Jup Meta-Governance & Treasury Swaps (Working Group)

[AbdullahUmar]

Authors: Arana Digital (@AranaDigital) and Keyrock (@0xkeyrock.sol)

Proposal Summary

This proposal seeks to create the Jupiter Meta-Governance Working Group (MGWG)

• We will begin by requesting a trial period for the MGWG to execute Phase 1 of this program, which involves collaborating with one to two Solana DAOs to conduct treasury swaps
• After a 3-month trial period for conducting preliminary swaps, the MGWG will request its formal ratification by the Jup DAO
• Upon ratification, the MGWG will officially be authorized to conduct governance operations on behalf of Jup DAO (Phase 2). For example, if we conduct a token swap with Drift, the MGWG will use the voting power from the Drift tokens to vote on Drift DAO proposals on behalf of Jup DAO
• Phase 2 will last 6 months, allowing for the MGWG to assess the successes and failures of Solana’s first large-scale meta-governance initiative
• Phase 3 will scale the MGWG to various DAOs over 12 months, while also expanding Phase 1’s focus on token swaps, voting, and aligned contributions across the ecosystem to drive growth. Our goal is for Jup DAO to set a precedent for implementing long-term governance commitments between Solana applications

Motivation

Jupiter has solidified its position as the de facto front-end interface within the Solana ecosystem. Unlike DEXs such as Uniswap, which rely on proprietary liquidity pools and often engage in direct competition with other projects, Jupiter’s success is intricately linked to the broader Solana ecosystem’s vitality. Its role as a liquidity aggregator means that Jupiter’s utility is directly proportional to the success of other DeFi platforms operating within Solana. Consequently, as Jupiter becomes an indispensable infrastructure component within Solana, the success of adjacent projects becomes increasingly intertwined with Jupiter’s continued growth.

Given this interdependence, it’s strategically sound for Jupiter to secure a stake in the very projects that underpin its operational success. Reciprocally, these projects should be incentivized to hold a stake in Jupiter, creating a mutually reinforcing relationship. By formalizing these relationships through DAO-to-DAO treasury swaps, we can procure symbiotic dynamics across dapps, ensuring that mutual benefits are preserved over the long-term. This not only aligns financial incentives but also fosters a governance structure where projects within the Solana ecosystem can contribute to each other’s development trajectories, thereby safeguarding the collective future of the ecosystem.

From Token Swaps to Meta-governance

The MGWG is responsible for conducting two primary operations:

• Facilitating token swaps between DAOs’ treasuries
• Using the voting power obtained from the treasury swaps to partake in the respective DAO’s governance

In order to facilitate token swaps, the MGWG team will create a proposal for each of the target DAOs to initiate the conversation around conducting token swaps. The MGWG members will therefore act as Jup DAO liaisons, representing Jupiter on the governance forums and discord channels for various Solana DAOs. In other words, the forefront responsibility of the MGWG is to ensure that Jup DAO’s interests are best represented and voiced throughout the Solana ecosystem.

The MGWG will maintain an open forum thread on the Jupiter Forums to allow for various Solana protocols to voice their interests in potentially facilitating token swaps with Jup DAO. Vetting each DAO to assess the pros and cons of a potential token swap will be conducted by the MGWG and thereafter communicated to the Jup DAO before moving forward. We will not conduct a swap without first obtaining feedback from the Jupiter community.

After conducting due diligence on a prospective DAO, the MGWG will create a proposal on the target DAO’s forums to gauge its interest in collaborating with Jupiter. The discourse associated with this deal-making ideally results in terms outlined in a “Treasury Swap Agreement”. The exact nature of these agreements is yet to be finalized, but some example terms include—

• Dollar-Denominated Value of the Swaps: Establishing the monetary value of the tokens to be swapped between the DAOs (may not necessarily be a 1:1 exchange). This term would consider the market value of the tokens at the time of the swap—or it can be based on a TWAP over a given historical or future time period.

