Claw Back SAIL DAO Funding

Sub DAOs SAIL
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This proposal is a continuation of this post by @Rarma.

This will be the on-chain version proposing to invoke the killswitch and return SAIL DAO positions to the Osmosis community pool. I’ve pulled this into a separate thread to add a bit more specificity around how positions in the SAIL DAO’s existing treasury should be handled in the event that this passes.

Summary of Proposal

  • The Sail DAO has been an interesting experiment with mixed results. However, reckless incidents with respect to token management by the Migaloo Foundation, who control 43% of the DAO’s vote power, have called into question whether risks being taken by custodying Osmosis funds in the SAIL DAO are worth the benefits.

  • Current loss of community funds due to these incidents is estimated to be approximately 77,000 OSMO.

  • This proposal would claw back OSMO liquidity to the community pool. No LP positions are proposed to be unwound as part of this proposal. This includes the liquidity of Eris Protocol and Backbone Labs. Competition in the LST marketplace remains critical to Osmosis’ success, and unwinding these positions is not conducive to that success. The proposal simply changes the holder of the LP shares from the Sail DAO treasury to the Osmosis community pool

Background

Sail DAO is a liquidity deployment subdao built on the Osmosis chain. Osmosis governance voted to create the Sail DAO as part of Proposal 708 , and in the process allocated 3.5 Million OSMO to the subdao’s treasury.

The treasury’s stated purpose is as follows:

  • SAIL DAO will take the following Initial LP positions
    1.25 mil OSMO into each ampOSMO-OSMO and bOSMO-OSMO pools
    WHALE-OSMO pool (5 mil WHALE paired against OSMO at market spot ratio)
  • WHALE ecosystem projects, or any project that wishes, can propose an OTC deal and/or liquidity deployment with SAIL DAO, all decisions by $SAIL holders through on-chain voting

To prevent against irresponsible spending of the community’s OSMO and keep the Sail DAO accountable, Osmosis governance retained two admin authority powers over the Sail DAO:

  1. The authority to veto any proposal that the Sail DAO passes, effectively nullifying it
  2. The “Killswitch,” giving Osmosis the authority to claw back all funding from the Sail DAO

For the reasons set forth below, this proposal seeks to execute Osmosis’s authority to invoke the killswitch and claw back all SAIL DAO OSMO funding to the Osmosis community pool.

Proposed Implementation

This proposal seeks to claw back the following positions currently held and managed by the SAIL DAO to the community pool:

  • 818,567 OSMO
  • WHALE / OSMO LP Shares worth appx. $96,000
  • ampOSMO / OSMO LP Shares worth appx. $612,000
  • bOSMO / OSMO LP Shares worth appx. $607,000
  • Lab / OSMO LP Shares worth appx. $28,000
  • ROAR / OSMO LP Shares worth appx. $30,000

Once in the Osmosis community pool, Osmosis governance may choose the final disposition of these LP positions. It’s the express intent of this proposal that the LP positions for ampOSMO and bOSMO be left LPed in the Osmosis community pool to help promote diversity for LST versions of OSMO. The purpose of this proposal is not to undo liquidity positions that bring a benefit to Osmosis, just rather to change the entity which custodies those positions.

The Whale/OSMO, ROAR/OSMO, and LAB/OSMO LP shares contain funds that are comingled with funds belonging to the SAIL DAO, Lion DAO, and Mad Scientists teams, respectively. If these teams wish, these positions can be unwound by a governance proposal on Osmosis and funds returned to the respective teams. Otherwise, they’ll sit in the community pool pending further disposition instructions via governance. Osmosis may wish to unwind the WHALE/OSMO position itself for reasons which will be discussed in more detail below.

Additionally, there is a ROAR / OSMO LP worth approximately $30,000 sitting in the White Whale deployer address on Osmosis. This address is not reachable by the clawback, and the funds should be in the SAIL DAO treasury. This address is controlled solely by the Migaloo Foundation as far as I know. If this proposal passes, it is expected that the Migaloo foundation will also return this position to the community pool with the other positions.

