[Discussion] Selling/transferring ownership of REP

Hi Community

I wanted to draw attention to an important and interesting discussion happening on https://t.me/dxdaotrading
A DXdao member is proposing to sell his Gnosis safe associated with considerable amount of REP.
Other community members (mainly DXD holders) felt that this might be a potential attack vector and a signal for corruption in the dao’s governance. Additionally they expressed desire to have a say in governance as well.

AFAIK, the dxDAO social consensus is that REP should be earned with work contributions.
In that respect selling REP might be in conflict with current norms.

I believe there is no technical way to prevent REP transfers entirely. There is also quite a few reasons to transfer ownership that should definitely be allowed in any case.

Additionally, I think it is beneficial to the DAO that as much REP as possible will be active.

  • One approach is to allow slashing of inactive REP.
  • Another approach will be to allow selling which will cause REP to be in hands of people that are financially interested to participate.
  • Another approach that I can think of is having a social norm that transferring REP is allowed but any form of selling or discussion of selling is not allowed in the community. Additionally, the DAO can propose a small compensation for self-slashing of REP, essentially providing incentive to inactive REP holders to slash themselves in a voluntary way and not in a coercive way.
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Hey @cmagan,

thanks for starting this important discussion.

AFAIK, the dxDAO social consensus is that REP should be earned with work contributions.

It is quite interesting to see that this rule is getting estabished without the need to have an approval from the collective. Maybe we should get on-chain consensus for the question of how REP is distributed?

One approach is to allow slashing of inactive REP.

Inactive REP will get more and more irrelevant as more REP is minted for work all the time. I do not see a necessity to remove inactive REP from the system right now.

Another approach will be to allow selling which will cause REP to be in hands of people that are financially interested to participate.

One way of accepting REP transfers is by having social consensus to request approval from the DAO. With that anyone who wants to transfer REP needs to come out with a reason for it and may even expose identities. With that the DAO could get an overview/control of REP transfer and has a reason to slash someone who does not get approval from the DAO.

Another approach that I can think of is having a social norm that transferring REP is allowed but any form of selling or discussion of selling is not allowed in the community. Additionally, the DAO can propose a small compensation for self-slashing of REP, essentially providing incentive to inactive REP holders to slash themselves in a voluntary way and not in a coercive way.

the buy out seems like a bad deal for the collective as we could just use time to let the inactive REP holders get diluted. It will get interesting for bigger REP holders though…

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One option is also the active removal of REP from accounts which are known to have been sold.

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We have a lot of options, and I am not really 100% set on any of them at the moment.

  • Slashing inactive REP - I like this idea because it removes dilution of active members from the inactive members, and can allow for more majority consensus. How exactly we do this, I’m not sure. Maybe slash 50 REP for every month without voting/boosting/proposing? Have a bi-monthly check-in (i.e. “sign this document if you wish to keep your REP”) and slash the ones who are not present?
  • Allowing the sale of REP - I think we can agree this is frowned upon. In a way, it’s worse than paying a politician to vote in your favor; it’s literally buying the politician’s seat. But I think that flagging people/addresses who do this is helpful for unifying us against bad actors.
  • Open discussion of selling/transferring REP is interesting. I don’t necessarily believe we should censor it outright. The conversation a couple of days ago was a necessary discussion to have. Money is a powerful influencer and motivator. However, I believe that ideas are more powerful influencers and motivators than money, and ideas are the strongest proponent of DXdao’s mission to move decentralization forward. Ideas and integrity produce people who cannot be bought. These are the people I want to be around, and I know several people in this collective who fit that description.

There is a thread on the dxVault building on the idea of adding strengthened security to our REP and treasury. I think it’s worth checking that out.

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As someone who spoke to the individual in question, he claims to own +1% of all REP. I do think that dxdao REP staking is another important factor. We seem worried the investors may push the Dao in a bad direction; however, I think most are incentived to make sure the Dao is resistant to being drained, which might be more important than imparting their will on the Dao. With that said, I feel that real work should heavily outweigh passively staking.

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I support this if we go for REP slashing. Big problem if inactive members start voting just to not lose their REP.

I concur. If REP is freely traded there’s huge incentives for entities who don’t share DXdao’s values to acquire REP for the purpose of passing proposals that meet their interests instead. There are situations where transfer or sale of REP does make sense (eg a new member takes over the role played by a retiring member). These should be exceptional and require permission from DXdao. It may even make sense to outright ban direct transfer of REP. Instead for these exceptional instances, DXdao could pass a proposal to burn the retiring member’s REP and issue the new member an equal amount of REP.

REP is always a double edged sword. We often give it out freely to bootstrap the system but then are stuck with less-than-active members with real voting power as soon as the DAO enters what I will call it’s “second” or “sophomore” phase.

At that point, proposals are being made for real work. People are often deciding that freely dropping REP on anyone with a pulse (or who did some minimal thing) is no longer the right strategy. Unfortunately, this “give REP freely up front and then flip out when it’s out there” seems to be a common pattern.

Many questions arise in this thread.

Question 1: What is the current REP dynamic? How stable is REP?