• Vesting Schedules, Lock-Ups, and Staking: Detailing the timelines for when the swapped tokens become fully accessible to the receiving party. Quite often staking is required in order to conduct the actual voting.

• Multisig Signers: Specifying the individuals or entities that will hold multisig authority over the swapped tokens. The exact makeup of the signers and signage threshold could vary depending on what Jup DAO and the target DAO are comfortable with. This may involve the incorporation of members of the Core WG, for instance, but that is yet to be determined.

• Cancellation Clauses: Outlining the conditions under which either party can terminate the agreement. This could include specific triggers for cancellation, such as a breach of contract, changes in governance structures, or market conditions that materially affect the value or utility of the swapped tokens.

• Voting Participation Requirements: Establishing expectations for how the swapped tokens will be used in governance voting. This usually includes minimum participation thresholds, ensuring that the governance power conferred by the swap is actively utilized and doesn’t simply remain dormant.

• Revenue Sharing or Dividend Clauses: Including provisions for sharing any revenues or dividends generated from the swapped tokens. This term would ensure that both DAOs benefit financially from the ongoing success of the other, beyond the immediate value of the token swap. For instance, holders of the JUP token are eligible for dividends from Jup DAO. It may be prudent to discount these cash flows when determining the attractiveness of a swap. Tokens with revenue-sharing mechanisms often demand a premium over simple governance tokens.

• Reporting and Transparency Obligations: Mandating regular updates or reports on how the swapped tokens are being used. Each DAO could be subject to a stipulation where their respective voting rationales are requested to be published on a public forum. This term ensures ongoing transparency and accountability, fostering trust between the parties.

• Renewal and Review Clauses: Setting conditions under which the agreement can be renewed or reviewed after a certain period. After a year for example, these clauses would allow for adjustments to be made on the DAO-to-DAO swap based on changes in market conditions, governance structures, or the strategic goals of the DAOs involved.

Benefits of Meta-governance and Token Swaps

Traditional companies often hold the stocks of other companies on their balance sheets, typically classified under marketable securities or long-term investments, depending on the nature and intent of the investment, for a multitude of reasons. Jupiter’s ownership stake in other DAOs would be emblematic of a similar sort of relationship.

Companies often buy significant stakes in other companies to align their business decisions and attain synergies. This can range from having a say in major corporate policies to securing board representation. For instance, firms can establish joint ventures or strategic alliances, where their combined resources lead to competitive advantages. Firms may invest in suppliers, distributors, or even competitors to integrate vertically or horizontally within their industry. Vertical integration helps secure the supply chain, reduce costs, and improve efficiency, while horizontal integration can aid in expanding economies of scope, improving user experience and composability between product types.

The design space for token swaps is becoming a more interesting field of research. DAOs are maturing to a level where they can now emulate more intricate business strategies to improve their underlying ecosystems—and Jupiter is a prime candidate for spearheading these developments on Solana.

Strategic Collaboration:

When DAOs hold each other’s tokens, their fates become intertwined, leading to a natural alignment of interests. Overlap in token holdings can be leveraged to establish deeper collaborations, such as co-marketing campaigns or product offering integrations. A recent example of this is the token swap discussion between CowSwap and Balancer. The two DAOs look to facilitate milestone-contingent token swaps based on their collaboration to introduce a novel AMM design:

“CowSwap has designed an innovative new AMM. Balancer has experience bringing innovative AMM’s to market. The two protocols, which have worked together in the past, can collaborate to bring this AMM design to the masses and result in benefits to both sides- Balancer gets to hit the market with one of the most innovative AMM designs to date, and CowSwap builds a moat around their settlement architecture.”