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This proposal will leave the following treasury positions in the SAIL DAO treasury, as they are not composed of any OSMO loaned to the SAIL DAO as part of proposal 708.

  • 642,776,560 SAIL
  • 3,601,755 WHALE
  • SAIL / WHALE LP Shares worth appx. $130,000
  • WHALE / RSTK LP Shares worth appx. $14,000

Again, this proposal does not propose to unwind any liquidity positions. All existing LP positions will remain LPed on the White Whale Dex unless governance says otherwise in a future proposal. All that this proposal does is change the entity custodying these positions from the SAIL DAO to the Osmosis Community pool.

Arguments in Favor of Clawback

The primary reason for invoking the killswitch now relates to general mismanagement of community funding by the DAO and the Migaloo Foundation. The Migaloo Foundation owns a controlling share of SAIL DAO vote power given the Osmosis Foundation does not vote its tokens, essentially making the DAO a 1/1 multisig.

As detailed at great length by @Rarma , the migaloo foundation and one of its founders borrowed against WHALE on Kujira and were subsequently liquidated, leading to a liquidation cascade that tanked the price by 50% in one day.

For the full details, you can listen to the recorded space here: x.com

This liquidation cascade impacted the WHALE / OSMO pool on Osmosis, resulting in the removal of OSMO from the pool as WHALE devalued against it, causing significant impermanent loss on the LP position. As a result, an LP originally containing 176,000 OSMO now contains only 99,985 OSMO.

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It’s likely actually a bit less, given that this pool is not entirely composed of the SAIL DAO’s liquidity.

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Migaloo Foundation has an unfortunate history of being responsible for the loss of WHALE tokens that have subsequently been sold on the open market. This latest incident is the third.

The first time, the Migaloo Foundation were convinced to give a bunch of WHALE to scammers posing as Kucoin listing agents:

Medium – 31 Dec 21

The second time, the Foundation’s hot wallet was compromised, resulting in the loss of another 3m WHALE.

Medium – 30 Jul 23

Migaloo “3m Incentives” Tx flow. The following is the flow of… | by Rarma | Medium)

At this point, it’s pretty clear that the Osmosis community has handed control of a significant sum of community funds to actors that, while well meaning, are not equipped to safely manage them.

Moreover, the performance of the DAO has been generally disappointing as a liquidity deployment subdao. The original intention of the Subdao was to seek out dealflow for exciting projects and make targeted liquidity deals with those projects. The only deals that have been executed to date have been with either Ride Group projects or old Terra ecosystem projects, some of which (like RSTK) are White Whale projects.

Apart from these, there hasn’t been meaningful activity on the Sail DAO forums in quite some time, with the last liquidity deal being proposed over 2 months ago.

The community has had to step in and threaten a veto of irresponsible Sail DAO proposals advanced by Migaloo Foundation in the past, such as this one to LP all remaining OSMO in the Sail DAO treasury with LUNA just a few short days after Terraform Labs declared bankruptcy.

The amount of risk involved in keeping liquidity deployed in the Sail DAO outweighs the perceived benefit to Osmosis from having the liquidity deployed there.

Arguments Against Clawback

The DAO’s existence has resulted in at least one project that has brought real, meaningful value to Osmosis. The Backbone Labs team, issuers of bOSMO, created the Mad Scientists NFT project on Osmosis, which is now the 3rd most popular NFT collection on Stargaze marketplace. By all accounts, this was a huge success, and probably would not have occurred but for the deal struck in proposal 708.

Governance should consider whether this success in and of itself justifies retaining 3.5m OSMO liquidity in Sail DAO given the risks.

Opponents of this proposal may also argue that the Sail DAO proposal resulted in the deployment of a number of other apps on Osmosis beyond Backbone Labs’ contracts, namely:

  • The White Whale Dex itself
  • Racoon games contracts
  • Eris Protocol Amplifier

This is true, but the unfortunate reality is that these apps haven’t brought much meaningful value to Osmosis when compared against the size of the liquidity position deployed to secure them.

Finally, there’s the SAIL token itself. Some people undoubtedly bought sail on the open market after it was airdropped. It’s anticipated that this proposal would likely have a detrimental impact on the price of SAIL via reduced liquidity. Governance should take this into account when voting.