@corkus made a great statement – “Inactive REP will get more and more irrelevant as more REP is minted for work all the time. I do not see a necessity to remove inactive REP from the system right now.” While this is true, the dilution of REP is a function of two things:

  • Total current REP
  • The rate of REP inflation through
    • rate of proposals (activity)
    • REP per proposal (value per activity)

My question for the DAO is then – assume person X has 1% of the REP right now. What is the most likely point in the future, assuming they do absolutely nothing to get more REP, that their REP is only .5% of DAO total? How about .1% of DAO total? That is, what is the projected “natural dilution rate of REP?” If the answer is “pretty soon, because we are active and did not give out insane REP at first and are not being stingy handing out REP now for work done” then this becomes, as @corkus suggests, a non-issue soon enough. It ain’t broke. BUT BUT BUT (big but) if it will be 6 months or a year before significant dilution then you might have a problem.

You can solve this in a few ways:

  • Slash REP for people who don’t “behave” where “behave” may mean:
    • If they don’t participate in some way
    • If they do things the group decides are not cool (perhaps selling/renting voting rights)
  • Adjust the REP structure
    • A proposal made before date X was worth 50 REP? Well, now that same action is worth 500 REP. Dilute the hell out of “old REP” so that current participants are largely rewarded.

Slashing REP is technically difficult (I believe) as you can currently only slash 1 account at a time with the tech. And don’t get me started on the gas fees and hence the cost to vote every zombie out…

Adjusting the REP distribution rate will definitely get people fired up as well. “zOMG… I just did some work last week and now that same work is worth more, no fair!” will be a common refrain.

Question 2: As a matter of our CULTURE (not technology) should REP be fungible (sellable/rentable/tradable)?

This is a great question and, truly, should be asked prior to launching a DAO . But most people don’t know to ask that question… so now, mid-stream, people want to change or at least define the rules (and since lots of people joined the DAO when these rules did not exist, there will be some who disagree with whatever is chosen – this would be much less the case if it were part of the original package).

I think the answer to this question lies in understanding what the DAO is meant to be for. How can REP fungibility be abused? Is the DAO able to even detect it in the first place if it is verboten? The case that brought this question to the fore is based on a blatant case – someone is stating they want to sell their account (which includes REP). If it is something that can get you REP slashed to oblivion, or kicked out of the DAO completely (in cases where DAO members can be identified) then you can expect more sneaky versions of this to happen if advantageous or valuable. Human nature is to optimize-ish.

In the end, it really matters what you are trying to do, how REP can be abused in your specific DAO, and how detectable such abuse is. Perhaps the best solution lies in the utopia condition where you have many many active, REP earning members doing all sorts of tasks and spreading the REP footprint such that nobody really has enough to do something on their own or with a small cabal, but they do have enough to make it worth voting semi-regularly on things they feel strongly about.

I believe the current concern is specifically a growing pain concern that many DAOs face/will face as REP is now distributed in an uneven manner AND the DAO is getting traction. The complication is that enforcing any REP rules other than the most basic (like not active = REP slash) may require an onerous human governance component as well as the inability to allow anonymity and pseudanonymity within the DAO – basically weakening two things that make DAOs appealing to many people.

There is the solution I suggested – make current REP radically less valuable by inflating rewards. Kill the half-dead whales and force the function “be here or be gone.”

P.S. In GenDAO, we passed a REP slash proposal for inactive members. You can see it here

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There is no possible way of stopping the selling OTC, what should be done is dispersal for DXDAO holders to hold REP as their alighnment is in the financing and making sure the DXDAO manages treasury appropriatley as it is their funds within the injection of the DXDAO itself.

You can also think about ways to meaningfully structure the DAO to keep things aligned. For example, paying for gas fees + a bonus (straight up or in lottery form) could promote a larger % of people to vote regularly, thereby diminishing the value of a “sold” or “rented” REP account. In other words - minimizing the attack vector. Another way is KYC. Note I am NOT ADVOCATING THIS, just using it as an example of changing the environment such that cheating becomes harder, less rewarding, more expensive, etc. completely outside of some “clan law” that “we don’t do that here” (which in a large DAO filled with anonymous-ish peeps, is mostly useless and definitely unenforceable).

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  1. To earn my dxDAO REP I have spent 4 minutes of my life per 1 REP point.
  2. I am active taking part in voting process. Aprx 90% of passing proposal has my vote. I have spent more than 20 hours per month following dXDAO life during last 10 months. Spent а lot ETH for gas costs for voting.
  3. I am not dev. I cant offer software development skills for dxDAO. Dont earn any salary from dxDAO.
    During last month I am starting feeling that I dont going in right direction if my REP will be slashed by devs (with 8000 usd salary) or by “new” REP holders with pulse. Maybe the person who want to sell his REP have same feelings
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I don’t know where you got the feeling that your REP could be slashed…
I think the opposite. We should formulate guidelines that will reward active members like you with more REP and possibly slash members if they are inactive for a very long time.

The point is how to defend the DAOs governance mechanism from attacks.
If REP could be bought, external parties can influence decisions with enough money.
If we have too much inactive rep and too little participation, then current large REP holders could pretty easily pass controversial votes.