Allocating Sweat Equity in Sporos DAO
Sporos DAO launched using the Kali DAO platform. The defining features of Sporos are:
- Deployed as a series LLC under the master operating agreement of KaliCo Ricardian LLC registered in the state of Delaware.
- On chain governed from day one. All transactions related to Sporos DAO can be seen on ArbiScan.
The aim of Sporos is to build a Sweat Equity Management platform on top of the legal foundation built by Kali DAO.
In practice this will enable users of the Sporos product to fairly and transparently allocate equity to contributors on chain all whilst abiding by US tax and securities laws. A more in depth introduction to Sporos can be found here.
What is Sweat Equity?
Sweat equity originally referred to the value-enhancing improvements generated from the sweat of one’s brow. So when people say they use sweat equity, they mean their physical labor, mental capacity, and time to boost the value of a specific project or venture. In cash-strapped startups, owners and employees typically accept salaries that are below their market values in return for a stake in the company, which they hope to profit from when the business is eventually sold.
In Sporos DAO, we convert the work contributors put into the project (their sweat) into tokens. We call these Sweat Equity Tokens (SETs). SETs carry governance rights in the DAO, are illiquid and have no market value — yet. SETs have legal significance. They are legally recognised shares in the Sporos DAO LLC.
The idea is to record the value contributors add to our project via SETs and to move our business towards a profitable state. All SET holders are motivated to make this happen because at some stage we all want to convert these SETs into liquid and (hopefully) valuable tokens or equity so we can realise a financial reward for all the work we have put in.
Methods for Allocation in Sporos
There are two ways contributors can earn SETs in Sporos DAO: Time and Materials Proposals and using the Project Manager Tool.
Time and Materials Proposal
This is the simplest way for a contributor to request SETs and the process exists today within the Kali DAO app.
A user posts a proposal requesting tokens. Within that proposal they are invited to provide details as to why they should receive tokens. This proposal is then put on-chain and up to vote with all existing token holders being able to vote yes or no. If the vote passes, the proposal is processed and the individual who proposed receives newly minted tokens.
In Sporos, we have decided to individually submit weekly proposals detailing the work we have completed the previous week along with the commensurate amount of Sporos SETs. We use a rough heuristic of 100 Sporos per hour of work.
Here is an example submission:
Lipman has submitted a proposal for one week of work and requested 3500 Sporos tokens. There is a solid amount of detail provided but of course none of the work that Lipman has completed has been in secret. Token holders can use this submission to remind them of what Lipman has been up to, but DAO contributors will also see his efforts day to day within the DAO.
On the right hand side you can see when the proposals went live (Start) and when it came to an end. This is the time period for token holders to vote yes or no to the proposal. The time period for proposals, participation needed and the quorum that must be reached are all configurable within the app.
The Time and Materials proposal process puts the onus on individual contributors to report their work each week. There is naturally a degree of trust that contributors are reporting honestly. Token holders need to stay alert and vote on several proposals every week. This creates a non-negligible amount of work for both contributors and token holders.
Project Manager Tool
The Project Manager (PM) tool allows an individual token holder to request a budget of tokens which they can then mint with autonomy until a given deadline.
Here is the form a PM would complete. Once submitted, this information is put on-chain for token holders to vote on. If they approve, the PM is granted the power to allocate their requested budget of tokens up until the deadline. If the deadline passes with any budget remaining, then whatever remains would be forfeited.
The PM can request as many tokens as they want but token holders must approve it for it to become active. All of the fields shown above are recorded on-chain, so we have limited the number of fields available to keep gas costs as low as possible for the user. Token holders will naturally want to track the work done by a PM to ensure tokens are being managed appropriately. PM’s are therefore required to include a ‘Goal Tracking’ for this purpose.
The PM sends tokens via the ‘Tribute’ function which looks like this:
The PM inputs the wallet address of the contributor who is to receive tokens, the amount they are to receive along with another tracking link which serves as evidence of the work completed by the contributor. All of these fields are recorded on-chain.
Future Improvements
The PM contract is simple and flexible allowing for many possible additional features and improvements in the future. Each of these ideas would require research and proper scoping before being developed, but here is some of what we’re thinking.
Bringing Evidence of Contribution on-chain — PM led
Tributes are currently recorded as a transaction on chain with proof of contribution (e.g. a github pull request, or entry in a project management tool like notion) existing off chain and linked to the Tribute transaction using a URL.
We could facilitate a PM manually extracting proof of contribution (e.g as a PDF or image) and minting as an NFT. The NFT could then be attached to the contributor or DAO (or both) address. This would make the contribution an immutable fact.
Bringing Evidence of Contribution on-chain — Contributor led
The Tribute flow is managed solely by the PM. The PM and contributor are expected to communicate progress of work off our platform and off chain.
We could allow the contributor to submit Tribute requests for a given project. The PM could then simply approve or not approve a given request, lessening their operational load.
Bringing Evidence of Contribution on-chain — Integrations
Instead of simply linking to an off chain project management tool (e.g github) when submitting Tributes, we could integrate github into the Sporos app more directly. Then, when a ticket is marked as complete within github it could trigger a Tribute request being sent to the PM for approval.
Evidence of work — More Details
We could expand the current tribute form to include more fields. E.G hrs worked, hourly rate, screenshot of evidence, role type (from a dropdown menu). In this way we ‘force’ users to include more information in a standardised template. The advantage of this is in our ability to aggregate and analyse data both at an individual level, a DAO level and a platform level
Long-term Roles
The PM contract can be used to facilitate operational structure within a DAO. The lead developer of the DAO could be granted the PM role and manage a budget of tokens over the course of 6 months for example.
This is already possible with the PM contract but there are many ways we could surface this capability within the UI. Long term PM power likely also necessitates safeguards to prevent abuse of that power, including removing the PM role from an address.
Other Currencies
The PM tool currently issues the DAOs native token. As projects grow, their treasuries are likely to grow as well. It would be advantageous to be able to use the PM tool to pay people in other ERC20 tokens.
Data Analysis
As every action is recorded on chain, the possibilities for data analysis are extensive. Traditional businesses must hire dedicated analysts and buy specialist software to gain real insight into their own business operations. Sporos could offer this service to all its users.
Alerts/notifications
This could include notifications when proposals are posted, when Tributes are sent or when ownership % falls to a certain level.
Maintaining ownership %
Founding teams may desire to maintain a certain ownership percentage of the DAO. This could be facilitated through the Sporos app, so that once a given threshold is met, any newly minted tokens are duplicated and sent to the founding team as well as the contributor they were initially destined for. This would act as a sort of dilution protection.
Conclusion
Sporos DAO intends to be the go-to operating system for early stage, on chain businesses to manage their operations and distribute sweat equity. The current methods for allocation form a strong foundation for us to build from. Ultimately, our users will guide us in determining what we build and when.
Interested in finding out more?
Check out our website: https://www.sporosdao.xyz/
Follow us on twitter: https://twitter.com/SporosDAO
Join our discord: https://discord.gg/eeQuEhwRvF
