SAIL DAO Funding clawback Aftermath

Sub DAOs SAIL
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Proposal #812 was put on chain to claw back the 3,5 million Osmosis-funding given to SAIL DAO in proposal #708 as a Community Pool Spend.

The conversation on this subject was started by @Rarma as a thread on this forum as well as a draft proposal written by @RoboMcGobo .

Some topics mentioned which are deemed to be a problem for the DAO and the liquidity are for example:

  • the SAIL token trending to 0 at this moment
  • majority of voting power owned by Osmosis and Migaloo (58%)
  • 2-wallet multisig
  • lack of trust in financial management of the White Whale team where their treasury was exploited three times

However, there are also successes mentioned:

  • liquidity positions
  • fulfilling the made promises of the deployments (e.g. White Whale DEX, Backbone Labs Gravedigger LST contracts - bOSMO, Necropolis NFT marketplace native deployment, Rac games contract deployment, Mad Scientist nft collection - LAB liquidity)

Proposal #812 has not passed at the time of writing, but it is just a matter of time looking at the amount of votes in favor. However, for what I can see is that a lot of votes are cast not necessarily to get hold of the funds, but to protect these funds from mismanagement and potential exploits. So it is important to start the conversation on what needs to be changed to restore the faith in the DAO itself and get it back on track. Because for what I have seen there are also a lot of people who want to have it in place to have somewhere for small developing parties to go to and create a place where creativity can be stimulated.

So, this thread is meant for a constructive conversation on changes desired. No personal attacks in here, stay with the eyes on the prize and the subject.

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Some initial thoughts from my side:

  1. Better activity from both White Whale and Osmosis, since they are the biggest holders of $SAIL. We might need to start thinking how to activate the voting power of Osmosis and White Whale in the DAO. Having a kill switch continuously looming in the shadows also doesn’t create a fertile ground on which cool stuff can be build. If both parties would be more active (maybe via delegates who play a role in it) then the killswitch would effectively be unnecessary.

  2. Better insight in why projects are in need of a funding. Just having a bunch of funds to spend doesn’t mean we need to fund everything. For every spend there has to be a very sound justification what will be done with the funds, but also what Osmosis gets out of it in terms of usage or new features.

  3. Time-based KPI’s for projects who receive funding. Following this, per funding it must also be clear how and when successes are measured including a reward structure for meeting those targets. Funding should also be time-based and earned based on meeting targets, not always given beforehand.

  4. Transition into loans instead of fundings (fly-wheel effect). I would very much like to see that a loan is given instead of fundings. The biggest advantage of a loan is that over time the amount is returned to sender and can be spend again. That way the same funding can be used over and over and over again to create value for Osmosis, SAIL and White Whale.

  5. Find ways to make sure funds in the DAO are properly protected (not only $OSMO, but any asset in there). It might be that the first point already is a lot of protection, but it might be worth checking out if some fund management best practices can be listed to be handed out to funding/loan receivers to make sure that their funds are also properly protected. The exploits happening for assets linked to SAIL DAO are also hurting the DAO, so it is in best interest of all parties if funds are protected properly.

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I support the efforts to reform & strengthen Sail DAO back. It’s clear there are improvements to be made, but the project has potential, considering the projects they onboarded.
With some common sense reforms & proper financial management, we can restore trust & continue supporting development.
Let’s focus on constructive solutions to keep Sail DAO as a valuable part of the ecosystem.

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Thanks for these thoughts Leonoor!

I was going to make a similar post myself today. I know people are angry at those of us who believed this funding needed to be returned to the Osmosis community pool, but the risk/benefit was just too lopsided with the current state of SAIL.

Main points to resolve:

Security of ampOSMO and bOSMO liquidity

Both communities have been concerned that this may be an attempt to stamp out competition in LSTs by removing liquidity from these alternative choices.

Chief among these concerns is the idea that Validators will vote to remove liquidity from these pairings because Stride’s success benefits them in return.

To ensure the security and perpetuity of this liquidity I propose that a multisig be formed to custody it (As was originally going to be the case before SAIL existed).
This would be a 3/5 formed of

  • Backbone Labs contributor
  • Eris Protocol contributor
  • Osmosis Foundation participant (likely me here)
  • Two Osmosis Validators who are not affiliated with either Stride (Not in Stride Governator set or DYDX Staking set) or Migaloo (Not in ampOSMO or bOSMO staking sets). Due to copy staking, excluding an Osmosis validator set isn’t feasible.

This multisig would hold the liquidity but be able to urgently perform actions if required.

My main complaint about this is that it retains ~600k OSMO staked to each protocol, which have narrow validator sets. This goes against the suggested target of 0 LSTs owned by the community pool.

However, Osmosis currently owns nearly 8m of staked OSMO in stOSMO and stkOSMO, which makes bOSMO and ampOSMO have a much smaller impact on stake overall and just an impact on the specific validator distribution.

