Let's talk about the Steem Proposal System (SPS)

For those who aren't aware, the Steem Proposal System (SPS) also known as the "Steem DAO" was introduced in HF21. In the words of the original announcement, the SPS was intended to:

... allow Steem users to publicly propose work they are willing to do in exchange for pay. Steem users can then vote on these proposals in almost the same way they vote for witnesses It uses stake-weighted votes, but voters can vote for as many proposals as they want.

Similar to an Ethereum DAO, but without the (built in) flexibility of smart contracts, this decentralized funding mechanism enables Steem account holders to get funding for blockchain projects straight from the blockchain.

The SPS has been collecting 10% of blockchain inflation since August, 2019, when HF22 went live. Half a year later, however, the disbursements were entirely ceased as a result of the turmoil that centered around softfork 0.22.2.

Until recently, disbursements remained halted, but one proposal (from @the-goilla) finally managed to get funding a few months ago in order to Modernize [the] steemit.com Interface. In my opinion, this proposal is delivering good results.

As a result of this long stretch of unidirectional flow, the SPS is currently holding about 4 ¹/₂ million SBD. Depending on external market prices, this is a value of anywhere from $4 ¹/₂ million to 2, 3, 4, or more times that value, and it's continuing to receive new funding every single day. That's a lot of value.

Based on history, I don't think it's a stretch to say that the SPS is a sort of a double-edged sword for the community. On one hand, it can provide funding for projects that benefit the blockchain, but on the other hand, before it was locked down we saw a number of recipients who seemed to extract more value from the SPS than they delivered to the community.

So, the question is, how can we make use of all that value in the SPS without having it turn into a new vehicle for exploitation?

Coincidentally, we have a time-tested governance model that we can use as an example for steering decentralized investments. It's known as "the corporation". I already touched on this a couple of years ago, in my article A proposal about proposals,

In the cryptocurrency space, we like to think that we're pioneers in decentralization - and we are. However, decentralization is not entirely new. Corporations have had decentralized structures for centuries. The shareholders own the company, they appoint a board of directors, and the board of directors hires a Chief Executive Officer to manage the day to day affairs and look out for the interests of the shareholders.

Would it be possible to manage the SPS in the same way?

When I wrote that article, the SPS was funded at less than 3 million SBDs. Now, it's 50% more valuable.

So, the question I asked in 2022 is still valid. Can we borrow from the model of the corporation in order to make effective use of the SPS funds while minimizing the risk of exploitation? I imagine something like this:

1. As a community, we decide on the desired structure of a "steering committee" or "board of directors" for selecting a fund manager. The committee/board members are paid out of the SPS, and their job is to (i) select a person who will manage the SPS and set a strategy for its use; and (ii) evaluate that person's performance.
   • note that these would not (necessarily) be Steem community members. Instead, we would put out a public call for applications; we would look for people with actual relevant experience; and the final committee would be approved by community vote (stake-weighted).
2. The Steering committee would select/recommend someone to act as a CEO/fund manager. That person would also be paid salary and budget out of the SPS, and their first job would be to complete the relevant applications for legal/regulatory compliance as a formalized profit/non-profit organization - with the relevant fiduciary duties. If needed, they could even use part of that budget for staffing.
   • again, this person does not need to have a prior affiliation with the Steem blockchain - just relevant business experience.
3. The CEO/fund manager would set a strategic direction for use of the funds to benefit the blockchain and community, then they would recommend for/against SPS proposals based upon alignment with their strategy.
4. As the blockchain inflation rate goes down in future years, this new organization would probably need to establish additional funding sources, which could come from products that are bootstrapped by the SPS funding.

As an example, imagine this structure for the first year:

• The community selects 3 board members at 20K SBDs each;
• The board selects 1 fund manager at 100K SBDs
• The fund manager:
  • sets up a legal entity that controls an operating budget of 300K SBDs
  • creates a strategy for use of the SPS.
  • evaluates community proposals for alignment with the strategy and recommends for or against them
• At any time that the board or fund manager are perceived to deviate from the community's interest, the community can vote to replace or remove them. Any of this might be pre-funded and time controlled through the use of escrow or multikey accounts to protect the board members or fund manager from sudden and arbitrary defunding.

The big weakness that I see with all these plans is that SPS proposals can be defunded at the drop of a hat, but people in roles like "board member" or "CEO" want to have some assurance that they will continue to be paid (unless they are named "Elon Musk" 😉). To mitigate this, perhaps(????) we could make use of the blockchain's "escrow" and/or multikey capabilities to lock away quarterly or annual funding in advance - but I don't really know much about that, so this would need to be explored.

Another weakness that I see is that there is no way to guarantee that the CEO's recommendations get followed. I guess it would be up to the community to vote to replace the CEO and/or board if they were consistently making recommendations that the community didn't back. After all, part of a CEO's job is negotiating with stakeholders. There may also be potential to mitigate this risk with multikey accounts and/or escrow operations, but we'd have to work that out, too.

It occurs to me that every day that the SPS grows in value makes it more and more likely that someone will be interested in gaining control of it. So, if the community wants to retain our say in how the SPS is directed, the sooner we come up with a long-term strategy, the better. Without community action, control of this fund becomes an increasingly attractive target for a potential investor (or group of investors) who might put the ecosystem's interest behind their own ability to extract revenue from the SPS.

What do you think? Can a corporate (or non-profit) governance model be applied to the SPS in order to make strategic use of this source of funding for the benefit of the blockchain and the surrounding community?

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Thank you for your time and attention.

As a general rule, I up-vote comments that demonstrate "proof of reading".

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Steve Palmer is an IT professional with three decades of professional experience in data communications and information systems. He holds a bachelor's degree in mathematics, a master's degree in computer science, and a master's degree in information systems and technology management. He has been awarded 3 US patents.

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