Another protocol that conducted token swaps with Balancer was Aave. The Aave DAO presented Balancer with the opportunity to exchange 200k BAL for AAVE, which would make each DAO a large token holder in the counterparty’s DAO. Since Balancer’s architecture has been vital for Aave’s safety module, Aave thought it would be beneficial for the protocols to have a governing stake in each other. Plus, for Aave, there was an additional incentive around boosting BAL incentives:

“Aave’s veBAL voting influence can be used to vote BAL rewards to Balancer Boosted Pools which utilise Aave markets in the background to create yield for passively held liquidity.”

Aave took this a step further with an additional proposal to purchase 100k BAL via a bonding curve contract, adding to the 200k BAL from the token swap. If Jup DAO believes that increasing its stake in particular protocols is a net benefit, a similar setup can be facilitated.

Enhanced Governance Participation:

Treasury swaps allow DAOs to acquire governance tokens in partner projects, enabling them to participate in each other’s governance processes. This cross-pollination of governance can lead to more informed and ecosystem-wide decision-making, as DAOs bring their unique perspectives and expertise to bear on critical proposals. Moreover, it can help prevent governance attacks by distributing voting power across trusted and aligned stakeholders.

Index Coop

Index Coop, for instance, has one of the most well-known meta-governance initiatives. The protocol’s $INDEX token in part allows for holders to vote on proposals occurring in other DAOs like Compound, Uniswap, Aave, etc. If 5% quorum is reached on a meta-governance proposal, the Meta Governance Committee, a community-elected multisig, uses the $INDEX token holders’ offchain vote decision to then vote on the proposals of another DAO like Compound. This is an example of an entire DAO voting on another DAO’s proposals, intermediated by a council, which solely acts as the operational mediator between the two DAOs.

Uniswap-Arbitrum

Another example of a meta-governance initiative is the Uniswap Arbitrum Delegate Program (UADP). In H1 2023, Arbitrum airdropped a large portion of its tokens to protocols built on it, including Uniswap. The Uni DAO elected to utilize 25% of their $ARB airdrop (1.1M ARB tokens) to create a meta-governance team program called the UADP. Two elected members from the Uni DAO have been voting on Arbitrum DAO proposals on behalf of Uniswap since October of 2023. One of these elected members is from Arana Digital. The UADP has voted on dozens of proposals since—and has enabled Uniswap to attain 1M ARB worth of incentives for Uni pools on Abritrum. The UADP also reciprocated these incentives by helping vote in $750k UNI worth of additional incentives for Uni pools on ARB, a program that is now being administered by Gauntlet. We hope to reference our work around meta-governance in the Ethereum ecosystem and replicate similar structures for Solana. Just as our team was able to attain and provide liquidity incentives for Uniswap on Arbitrum, we believe that similar collaborations can be initiated for Jupiter and associated Solana protocols.

DAO Resilience:

Beyond placating treasury volatility, token swaps also allow for diversification in governing parties. It is imperative for a DAO to sustain a strong cohort of voters, otherwise, the protocol can be subject to a governance attack. The most salient example of this occurred in July with Compound DAO, where a cohort of addresses aggregated enough voting power to extract nearly $25M worth of COMP from the DAO’s treasury. A large reason for this failure was the apathy surrounding existing Compound delegates. Attracting strong and incentive-aligned delegates is one way to mitigate such issues.

Jup DAO is likely safe from the mentioned governance attacks, but smaller protocols that Jupiter relies on, like Lifinity, aren’t necessarily as protected. Token swaps are one method by which these other protocols can attain a higher degree of governance resilience. Delegating voting power to socially trusted parties is an effective way to preserve the strength of a DAO.

Ecosystem Resilience:

Collaborative experiences are more important in a monolithic environment since everyone is building on a singular plane and is therefore compelled to improve the underlying protocol and ecosystem. Intertwined and composable ecosystems are more subject to cascading systematic risk as well—it’s therefore vital for protocols to rely on each other. With intertwined governance and financial stakes, DAOs can become long-term stewards of each other’s protocols. This stewardship goes beyond mere profit-seeking intentions; it also involves a commitment to the sustainable development and health of the Solana DeFi landscape.

