Mento stable assets are backed by a diversified basket of reserve assets (the ‘Reserve’), including Celo, BTC, ETH, stable value assets (DAI), as well as an allocation towards natural capital assets. The reserve assets are the backbone of Mento’s market-based expansion and contraction mechanism and are key to the stability of the overall Mento platform - a role that cannot be overemphasized in light of recent market developments.
But how can we as a community improve the reserve composition even further? With ongoing web3 development, more and more potential reserve assets become available by the day. The recent market volatility sparked discussions around additional stable value assets in the Reserve (1, 2, 3). The recently launched climatecollective.org initiative broadens the scope even further by bringing real-world assets, specifically, natural capital assets (‘Natcaps’), on-chain (1, 2, 3, 4, 5, 6 - we will discuss real-world assets in a separate post shortly). This raises the question, how do we as a community decide on reserve composition and how do we introduce new assets in a transparent and effective way?
Following the initial discussion in the Celo Forum on reserve criteria in the context of adding tokenized natural capital to the Reserve and the community governance call on 20 January 2022 (video), this document tries to further develop and formalize the Reserve asset onboarding process and define more tangible and actionable Reserve asset requirements. The process draws from the Reserve’s ongoing request for proposals, the Maker DAO collateral onboarding process, work within Mento and Reserve working groups, and countless exchanges with community members.
The aim is to offer guidance to asset proposers on how the onboarding process works and what information should be provided in that process and to allow community members to make well-informed decisions about changes to the Reserve composition.
This is intended to be a conversation-starter; please feel free to jump in with thoughts/comments/suggestions.
To decentralize decision making, minimize voter fatigue and to enable the Community to make meaningful and informed governance decisions, the following asset onboarding process is suggested. In summary, the proposed process follows three steps:
- Discussion stage: Proposal is presented to the community and discussed. Community decides whether to proceed with the proposal to the next stage or not (greenlight decision 1).
- Review stage: Proposal is reviewed by domain experts from the broader community and the Mento team. Reviewers (details below) present a summary of their findings and a recommendation to the community. Community decides whether to proceed with the proposal to the next stage or not (greenlight decision 2).
- Governance stage: Proposal is submitted to on-chain governance for official approval (governance decision). If approved, the asset is added to the Reserve.
Asset onboarding process
This process aims to achieve the following:
- It decentralizes decision-making because it engages the community early in the process and filters out proposals that have no or little community support.
- It is resource-efficient because it harnesses the collective community expertise and prevents in-depth reviews of proposals that have no or little community support.
- It provides expert knowledge and recommendations on complex proposals that allows the community to make informed decisions without giving up decision-making power.
The onboarding process should start with an initial proposal posted to the Mento section of the Celo Forum. The initial proposal should contain a general description of the asset and the proposer and provide relevant information on risk aspects (technical, legal, financial), as well as environmental impact (relevant for Natcaps).
The following can be a suggested template for asset proposals.
Title: Proposal to include (asset XYZ) as reserve asset
Background and rationale:
- Name of project, organization and key team members behind proposal
- Brief history of project, including timeline on asset history
- Brief description of asset and envisaged transaction scope
- Mission alignment and rationale for proposal and strategic benefits to consider
- Links to communities (discord, forum, etc.) and media accounts (twitter, mirror, etc.)
- Detailed description of asset token and tokenomics
- What does the asset token do?
- Who uses it?
- How does it align with the proposer’s interests?
- Links to relevant whitepapers
- Overview of technical setup (smart contracts, use of oracles, etc.)
- Links to source code and blockchain addresses
- Copies of technical audits
- Details on token standard (ERC20, ERC721,etc.)
- Description of token governance and control (multisig, DAO, etc.)
- Can the token implementation be changed? If yes, what is the process?
- In case of cross-chain assets (not native to CELO), any relevant bridge infrastructure
- In case of off-chain assets, possible oracle setup
- Detailed description of envisaged transaction, including volume, timeframe, flow-of-funds, and proposal on reviewer fees (in case proposal moves to stage 2)
- Overview of total token supply, circulating supply and ownership distribution
- Overview of market cap and price history
- Overview of marketplaces and exchanges on which asset is traded
- Information on liquidity and trading volumes (current and historical)
- Information on price correlation with other reserve assets
- Describe the asset liquidation process, timeline and parties (if known) involved in liquidation
- Overview of rights attached with token assets
- Jurisdiction of the project and any relevant licenses, legal opinions or memoranda related to the legal status of the token asset
- If relevant, proposed legal structure for transaction, including type of legal entities and relevant jurisdictions
- In case of tokenized off-chain assets:
- Does the underlying asset (UA) exist?
- What is the asset?
- Is it ‘independently’ priced (market set / derivative) or reliant on efforts of others?
- Does it represent debt, equity, real property, or other bundle of rights?
- Is it regulated?
- Is the chain of ownership/title verified?
- Is the asset clear of embargo, government limitations, private restrictions, liens, mortgages etc?
- Is the asset defensible? (can it be expropriated or destroyed at will? Any ability to protect?)
- Is there any insurance policy associated with the asset?
- UA to smart contract link
- Is there a central enforcer/counterparty?
- Are there enforceable rights?