Although realistically, the SAIL token has been trending toward 0 for a long time without this proposal, and the Osmosis community pool should not have to risk a loss of further OSMO to prop up a governance token with minimal liquidity.

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Final Thoughts

The Sail DAO has been an interesting experiment with mixed results. However, reckless behavior with respect to token management has called into question whether the risks being taken by custodying Osmosis funding in the SAIL DAO are worth the benefits of the SAIL DAO’s existence. It’s time to cut the sails

Voting Options

Vote YES to implement this proposal and claw back only those positions identified above
Vote NO to reject this proposal and leave all positions in the Sail DAO treasury

3 Likes
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Just as an additional note, the White Whale community has been threatening to put up a proposal removing Stride’s stOSMO / OSMO liquidity if I move forward with this proposal, despite the two being completely unrelated.

A little bit of “Don’t f*** with us or we’ll f*** with you.” This is the community that we’ve attracted to Osmosis with the Sail DAO. I won’t be bullied out of doing something that puts Osmosis’s best interests first.

2 Likes
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From our perspective, there is a noticeable imbalance between the arguments for and against the issue. We firmly believe that this situation is clear-cut, and we intend to support the clawback in the upcoming on-chain vote. We consider such behavior to be unacceptable.

pro-delegators-sign

4 Likes
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I am 1000% against this action!!!

You are stealing from all who invested in SAIL with this prop. Once again, if distribution is the worry, it can be addressed through the DAO, and corrections can be made.

I will be encouraging all to vote NO with Veto.

Side note: This entire tirade seems like a direct attack on WW and has no concern for SAIL’s investors.

15 Likes
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For me this is a Yes (note: I am a SAIL holder as well, however, we should separate the effects on SAIL holders from the choice to be made for the funds obtained from the Osmosis Community Pool. Those are two completely separate subjects and should stay that way).

I agreed initially with the launch of SAIL, but have been critical ever since. Especially since I saw deals being made with projects who really add 0,0 value to Osmosis as a whole. I am aware of the success of Backbone labs (I have some Mad Scientists as well) and do hope that they stick around.

With that being said, I recognize the need to a faster, lighter institute for project funding that the OGP maybe. Where heavy-hitters should go to the OGP and smaller funding maybe to another institute. However, that should not be paired with an asset imo, since it only involves another angle where the profitability of that asset might prevail over the actual need for Osmosis to be successful.

So for me the aftermath of this could and should be to recognize what was good and what went wrong, learn from it, and maybe find a route how such a similar initiative with a smaller risk profile can be launched for Osmosis to make it interesting for small, fun, innovative projects to launch on Osmosis.

3 Likes
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What about the community who bought sail and held with intentions to make the system better?
That opportunity is now taken away from with them.
You can disagree with how migalloo handled things
But the community members should not be punished for that.

Backbone labs has created a nft market that focuses on utility and nft fi .
Arguably backbone lab nfts have held their value better then 95% of cosmos coins

16 Likes
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We are negative about such a proposal. This clawback will not only affect Migaloo but also all the users who bought and held SAIL to try and make a better system. Instead of a clawback, I suggest exploring alternative ways to protect the interests of all participants.

14 Likes
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While I try my best to stay out of this kind of drama, I cannot do so any longer. @RoboMcGobo Has documented his position well with pros and cons for this proposal. While I thank you for the time in putting a lengthy and thorough proposal together, it seems to me that to trigger the killswitch without at least considering other options is an abuse of the killswitch itself.

Another path forward would be a time based approach with KPIs. For instance, 6 month duration wherefore Sail DAO must deliver meaningful KPIs in order to maintain the community funds it has been entrusted with. If not met, maybe then a partial clawback is initiated and then another time period where similiar or adjusted KPIs need to be met. Sail DAO hasn’t even been around for a year and a decent amount of that time has been in a fairly unfavorable market environment. An environment that can’t be expected to produce a meaningful amount of deal flow.

