,000,000 USD (note that this may be important for tax reasons).
  • If the Services substantially widen and Cow Services grows its team for this purpose (beyond covering 30 full-time positions), Cow Services will propose another Service Agreement for a new installment of the 14.75M USDC in funding received by VCs, partners and angels.
  • If Cow Services may dissolve any accounting provisions (such as tax provisions), arising positive cash-flow will be reinvested into the company, in line with CowDAO’s vision of a decentralized future and mission of enhancing the Cow Suite.

Intellectual Property

  • All rights related to works, new products and processes, or correction or improvement of products or processes already existing in the Cow Suite in addition to works, inventions or creations, designs or models, trademarks, trade names, logos, software, databases, domain names or other materials and know-how (including trade secrets), whether registered or not, and regardless of their patentability, registrability or fixation, that Cow Services, individually or jointly, has created or whose creation has provided during the Service Agreement to provide services that relate, directly or indirectly, to the business of the CowDAO, (hereinafter, “Intellectual Property”), belong by origin and since their creation to CowDAO’ in accordance with the Participation Agreement.
  • This effect occurs when the Intellectual Property is generated during the provision of Services by the Cow Services, regardless of whether or not the creation, or the cause of the creation, of the Intellectual Property is, wholly or partially, directly or through a third party.

Miscellaneous (in no particular order)

  • Profit. The company may incur a profit. Profits are to be reinvested into the company, in line with CowDAO’s vision of a decentralized future and mission of enhancing the Cow Suite.
  • Subcontracting. The Company may subcontract any portion of the Services to be performed under this Service Agreement and remains responsible for the obligations under this Agreement.
  • Assignment. Cow Services Lda may at any time assign, mortgage, charge, subcontract, delegate, declare a trust over or deal in any other manner with any or all of its rights and obligations under this agreement.
  • Confidentiality: All information obtained privately (i.e. not via public discourse, such as blockchain transactions or on the CowDAO Forum) shall remain the sole and exclusive property of the discloser (including CowDAO and Cow Service Lda members).
  • Definitions. Terms in this Service Agreement shall have the same meaning as in the Participation Agreement. In the event of any conflict or inconsistency between this Service Agreement and the terms of the Participation Agreement, this Service Agreement shall take priority as between them to the extent that is necessary to resolve the conflict or inconsistency.
  • Affiliate. Cow Services Lda shall not be in any way seen as a member or affiliate of CowDAO or any related party, only a Service Provider.
  • Disclaimer. CowDAO and Cow Services expressly disclaims all representations, warranties, guarantees, conditions and undertakings, including warranties of merchantability and fitness for a particular purpose.
  • Limitation of liability. Cow Services Lda’s total aggregate liability for all and any claims arising under or in connection with this Service Agreement, regardless of form of action and whether in contract, tort, warranty, or other legal or equitable grounds (including in each case negligence), shall be limited to a maximum amount of USDC 100,000.00.
  • Force Majeure. If the provision of the Services are affected, hindered, prohibited or made impossible in whole or in part by a Force Majeure, this shall under no circumstances be deemed a breach of this Service Agreement.
  • Severance. If any provision of this Service Agreement is or becomes invalid, illegal or unenforceable, it shall be deemed modified to the minimum extent necessary to make it valid, legal and enforceable.
  • Disputes. In the event of any dispute, claim, question, or disagreement, CowDAO and Cow Services shall use their best efforts to settle the disagreement. To this effect, they shall consult and negotiate with each other in good faith (using the CowDAO forum forum.cow.fi or any other Interface) and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to both parties. Any such amicable decision to resolve a dispute shall go through the CowDAO Governance Mechanism. If no agreement is found within 30 days, the disagreement shall be referred to and finally resolved by arbitration by one arbitrator under the rules of the London Court of International Arbitration.
  • Governing Law. This Service Agreement shall be governed by and construed in accordance with the laws of England and Wales.

Execution

Safe Transaction Data

CowDAO main safe will execute a transaction from its daughter safe at 0xA1cb7762F40318ee0260F53e15De835fF001cb7E to send 6m USDC to the Safe at 0x6adc7a8e9a73dbf1096a425cabe07b83060d4ba4

[
    {
      "to": "0xA1cb7762F40318ee0260F53e15De835fF001cb7E",
      "data": "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",
      "value": "0",
      "operation": 0
    }
]

Tenderly Simulation

Link to Tenderly simulation

Snapshot

Phase 2 Proposal: Link.
We look forward to your comments and propose that the CowDAO uses similar Terms with other Service Providers also.