The whitelisting for both LSTs needs to be expanded—ampOSMO has 30 whitelisted but is capped at that, however most whitelisted validators aren’t even participating.
I am surprised it isn’t used more since, currently, it looks like you can lock 1 OSMO for up to 70 OSMO in delegations.
Backbone has only 3 validators whitelisted right now, I hear a governance mechanism is on the way though.

I suggest guaranteeing this liquidity for at least 6 months or until it comprises the community pool’s only OSMO liquid stake holding above the equivalent redemption rate, whichever is longer.

Usage of Clawback

LAB/OSMO (28k) and ROAR/OSMO (30k)

I propose that we signal the return of both of these—fully paired with OSMO—upon the completion of a successful initiative to improve the security of SAIL.

Both have been the result of agreements negotiated by SAIL and should be returned, it’s mostly a case of the security being improved that puts the assets at risk.

WHALE/OSMO (96k)

The general community position on OSMO pairings has changed over the last year to be against heavy OSMO pairings.
I also think that this pairing is not great for OSMO in general, but this is where I understand that more Whale community people disagree with me.
Personally, I think this position should either be fully unwound, or reduced to a similar level to the LAB and ROAR pairings, with any remaining LP tokens and any WHALE returned to SAIL.

OSMO ($450k)

I don’t believe this should be returned to SAIL even if improvements are made. The experiment can continue without this portion of assets.
As Leonoor noted, the great success of SAIL has been the formation of passionate communities around the LSTs and NFTs it custodied liquidity for and so I propose using this to extend the isolated liquidity of these and improve the backing to make them more viable alternative LSTs.

In this way the recovered assets are used in a way that directly benefits these communities.

Liquidating through a WhiteWhale pool is far less efficient than using a CL pool that knows the price should be.

Once the Locust vaults are evaluated in the next couple of weeks, we can decide whether to use a vault structure or a static position. In both situations, it hugely increases the efficiency of trading these alternative LSTs if we deployed this liquidity into a position of around a -1% depeg.

Osmosis oversight

Since the subDAO would have minimal OSMO inside from the community pool the Authz should be revoked by SAIL DAO, but Osmosis Governance should also approve this since it initially specified this.

The foundation stake is a further question - I don’t have any control over this personally, but similarly to Migaloo Foundation unbonding and the overall foundation restriction of % of OSMO stake from the Osmosis launch, I believe some should be unbonded - Once the subDAO is able to secure itself.

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@Razzien it is cool that you don’t like the ideas, but please also join in with sharing your own thoughts. If you want to restore the faith from the Osmosis side, then that is surely not done by only judging, but not joining in with a constructive response.

Thanks for sharing your thoughts as well @JohnnyWyles

Regarding this; do you mean that the amount of bOSMO and ampOSMO should be enlarged using the 450k OSMO?

Here you mean that this would mean the killswitch from the Osmosis side is removed, because the stake of the Osmosis Community Pool is greatly reduced?

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I voted “Yes” but I don’t want to ‘throw out The Baby with the Bathwater.’

I don’t usually do this and I like to be more Decisive but considering changing vote and ‘hoping for the best…?’ Maybe we should hold off and fine tune another Proposal

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The backing liquidity of each should be enlarged.
Following the targets I laid out in LST support on Osmosis - a multistep plan I don’t believe that we should be increasing the LST holdings themselves - however, removing the bOSMO and ampOSMO that does exist right now would be harmful to these communities and isn’t fair while we own so much stOSMO.
The other benefit is that we can use CL for this, which lets them see more usage with other Osmosis apps. I know Trix has been trying to get both onto Membrane for a while and integration with cosmwasm pools has been more awkward. Imagine other teams face similar issues.

Precisely. If we returned the OSMO then keep the kill switch. If we don’t, then the community should see the ~50k OSMO in the plan above to be the seed funding that doesn’t need supervision.
This also applies to the veto right too.

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Is hard… i had reply but was a hot head supply!
Passion because i liked osmosis before this happen!

But after thinking while i think is better just don’t touch on osmosis anymore…
I am unstaking mine sail and osmo sell and move on and never look back.
Let stride keep robbing osmos and atmon, after they destroy sail just asked to for allot of atom!

Playing field is rigged… Osmo will be the new juno unfortunately! Everyone that tries to build in osmosis will be expeled!

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That is exactly what I am trying to avoid ^^

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This thread has died down in the meantime.

Also there is now a change proposed for SAIL:

But I guess this isn’t an issue since there is no OSMO funding involved anymore? (just checking in)

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It is not an issue for Osmosis - governance lost the veto right, which is fair, but we have no liquidity secured in this.

The remaining action points from the aftermath are to return the LPs that had agreements (LAB/OSMO, ROAR/OSMO), unwind the WHALE/OSMO position, and return the WHALE portion.

This proposal makes SAIL even more insecure by reducing quorum, removing the veto, and reducing the response time, meaning it is even less safe for this to be returned now.

In terms of voting power, the participants in that vote were:

  • Migaloo Foundation: 16.62%
  • MasterlunatiCs: 5.04%
  • RunningWithScissors: 0.72%
  • All other voters: 0.13%
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Yeah, I am aware. I guess it is either an attempt to seize the protocol or really try to save it.