Financial Proposal: Nation3 <> Aragon partnership & token swap

Governance City Hall
1

Summary

This proposal would establish a partnership between Aragon and Nation3, as a cornerstone to make DeLaw happen and superpower DAOs.

There is already significant ideological alignment and team alignment, and this proposal would take this a step forward by formalizing financial alignment as well. This proposal would also enable Aragon to superpower its offering to DAOs and DAO contributors with legally-binding agreements, while being able to remain laser-focused on DAO tooling and the DAO framework offerings. This proposal would also help the Nation3 Jurisdiction achieve product-market fit through streamlined distribution to the world’s top DAOs.

Details

Introduction

When I co-founded Aragon back in 2016, we had a vision to make on-chain organizations happen. We realized the potential of creating new kinds of entities that would be fully sovereign, highly efficient, and transparent (when needed).

As we realized over the years, we were too early. Many building blocks needed to be built. When we released Aragon to the public, Dai wasn’t even launched.

Today, DeFi allows DAOs to have access to even better tools for yield and treasury management than those of traditional corporations.

The second building block that we had envisioned for Aragon was a decentralized jurisdiction (think of it as DeLaw). After all, DAOs can run some operations on dry code (smart contracts), but a lot of the human interactions cannot be codified, and must run on wet code (legal contracts).

For that purpose we envisioned Aragon Court — a first-of-its-kind dispute resolution protocol.

We imagined that DAOs could leverage all the best of automation with smart contracts, while also enjoying the granularity of legal contracts collateralized by tokens. And, in the process, we thought we would build the world’s first digital jurisdiction where DAOs are first-class citizens.

Unfortunately, Aragon Court failed. Looking back, its failure was mainly attributed to four things:

  • First and foremost, building core infrastructure for DAOs is a huge undertaking by itself. We were stretched too thin and couldn’t focus on Aragon Court. Which I think was the right call — focusing on everything means focusing on nothing.
  • Second, dispute resolution cannot exist on its own without a system of law. Whoever is in charge of resolving disputes needs a clear framework to adhere to.
  • Third, no one wanted to rely on an anonymous jury (random people over the Internet staking tokens) to resolve their disputes. Everyone wanted legal professionals instead. Understandably so.
  • Fourth, making all agreeements and disputes public (even having to make sensitive evidence public) turned off potential users. No organization wants to make their disagreements public, and of course there’s a big privacy concern for individuals too.

Ultimately, I think there’s some potential in Aragon Court or Kleros-style dispute resolution protocols in the area of content moderation for public communities. After all, content moderation doesn’t require the intricacy of contractual law, and also content is public by default.

But when it comes to giving DAOs tools to create better agreements with each other or their contributors, a different set of tradeoffs was needed. We realized that a composable dispute resolution system with predictable guidelines and constraints (laws) and where participants can keep their privacy, was needed to onboard the next 10k DAOs.

Enter Nation3

As you all know, after kickstarting a vibrant community of Sovereign Individuals around Nation3, we asked ourselves: what’s the most fundamental service a cloud nation can provide?

Eventually we realized it is a system of law, which then enables a healthy economy and market environment to exist, in turn giving birth to more products and services that citizens can benefit from. Following that logic, we started working on Nation3 Court.

Now we are about to launch the Nation3 jurisdiction, including a fully functioning court system, a constitution and other checks and balances.

Nation3 will allow anyone, for the very first time, to enter legally-binding agreements over the Internet, with no need to ultimately rely on a traditional jurisdiction.

Nation3 <> Aragon integration

These are some of the opportunities that Nation3 can bring to Aragon:

  • Disputable voting: This was envisioned by Jorge and I and partly implemented by the Aragon One team. DAO token holders can deposit collateral and make a proposal to undergo a vote, but if such proposal contradicts the DAO’s charter, anyone can dispute it. This means only actions that align with the DAO’s charter and the law can pass — closing off countless attack vectors for DAOs.
  • Disputable streams: Imagine disputable Sablier/Superfluid streams. For example, enabling DAOs to enter an agreement with each guild, and then have their ops guild being able to oversee the work of a guild and pause the stream if needed. Any of the parties can open a dispute if they feel the agreement has been breached. This is unprecedented. Right now the status quo gives almost unparalleled power to the DAO (if payments are after work is delivered) or to the recipient (if payments are upfront, before work is delivered). This obviously hurts trust, in turn hurting efficiency and stability. Nation3 provides credibly neutral streams in which every party is equal before the law, once and for all removing the cat and mouse game of payment flow.
  • Trustless Aragon DAO: The current design of the Aragon DAO involves a trusted group of people that can veto changes over the Guardians, which are entrusted with the duty of ensuring that proposals adhere to the DAO’s charter. Unfortunately, this poses a centralization risk and a burden for the people in those positions. Using Nation3 would eliminate both. The DAO’s charter could define actions that are illegal, such as funding or undertaking any criminal activities, or paying out dividends. It would offer a higher level of legal certainty to all DAO participants.
  • Eventual legal recognition for DAOs in SEZ: Nation3 is cloud-first, land-last. Nation3 aims to prove that it can run an Internet-native jurisdiction and a system of law first, and then negotiate the creation of Special Economic Zones in traditional jurisdictions. Traditional jurisdictions, which aren’t Web3-native, need to resort to violence and coercion to enforce legal rulings over cryptoassets. On the other hand, Nation3 is a Web3-native jurisdiction where cryptoassets and DAOs are the default, and rulings over them are enforceable on-chain.

And that Aragon can bring to Nation3:

  • Distribution to the world’s top DAOs: Internet-native legally binding agreements are a powerful tool for DAOs and contributors. Aragon is one of the best position players to help Nation3 target both.
  • TVL within the Nation3 Jurisdiction: If Aragon wished to use Nation3 to secure its switch to a completely trustless DAO, it would significantly increase the TVL of the jurisdiction, and serve as a great case study. Aragon holds >$150m in its treasury (and that’s in the midst of a bear market).
  • Powerful DAO infrastructure: Nation3 couldn’t exist without Aragon. The level of granularity achieved with aragonOS enables DAOs to experiment with governance at the speed of software. Aragon can keep bringing and maintaining such infrastructure to light, and Nation3 will leverage it.

Financials

To formalize this partnership, the following token swaps would happen:

  • 1k NATION for 300k ANT.
  • 1k NATION for 1m USDC/DAI.

All NATION and ANT will be subject to 1-year linear vesting.

For Nation3, 2k NATION represents ~5% of the total supply. For Aragon, 300k ANT represents ~0.69% of the total supply, and $1m represents ~0.5% of the treasury.

Aragon gets a unique chance to seed the world’s first Internet-native jurisdiction, and Nation3 gets a unique chance to achieve distribution to the world’s top DAOs.

Risks

  • External factors (like a regulatory crackdown taking the industry unprepared) might decrease DAO usage, slowing down the adoption of Nation3 agreeements. The Nation3 jurisdiction really flourishes with Web3-native use cases.
  • Tokens can be volatile in their value and both sides might face economic losses.
  • Smart contract bugs in aragonOS (both used by Aragon DAO and Nation3 DAO) can result in economic loses.

PR at N3GOV-34 by luisivan · Pull Request #42 · nation3/gov-proposals · GitHub

9 Likes
2

I support the partnership, every deal that brings use cases to the Nation Jurisdiction will benefit us all.

But I have a question regarding the financials. How those terms were reached? Was that amount of money (2k NATION) imposed by Aragon to accept the agreement?

4 Likes
3

Yes, I believe this partnership will be beneficial to both parties. Nation3 needs strong strategic partners as we continue this journey to build a cloud first native jurisdiction. And like you mentioned above, it seems Aragon and Nation3 has lots of complementary objectives.

Regarding the financial, I believe we should try to estimate the total amount of strategic partners we might likely indulge in a treasury swap with before we finalize this.

For Nation3, 2k NATION represents ~5% of the total supply. For Aragon, 300k ANT represents ~0.69% of the total supply, and $1m represents ~0.5% of the treasury.

I was a bit hesitant with the 5% of our total supply leaving our tresury to secure just one partner even though I see the alignment between both DAOs. I believe the question of how many percent of our native tokens are we will to share with all of our partners needs to be answered first before we proceed. Other than that, this seems like a great direction.