- Where are the off-chain rights recorded?
- How are the rights specific to the owner? (how is the owner identified?)
- Are off-chain rights required to be registered off chain? (liens, easements, covenants)
- Is there a counterparty to send cash/assets to? (KYC)
- Is the asset regulated (security, commodity etc)? By which regulatory or statutory agency?
- Is the asset decentralized? Provide decentralized memorandum or regulatory/judicial opinion to the effect
- Detailed description of asset’s environmental impact and associated theory of change
- Verifiability: How can the asset’s environmental impact be verified? Is the asset certified by verification bodies (e.g. carbon registries such as Verra or Gold Standard)? Is there additional data (eg. satellite imagery, IoT measurements, crowd-sourced samples) that document the project’s environmental impact?
- Plausibility: How does adding the asset to the Reserve contribute towards achieving the desired environmental impact?
- Feasibility: Assuming the asset is included in the Reserve, is everything in place to achieve the desired environmental impact?
- Testability: Assuming that the asset is included in the Reserve, are there clear metrics in place that measure the Reserve’s contribution to the desired environmental impact?
To get a first indication of the community’s interest, there should be a lightweight, timeboxed indicative voting procedure implemented on whether to proceed with the proposal or not. The vote should be linked to the proposal discussion.
The voting procedure should specify a minimum vote turnout (min # of votes) and a minimum quorum (% of votes in favor). The voting threshold should be sufficiently high so that asset proposers are incentivized to engage with the community without making the involvement of whales a necessary success condition.
As an initial proposal, the greenlighting decision 1 could be implemented as a simple majority vote (50%+1) with a 1% minimum vote turnout. For reference, past CGPs typically had a vote turnout between 15% and 20%. A 1% minimum vote turnout would correspond to roughly 4.4M CELO participating in the vote.
The discussion stage should have a minimum duration (e.g. 10 days) before the greenlight vote can be initiated, starting when the initial proposal was posted. While this requires some light-touch moderation (manual start of greenlight vote), it provides the necessary flexibility to wait with the vote in case of complex proposals with an ongoing discussion. It also provides the option to effectively put a proposal on hold (by not initiating the greenlight vote), if e.g. critical information has not been provided or if information became available that would make asset onboarding impossible. The ‘moderator’ role should be filled from the Mento team.
The proposal enters the review stage if it was greenlighted in stage 1. The review stage is the due diligence stage, in which the proposal is screened and evaluated by subject matter experts (SMEs) from the broader community and the Mento team itself.
The review stage is a critical part of the process and will involve dedicated reviewers with nuanced expertise to ensure the informational asymmetry with community members less versed in the complexity of the process is reduced. This process ensures that the community is provided with the necessary information to make meaningful and informed governance decisions.
Reviewers do not have special voting rights. They dedicate their time and resources to the evaluation of a proposal, participate in meetings, and provide a summary of their findings and their recommendation to the community. Depending on the type of proposal, different types of reviewers will be necessary. It is conceivable that the review process will typically involve four broad review categories: finance, legal, technology and environmental impact (for Natcaps). In addition to the SMEs, a Mento team member will accompany and coordinate the review process and be available for Mento-specific questions that may be outside of the reviewers’ area of expertise.
The list of reviewers would ideally be filled over time with SMEs from the broader ecosystem. As a starting point, Mento, cLabs, Climate Collective (CC) and the Celo Foundation (CF) team could participate until more external reviewers become available.
Possible reviewers include (to be expanded - If you are interested to be included in the reviewer pool or if you know someone, please let us know):
|Mento risk||CF legal||Mento eng||CC team/advisors|
|CF finance||Local counsel||cLabs eng||Local expert|
Each reviewer should include a summary of their findings and an explanation of the reached conclusion. The recommendation should clearly indicate whether the reviewer:
- Is in favor of the proposal in its current form
- Is in favor subject to changes (which?)
- Is not in favor (why?)
There should be room for follow-up discussions after the reviewer reports are published (e.g. min 10 days). This would allow the asset proposer to e.g. adjust the proposal or to respond to unfavorable reviewer recommendations. Once the discussion is concluded, the proposal is moved by the moderator to the second greenlighting decision (see above).
The review process is costly and may require contracting with external SMEs (e.g. local legal counsel). Each proposal should therefore indicate if and to what extent reviewer fees will be covered by the proposer.
The functionality should be similar to the first greenlighting decision but logically greenlighting 2 should only be possible if greenlighting 1 was positive. The second greenlighting decision should be more restrictive (i.e., have higher passing thresholds) than the first greenlighting decision as it is the last filter before the proposal enters the governance voting stage.
As an initial proposal, the greenlighting decision 2 could be implemented as a two-thirds majority vote (66.67%+1) with a 3% minimum vote turnout. For reference, past CGPs typically had a vote turnout between 15% and 20%. A 3% minimum vote turnout would correspond to roughly 13M CELO participating in the vote.
The greenlighting vote should be linked to the proposal discussion and include all reviewer recommendations.
If the greenlighting decision 2 was positive, the proposal is converted into an official CGP. The CGP should be linked to the post, both greenlighting decisions and also include reviewer recommendations.
If the vote is positive, the Mento team works with the proposer to on-board the newly approved asset.