Foundation Kickoff Budget

I propose a one time kickoff fund of 800,000,000 SC to help spin up the Sia Foundation, with the full fund being assigned to Skynet Labs.

There are numerous significant expenses involved with spinning up the foundation. The first is that, because of our prior SEC settlements, Skynet Labs needs to have a legal conversation with the SEC establishing the changes to Sia and establishing that these changes to not constitute an illegal securities offering. This will be an expensive process, and Skynet Labs will be footing the bill for the full process.

A second major expense will be the establishment of the legal entity. We intend to engage a major firm for setting up the entity, and we expect that the jurisdiction of the foundation is likely to be Switzerland, though we will know more after we have had more conversations. Picking a jurisdiction carefully is key to a healthy tax structure. The difference between a good setup and a bad setup could be as much 300,000,000 SC per year in taxes. It’s worth spending more up-front to ensure that you are established in the best way possible. Skynet Labs will be engaging the legal firms and footing the bill for this process as well.

The final hurdle is the transfer of key assets from Skynet Labs to the Foundation. As we’ve repeated multiple times throughout the process of creating the Foundation, Skynet Labs is a for-profit entity and needs to have substantial business justification behind every action. Skynet Labs recognizes key IP such as the Sia tradmark and sia.tech domain name to be highly valuable. The Sia trademark currently gives Skynet Labs the discretion to decide what is legally allowed to be called the Sia network, a network comprising more than $100 million USD in user-owned assets. This also has considerable impact on what exchanges would determine to be the true Sia network in the event of a contentious fork. As a for -profit entity, we need to be fairly compensated for the release of these network-critical assets.

There are a number of smaller items as well, such as the ongoing employment of Luke in the interim between the proposal of the foundation and the establishment of the foundation. Skynet Labs has also historically contributed significant low-return development towards the network such as the integration of deterministic builds for the network. As Skynet hands over significant control of the protocol to another entity, we feel that this large one-time fee is a fair value exchange, especially given all the expenses that Skynet Labs will incur in advance of the hardfork.

I’d be interested in a more comprehensive breakdown of how the 800MS (2.3M USD) is being allocated. How much for legal fees? How much for creation of a non-profit in Switzerland? How much directly to Skynet Labs for compensation?

I mean, if you wanted to fire Luke this is a really weird way to go about it :stuck_out_tongue:

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We don’t know exactly where the legal fees will land, but we are expecting them to be substantially north of six figures. A non-profit in Switzerland will require multiple hurdles, including contracting multiple high end legal firms. Legal firms that know crypto well are rare, and because of this they charge even more than typical lawyers, which would already be six figures.

The rest is payment for the IP, payment for writing the hardfork code, testing the hardfork code, deploying the hardfork code, handling a lot of the politics around the hardfork, payment for all of the support website resources, forum setup and management, joint control of the discord and other social media, and then full access to our development team for emergencies.

We intended to bill the foundation for deliverables such as changing the renter-host-protocol to support more sector sizes, but in the event of a 0-day bug or a critical network issue we are committed to providing immediate support without the red-tape of putting together a proposal or figuring out how to charge the foundation. This includes anything that goes wrong with the hardfork, but will also include things like failures of the transaction pool or consensus code, issues with dependencies, etc.

A big chunk of the payment is also a discount on the siacoin value. Skynet Labs needs pretty strict financials - essentially we need to know exactly how much USD we are going to be spending by Jan 2022. If we receive a lower number of siacoins (less discount), we need to liquidate those immediately so that our cash planning is sound, as we will have very low tolerance for the siacoin price decreasing. If we receive more siacoins (higher discount), we will have a buffer in terms of how much the siacoin price can drop before we are at risk from our financial planning, meaning we can afford to hold onto more siacoins up-front and cash out more slowly.