I recommend the Osmosis community coming up with a timeframe and goals approach before initiating a partial killswitch. To me this represents the most equitable path forward

10 Likes
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Strongly against this proposal! It is not fair and will bring only damages!!!
RPDAO

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This proposal seems to be premature, without considering potential alternatives that could create a more structured model around Sail’s goals, providing stricter timelines on evidencing benefit back to the Osmosis community. SAIL as a program is genius in its simplicity and lure to teams who may have solid ideas, but limited funds to allocate for liquidity, and it makes Osmosis the ideal landing place for projects entering/launching in the Cosmos. SailDAO don’t have to pump out winner after winner to be considered a success, but they have to evidence clear growth & benefit to Osmo, which they did with Mad Scientists/Lab/BackBone Labs. With BBL’s track record & long term plans, it’s not a leap to assume they will continue to utilize this program to expand their presence and product offerings, all of which will have a flywheel effect back to the Osmo ecosystem. Undoubtedly, there are other teams currently looking to utilize this liquidity for projects, and merely clawing back without consideration for that could have a detrimental effect on builders in the ecosystem, which could lead to pivots in plans or looking beyond Cosmos entirely. Step one should be to create better controls & oversight, allow the DAO to create a plan to address identified issues, & see if it can be rectified. Liquidity continues to be a major issue across all of crypto, & Sail at least was providing a valid avenue for deeper liquidity for projects that need/deserve it.

11 Likes
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It seams like this initiative is coming from a loud minority. The SAIL DAO was created to onboard new projects to Osmosis e.g Necropolis, GraveDigger, WhiteWhale the list goes on. These projects have since launched and continue to build.

A vote “Yes” for this proposal would effectively rug any $SAIL investor as well as prevent teams from launching LPs on Osmosis that don’t necessarily have the funding otherwise. SAIL has lots of potential and distribution can be tweaked.

9 Likes
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I agree that the proposal should consider alternatives while acknowledging the successes of SailDAO. Backbone Labs, through providing bOSMO and an Osmosis NFT marketplace, and Mad Scientists, with their innovative use of Streamswap for NFTs, have already demonstrated tangible benefits to Osmosis. These successes highlight Sail’s role in providing liquidity support that fuels innovation within the Cosmos ecosystem. It’s crucial to build on these achievements with enhanced oversight rather than curtailing support, ensuring continued growth and competitiveness in the broader crypto landscape.

7 Likes
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good point, 2.41 million $OSMO swapped on the LAB StreamSwap which would not have happened without SAIL DAOs onboarding of BackBone Labs, GraveDigger and Necropolis.

10 Likes
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Strictly against!Please consider alternative ways to improve DAO management instead of penalizing investors.

11 Likes
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I don’t even get why there is investors in the first place… isn’t SAIL just a governance token for a DAO ?

Why some goes invest massive money in this kind of project? What was the end goal here ? SAIL doing x100 because the DAO is managing correctly the fund and grants ? Makes no sense.

People like to invest in minor/niche things without doing any research then complain or fight when things don’t get their way.

I’m also a big fan of MS and BBL , but seems like it’s their only success… for many looses.

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There is an awful lot of suspicious activity being flagged around the way these threads and comments are being made, and from what accounts/IPs.
Please be guided.

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1 Like
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Thanks to everyone who has engaged in this discussion so far for the great feedback. There’s a marked contrast between the respectful engagement I’m seeing on this forum and the coordinated smear campaign that the White Whale team is pushing against me on twitter right now for pursuing this proposal. I appreciate all the voices that have engaged respectfully and made their thoughts known.

It seems like most of the feedback from the White Whale Community is centered around 3 main points, so I’ll address each of those here:

Impact on Current Sail DAO Builders on Osmosis

It bears repeating that this proposal does not impact Builders who have onboarded to the Sail DAO, nor their liquidity positions, in any way. The proposal simply takes existing positions and moves them out of the custody of the SAIL DAO and into the Osmosis community pool.

  • The positions remain LPed
  • There’s no impact on these positions being traded
  • Builders won’t notice any difference in their day to day operations as a result of this proposal.

The only builders that will arguably be materially impacted by this proposal are the Migaloo Foundation, in that they won’t be able to leverage their 43% vote power in the Sail DAO to allocate liquidity where they want it to go.