Potential Targets for Token Swaps

Following the approval of the MGWG’s trial period, efforts will commence on exploring the execution of token swaps with 1-2 DAOs. Kamino and Drift have been identified as the initial DAOs to approach due to their leadership in Solana DeFi and their strong synergy with Jupiter. While these projects are likely the initial candidates, the scope will continue to expand, incorporating a growing number of DAOs over time. There are no restrictions on potential DAO partnerships; instead, a set of evaluation criteria will guide the selection process for token swap proposals.

Following is a more detailed explanation and rationale for this approach along with general guidelines for future strategic initiatives:

Kamino Finance

Kamino Finance is a decentralized lending platform offering different risk tranches and various lending strategies. By TVL, it is the second-largest protocol on Solana, making it a key partner for Jupiter.

• Jupiter Liquidity Token Market: This market allows users to supply JLP tokens and borrow USDC against their collateral. Currently, 65M JLP tokens, which represent 33% of the total supply, are used as collateral in these markets.

• Jupiter Multiply: Kamino’s multiply feature allows for one-click leverage on the JLP market and jupSOL. The multiply strategy directly increases TVL in the JLP vault, as leveraged positions are created by directly minting/redeeming JLP by depositing the underlying assets. With 13M JLP ($42M), supplied in the strategy, Kamino multiply adds significant TVL to JLP.

• Jupiter SOL: Liquid-staked jupSOL is the most supplied liquid-staked token (LST) SOL variant on Kamino, with 1.41M jupSOL supplied out of a total 2.59M (54%).

• Jupiter Vaults: Kamino manages LP vaults for Jupiter and Jupiter-related pools where users can deposit LP assets. These vaults are actively managed to optimize returns.

Potential DAO Integrations:

• Manage and propose incentive programs for assets like JLP and jupSOL to boost their utilization.
• Engage in governance decisions related to the risk parameters for Jupiter-related assets, ensuring their stability and growth.
• Provide general support to Kamino and vote on their governance proposals, fostering a strong and productive relationship with the top lending platform on Solana.

Drift

Drift is a perpetual order-book DEX that allows users to leverage up to 20x on various trading pairs, including Solana DeFi assets. Drift has expanded to offer products like prediction markets, market-making vaults, and lending markets, all of which contribute to its robust ecosystem.

• Collateral Utilization: JUP and JLP tokens are accepted as collateral on Drift, currently representing 7.3% of the total TVL on the platform, with a health ratio of 50%. This allows users to leverage JLP, which accrues rewards, to offset funding rates.

• Drift Swap: Drift swap is powered by Jupiter and allows for 5x leverage on various whitelisted tokens.

• Delta-Neutral JLP Strategy: Drift employs a delta-neutral strategy, allowing users to deploy JLP into market-making vaults. These vaults act as counterparties to traders and offer yield opportunities for JLP holders.

• Complementary Architectures: Although both Drift and Jupiter offer perpetual contracts, they are not direct competitors due to differing architectures. Jupiter’s perpetual model relies on a general liquidity model, where only pooled assets can be traded with leverage, limiting it to three markets: BTC, ETH, and SOL. In contrast, Drift’s Central Limit Order Book (CLOB) allows for a broader range of pairs, including various Solana DeFi projects. Therefore, token swaps between Jup and Drift can be symbiotic.

Potential DAO Integrations:

• Develop jupSOL basis trading vaults to enhance liquidity and trading strategies.
• Enable jupSOL to be used as collateral for trading positions, and integrate it into products such as super-staked SOL.
• Advocate for the integration of LFG launch partners on Drift’s Perp DEX, providing leverage opportunities and enhancing order book liquidity for these partners.