10 Likes

This seems relatively fine, though I would suggest the following:

  1. Monies owed for the service agreement are streamed by means of a per-second vesting contract.
  2. A keeper contract be created that can automatically deduct funds from CowDAO up to a month in advance. This keeper contract would be permissionless so anyone can execute and guarantee that funds are available to be dripped to Cow Services.
  3. Perhaps a super-majority vote strategy to terminate the per-second vesting contract.

The above has the following benefits:

  1. Provides financial accountability - if Cow Services renegged on the service agreement, legal action by a DAO against an entity is currently an untried area of law. This presents risk.
  2. Keeps liquidity on hand for other options that may be pursued in the meantime (ie. market making strategies) that can be used to produce revenue for CowDAO (ie. extra USD can currently yield ~2% - 4% on some USDC/stablecoin markets, therefore this is potentially lost revenue / opportunity cost).
3 Likes

Section II - bullet point 3: “Services shall be deemed concluded if either the funds are exhausted or by 28 February 2023.”

I think that Cow Service LDA should change the above clause. I think the DAO would agree that $6,000,000 USDC in fees for service rendered should be for the length of the contract (12 months), not just when the funds run out. Otherwise, there is no incentive for the entity to employ fiscal responsibility or stay within budget if you can just ask for more. Outside of that, it all looks good to me.

3 Likes

Hi there - thanks for taking the time to read this long proposal in detail. Really appreciate the comments. I have the following responses (please feel free to comment again):

To @mfw78’s comments:

Per-second vesting contract: this actually assumes that Cow Services spends funds linearly throughout the year. Though this is not very practicable: it will start off already with debts for the month of March and then bills come in very irregularly; LDA should have the operational security that it can pay contracts that have some months termination period (and some regulatory obligations may also come in without prior planning). I appreciate that 1 year is quite long - but please do keep in mind that 14.75M were raised with this purpose and we are not asking for the full amount thereof until a later instalment (where the DAO may again judge upon the quality of the services received).

There should be certainty that the company does not run dry in a couple of months.

As to the opportunity costs: I agree that this is a price paid. However, any strategy is not without risk and please bear in mind that the DAO holds considerable other assets (namely 748 ETH; 13.8K GNO and 1.6M xDAI) which it can also invest / create a Defi/treasury-sub-dao. Additionally, it would risk that KYC-ed funds are, after having been used in Defi Protocols, seen as non-KYCed (this one would have to be researched a bit more, could be that some Defi protocol now exists without this being an issue anymore).

To @netrunner.eth’s comment:

I agree with you that theoretically the funds should be for the length of the contract. However, for this the Services are not well enough defined (and should not be to remain flexible with the ongoing technology changes and the CowDAO making decisions).

So what can happen?

    1. LDA runs out of funds because of ill-management or wrong prior estimation (which is hard for one year) → we have no choice but to ask for more funds; in this case the Service Agreement provides for the need to justify in front of CowDAO (specific time and cost reporting). If the old contract then just runs out (as per the intention of the clause), we can simply have another Service Agreement, specifying the further funds needed for which Services. Note that this additional funding is again up to the CowDAO. An alternative would be an amendment to this Service Agreement: but it could give this weird result where the amendment is not accepted.
    1. LDA increases scope due to product need (e.g. contracts more consultants, external service providers, tooling etc) → Then LDA would have to ask for more funding, but with specifying a new Service Agreement (and then several Service Agreements would run in parallel).
    1. The 12 months have passed, LDA has delivered on all agreed upon services (or even more), but still has funds left. In this case LDA should not make a profit, but use the remaining funds to keep their operations going.

Your point regarding fiscal responsibility is valid but I would hope this is covered by having to justify further funding (and the DAO still having 60% of the KYC funding).
We should be open to changing the method for the next instalment based on experiences made with this batch payment - on both sides of course.

4 Likes

Hello CoWmunity

So far no more responses - we appreciated that the CIP is asking for quite a chunk of funding!
We would like to move this proposal to Phase II on Thursday (roughly in 2-3 days) unless some comments need addressing / there is an active conversation here.

This is a call for feedback: Please let us know your thoughts!

2 Likes

I, small potatoes, approve and support this CIP

1 Like

I vote yes, support it

I vote yes, support this CIP.

Aren’t you worried about moving 6M USDC to a Safe with only 1 necessary signature? (threshold 1 out of 3) This is a terrible bad practice. For this I would vote NO to the proposal, even I agree on all other points. It wouldn’t be a good start for Cow Services if they get their funds drained.

Hi there,
:100: - it’s definitely not best practice to only have one owner and/or one signer!
Due to some vacation last week, it was meant to be temporary such that the proposal can be moved to Phase II. Two more signers were already added. Of course, the threshold will also be changed to 2/3. Definitely recommended for both outside security and key management internally.
Sorry for not including this information early.