Edit: I thought about it again, and I think the 5% swap of Nation is worth it to secure the partnership w/ Aragon

2 Likes
4

It is a win-win proposal for each party, aragon and Nation3.

  • In the early stage, we obivously need fund to develop our related project and pay the salary to contributor. Most of project get funding support from centrolized venture and capital, which have some potential risks, deal is not transparent, venture cash out under table, etc. If we get the funding support from a DAO, it will be better.

  • Aragon is also the best choice for us. As a first generation project which build in 2016, Aragon has good reputation in crypto world, and its service, the infrustructure of DAO, will work well with ours, Nation3 court.

  • In another aspect, luis is also the founder of Aragon, which can ensure that the thinking and goals of both parties can be on the same page.

  • In Aragon’s side, they also need more and more new services to complete their initial goal and activate their community. “Aragon Cout” is one of the most important part, however, it does not meet expectations. Nation Court can do it, it can fill the absence of arbitration protocal in the crypto world and try to achieve what Aragon court fail.

I want to talk about something about Nation3 court. I graduated from University of Southern California Gould Law Schoold and passed NY bar in 2019. At the same time, I was also a cyrpto investor, therefore, I followed up and analyzed Kleros for long time.

> In my opinion, the biggest disadvantage is that kloeros style cannot guarantee the enforcement of arbitration decisions

When people sign a contract, most of them trust and hope that the contract can be effectively performed. On the contrary, when people start to seek the arbitration institution to judge performance of each party, in most case, one of party already know that they have mistakes. They will not provide collateral that can be enforced when they know they are at fault. Therefore, if there is no enforcement mechanism, even if the arbitration institution makes a correct judgment, it will be meaningless.

That is the reason I think Nation3 Court is better than Kleros style. Asking party to provide collateral when they sign agreement, it can guarantee the enforcement of arbitration decisions. Instead of requiring traditional executive agencies to execute decisions.

On 28 May 2021, for the first time in blockchain arbitration history, Mexican courts enforced an arbitral award relying on a blockchain arbitration protocol (“Blockchain Arbitral Award”), as explored in the report found here (“Carrera Report”) (see the Appendix for the Blockchain Arbitral Award, which is in Spanish).

3 Likes
5

It is a no brainer event at 5%, the diversification of the treasury is a positive step for both parties and should yield a positive outcome for the both communities and their treasuries. To be clear though, is the proposal just a proposal at this point or have discussions already been held with Aragon and these are co-created financials?

Aragon is a natural (and in all likelihood the best) for all the reasons laid out above, but is there a diagram of other potential verticals + partners in order to generate a strategic approach to growing the reach of the Court once the model is successfully proven with them?

3 Likes
6

Thanks to everyone for the reactions!

Not really — I came up with it, since it secures both financial alignment with ANT plus funding in stables for the DAO.

4 Likes
7

Good idea.

Good to have friends at Aragon :slight_smile:

Vesting - can be longer than 1 year…

I like the 1m stables instant liquidity without dumping the price.

Overall you have my +1

Would be great if Supreme Court could approve and vet any potential conflict of interest: Electing the first Supreme Court Multisig

2 Likes
8

Well, Kleros requires the underlying smart contracts to perform their actions once the arbitration decision is complete, and in fact, from a quick skim of some code, Nation3 Court implements the same Arbitration EIP that Kleros does, which could theoretically allow Nation3 Court to be used in the same way.

Personally, I think Nation3 Court is better mainly because the judges are selected legal professionals and you don’t have to rely on (imo, slightly shaky) Schelling points.

1 Like
9

ahem Nice

But on a more serious note, this partnership sounds awesome and a win-win on both sides. Would love to vote yes on this, but sadly I don’t have a citizenship :cry:

10

I agree to the partnership! It does look like a win-win scenario.
~5% of the total supply does represent a substantial portion, but in my opinion a partner like Aragon is one of (if not the best) for DeLaw development.

2 Likes
11

Update: Aragon wanted the Nation3 DAO to ratify a traditional legal agreement to perform the swap.