Impact on SAIL Investors

It’s important to recognize that while the clawback mechanism is called the “Killswitch,” This proposal isn’t actually killing the Sail DAO. The SAIL token will still have governance power over the DAO’s treasury, which will still contain a substantial amount of WHALE and SAIL tokens. So it retains its primary usecase as a governance token.

The argument that keeping the OSMO in the DAO forever is mandatory because people bought Sail knowing the OSMO was in the DAO is not well-taken. That was never the intended purpose of these funds and the original proposal reflects this:

The fact that Osmosis is using the authority granted to it by the initial proposal should not be a surprise to anyone, especially considering the events referenced in the body of my initial forum post.

We Should Consider Alternatives to the Killswitch

There’s been some talk about first taking other approaches to fixing the myriad issues with the Sail DAO before invoking the Killswitch. This argument resonates, however, it makes more sense to look into options for fixing the Sail DAO after the current OSMO funding is safely back in the community pool.

The DAO and the Migaloo Foundation that controls it with a 43% vote power share have not made any efforts to fix glaring issues with distribution and Whale ecosystem insider-dealing in distribution of funding up to this point, and if we abandon this proposal now, they’ll have no incentive to do so in the future.

The only reason this is coming up now is because they realize that there’s a risk of the clawback going through. So I propose that we approach any discussions about fixing the DAO from a position that incentivizes our counterparty to take real action.

We should also consider other alternatives to liquidity deals outside of the Sail DAO like Timewave’s covenant mechanism, as these may be preferable to the approach originally outlined in proposal 708 that created the Sail DAO.

Upcoming Liquidity Deals For The Sail DAO

Another issue that has come to my attention since posting this is that apparently there are other deals in the works that don’t inspire confidence in the direction that the Sail DAO would head if we left this liquidity in their treasury.

Two of these projects are white whale ecosystem projects, and another one will likely be pursuing listing through more traditional routes anyway, so not sure how the Sail DAO is involved or why it needs to be.

It just shows that the only projects this DAO is onboarding are projects that directly benefit White Whale and their investors. This DAO had the potential to be a great tool for negotiating liquidity deals with promising projects across ecosystems, but unfortunately it has fallen short in that regard and put OSMO tokens at risk.

It’s time to cut the sails.

3 Likes
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A “DAO” run by a token that has virtually no distribution whatsoever is not a DAO.

I’ve not followed SailDAO closely because I never saw much development around the governance and distribution side of things. Perhaps there are plans I’m unaware of.

I applauded SailDAO at the time of is origination because of the unique experiment it was. I love experiments! We learn so much! The lesson, now, is this:

  • The teams involved with SailDAO and the Sail program itself are producing results. This is great and should be encouraged!!
  • SailDAO isn’t a DAO, doesn’t look to be on its way to becoming a DAO, and authority structure & governance distribution basically makes it worse than a multisig because it invites retail to throw away money trying to buy into it for literally nothing to gain.
  • timewave covenants make the LP provisioning component of SailDAO irrelevant. There are better ways to handle shared LP provisioning now. Sail can still participate in stewarding the LP through the covenant, if desired.

So I suggest this:

  1. Let’s figure out how to separate the LP provisioning component from SailDAO so the Osmosis community can be put at ease (they retained this right in the original design for a reason).
    1.b: none of the LP’s have to be unwound (permanently). Let’s just migrate them to covenants per #3, so let’s not pretend like anyone is saying otherwise.
  2. Let’s go back to the drawing board in SailDAO and actually figure out how to make it a viable DAO that progressively decentralizes, or just make it a collaborative venture with no premise of decentralization.
  3. Together, we can collaboratively drive down a path that helps everyone succeed and support each other without fighting and making it personal.
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Please consider other options, this proposal will negatively impact everyone who believed in SAIL

8 Likes
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Why Osmosis should take responsibility for your bad investment choices ?

Seems like most of the comments against this proposal come from new accounts that never have participated before. Are they even Osmosis holders or just straight up White Whales members only caring for their bags? Did WhiteWhales ask you to come here and flagged the prop ?

1 Like