I know that sometimes crypto law firms will go for this as well. We haven’t arranged any agreements with law firms yet, but there’s a good chance we can pay a significant chunk of the bill in siacoins, and stipulate that the siacoins have a graduated lockup. This will only be accepted if the siacoins are discounted, which increases the total number of siacoins we need to pay but reduces the impact on the market.

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I vote to reject this proposal in the interest of transparency because Taek failed to itemize the proposal’s expenses.

Counter proposal:

$300k Legal fees
$25k R&D for creating and proposing the foundation
$25k Coding and releasing the hardfork.

$350k total

After that the foundation will exist and can stand on its own two feet. If Luke so chooses he can make additional deals to secure more development efforts or to obtain any necessary IP from Skynet Labs. However, this should be done once he is the CEO of the foundation.

One of the reasons I did not originally itemize things is because it is not clear to me at this point what exactly the bills will be for each item, and the proposal gets substantially more complicated and gets more overhead if we have to incorporate stipulations for what happens if some items come over or under budget.

The proposal is an 800 MS flat fee to Skynet Labs to handle everything, including any imbalances that manifest between the legal and development work.

$300k for legal sounds approximately correct. It could be as cheap as $150k (honestly unlikely given the SEC problem) or as expensive as $600k, depending on where we determine we should incorporate, which status we go for, and which law firms need to be involved to accomplish all of it.

Skynet Labs has not been strictly accounting for the hours spent, but I personally have spent over 100 hours, probably over 200 hours working on foundation related things. Luke (who is currently a salaried Skynet Labs employee and therefore needs his time billed as such until he’s moved over to the foundation fully) is probably in a similar ballpark.

We haven’t started serious review and testing of the hardfork yet, but at least 5 engineers are going to be involved, and with all the testing and ant-farm operating we are going to be doing in preparation, I’d estimate 100 hours of engineering time will be needed total for the hardfork. Maybe more.

Engineering aside, we’re going to need to spend a significant amount of time working with the miners, mining pools, exchanges, portals, and hosts in preparation for the hardfork. That will also probably end up being more than 100 hours of work, again with a substantial chunk of that being time from me.

And then there are things like setting up the forum, managing the mailing list, updating the website

All in all, I’d say the total time spent by Skynet Labs to set up the foundation is probably going to be close to 1,000 hours. A lot of this by senior engineers and founders. I would say even the “low level” engineers at Skynet Labs should be asking for $200+/hr for their time. We are an exceptional engineering team. So in the itemized proposal, the hours needed to properly kick off the foundation from Skynet Labs should probably be billed somewhere between $200,000 and $300,000. And I know a lot of you guys are going to gawk at that, but I remind you that only about 10% of these hours are actually coding up the hardfork. The rest of the hours are going towards ensuring a smooth execution and handling all of the management related to spinning up the foundation.

And then there’s the IP. Admittedly, the IP is really tough to value, but if you look at the history between entities like the Zcash Foundation and the Electric Coin Company, I think there is significant value in the IP. I would say it’s worth anywhere from $500,000 to $1,000,000, and honestly that could even be low. The crux of the issue is that the owner of the Sia IP gets to decide what gets called Sia, which is what everyone in the world except for the core community would recognize. If there’s a significant split and Skynet Labs retains the Sia IP, the core community may recognize a new entity as the lead blockchain but Skynet Labs would have massive leverage over exchanges, the media, and the public narrative, due to owning the name everyone recognizes.

If you combine the full set of ranges from this breakdown, you get a total of $850,000 to $1,900,000 USD.

Except Skynet Labs isn’t receiving USD, it’s receiving siacoins. And there are basically two approaches to manage the siacoins:

  1. sell them all immediately and get USD for them, incurring significant slippage and pushing the whole market down. Due to the slippage we would incur, we’d probably want to consider the siacoin price to be in the ballpark of 0.2 cents.
  2. sell them slowly, taking on significant risk that Siacoin drops in price substantially. If we agree to sell the coins slowly (which we would prefer), we need a substantial discount to hedge against the volatility. I would propose a siacoin price of 0.15 cents here.

The 800 MS, valued at 0.15 cents would be worth $1.2 million, which is roughly in the middle of the proposal estimates. Skynet Labs would agree to selling off the siacoins smoothly over a period of 12 months starting in January to minimize impact to the market.

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We’ve kicked off legal spend related to the foundation spinning up, before we get too much further with racking up bills I would like to get a confirmation that this proposal is accepted. There’s more time pressure here than the other budget proposals because we have to spend money to launch the foundation.

At minimum, I don’t see any issue with approving reimbursement for startup costs; the Foundation simply won’t exist without those expenses, so there’s not much room for debate. If the startup costs are split out into a separate proposal (or alternatively, split the IP+other costs into a separate proposal), I think we can approve that fairly quickly.

I think reimbursing funds on a case by case basis is going to quite annoying. Itemizing & budgeting expenses upfront is difficult enough, without the added challenge of currency volatility. I would be in favor of approving the proposed fund amount with the following provisions:

a) Expenses be categorized as an ongoing task for accounting and transparency purposes.
b) IP value / cost be determined at a later date / thread.
c) At the end of the period, if there are funds remaining from the 800 MS pool, that it be returned to the Foundation.

I would like to finish the cost negotiations surrounding the IP before we spin up the foundation.

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How do you propose the 800MS be distributed? Would it be a percentage of the foundation reward, or the full thing until the 800MS is allocated?

We can take away point b) and c) but I think keeping a) would be reasonable.

I think that the besides the IP, no one really has any issues with the kickoff budget. But from my personal perspective, I think the foundation having to buy the IP(i.e. the website, logo, discord, etc) is fine as long as it’s final and the foundation gets full control over it.

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Happy to categorize expenses. Couple of clarifications though:

  1. We see the IP as being worth at least 500 MS, at any price of Siacoin. This is because the IP is worth more if Siacoin is worth more.
  2. Because we are taking on a risk by spending resources, we are pricing the siacoin at $0.0016 - roughly half of the market rate. We will be selling the siacoin over time instead of selling it in January (we will sell 1/12th per month at most), which carries significant risk. The reason we are selling 1/12th per month at most is to minimize market impact for the Sia community, though it is probably safer for Skynet Labs to sell all at once.
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*if the budget for spinup exceeds 300 MS, we will cover the overages. If for some reason we forecast that it will cost way more than 300 MS, we will re-visit this proposal before actually spending the money. At this time we don’t forecast that it will cost too much more though.

------------- ninja edit--------------
i just had a brain fart and forget there is an initial pool of funds (1.5 B SC) to draw from, so the below is not an issue at all. :man_facepalming:

leaving it below for transparency.


apologies, I think I poorly communicated my question in the previous post. i think how Skynet Labs decides to liquidate the Siacoins should be ultimately be your discretion. At this point in time, Skynet Labs is the last company I’d be worried about not being incentivized to make decisions that is beneficial for the Sia ecosystem.

what I’m more interested in is with regards to the payout of the 800 MS. given that there are already some outstanding proposals for funding, each of these proposals we take on is a future payment with funds we don’t yet have. let’s run through a few scenarios

  1. at ~130 MS in foundation rewards a month, we would need at little bit more than 6 months to pay off the entire 800 MS. Probably longer, given there will be operational expenses. that means the foundation would be paralyzed from doing anything until this initial debt is paid off, which is undesirable imo.

  2. at let’s say… quarter of that (so around 32 MS), it would mean it could take 2 years to pay it all off. this would give foundation the breathing room to tack on other proposals, but it could create harder to predict scenarios for Skynet Labs (which is also undesirable).

Given your answer above (just to confirm) would the Foundation would simply be paying 1/12 of 800 MS over the course of a year?

If Skynet Labs is happy to categorize expenses, and is expected cover overages for the expenses above 300 MS, the 800 MS sounds reasonable to me.

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Okay, unless there’s any further dissent, we’ll consider this proposal approved.

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