Other Solana DAOs

While the above are the first two DAOs that will be approached, our long-term vision is that the MGWG can establish a robust governance arm within Jupiter DAO that spans the entire Solana ecosystem. As other DAOs mature, we plan to push for additional integrations and collaborations. Key opportunities include:

• Sanctum: A Liquid Staked Protocol that allows users to set up their LST through Sanctum. Sanctum also offers its own LST, infSOL, which aggregates various LSTs. Jupiter utilizes Sanctum’s LST architecture for its liquid-staked jupSOL, and $CLOUD was a launch partner on the LFG launchpad. Both Sanctum and Jupiter act as aggregators for various projects and tokens built on top of them.

  • Potential Integrations:
    • Expand and improve jupSOL integrations across Solana DeFi.

• Meteora: Considered the backend for Jupiter’s Launchpad, Meteora’s Dynamic Liquidity Market-Making (DLMM) pools provide the architecture for initial liquidity bootstrapping events. Jupiter and Meteora teams work closely together, and Meteora’s DLMM bootstrapping pools are utilized for the LFG launchpad.

  • Potential Integrations:
    • Incentivize LFG partner DLMM pools.
    • Conduct research into liquidity strategies to create capital-efficient pool architectures that benefit Meteora LP holders and improve execution on Jupiter. This research could also be leveraged for Jupiter’s social platforms to provide content and educate LPs to improve their capital efficiency.

Following are some other DAOs that are lower priorities either due to a less obvious relationship with Jupiter or due to their lack of an established governance structure. We would appreciate the Jupiter community’s input on which DAOs they would like to see us partner with—and from there, our team will outline data points regarding the pros and cons of said partnerships. The MGWG can also run an RFP process for various protocols to pitch their case for a token swap.

• Pyth: Oracle Protocol used for perpetual pricing on Jupiter perps.
• deBridge: Bridge Protocol and LFG partner, offering point boosts for Jupiter users.
• Wormhole: Bridge Protocol. The ETH and BTC in the JLP are wormhole-bridged assets.
• Jito & Marinade: Solana LST Protocols.
• Tensor: An NFT order book platform.
• Lifinity: A Protocol-Owned Liquidity platform.
• Orca: An Automated Market Maker (AMM) and Concentrated Liquidity Market Maker (CLMM) exchange.
• Metaplex: Token and NFT standard; tokens on Jupiter require Metaplex metadata.

While the examples provided illustrate specific strategies for Jupiter to engage in governance with various DAOs, all governance actions will be guided by overarching strategic objectives:

• Strengthen Jupiter DAO’s relationships with key ecosystem players by being active contributors and decision-makers in leading Solana DeFi projects.
• Maintain Jupiter’s dominance by making strategic decisions that foster a growth-oriented approach benefiting the broader ecosystem.
• Provide regular and frequent updates to the Jupiter DAO, keeping members informed about important developments across the Solana DAO landscape.

Prospective Operations and Roadmap

Phase 1: 3-Month Trial Period

Between October - end of December, the MGWG will aim to put forth proposals on both the Kamino and Drift forums for conducting token swaps. The team will be in charge of facilitating the governance process and communicating with the relevant parties at the target protocol to ensure the swaps occur effectively. If these target DAOs are not keen on collaborating, we will look at alternative DAOs. We will aim to complete a minimum of one token swap during this trial period—with an optimistic target of conducting two swaps.

• The MGWG will establish the specific terms and conditions (see example terms above) between Jup DAO and the target DAO. These will be communicated to Jup DAO for feedback prior to execution.
• A Squads multisig will be set up for establishing escrow over the swapped tokens, as well as giving the MGWG the ability to vote on future proposals at the target DAO.

Phase 2: 6-Month Pilot Period

Successful implementation of token swaps and the initiation of governance in those DAOs will give way to the official establishment of the MGWG, ratifying the group for an additional 6-month period.

During this phase, the MGWG will be involved in governance for the target DAOs. Once voting begins, a communication thread elucidating on all voting decisions will be published publicly on both the Jup DAO forum and the target DAO’s forum. The team will also consider an additional cohort of 1-3 DAOs for facilitating more token swaps. Increasing the number of swaps proportionally increases the governance overhead. This 6-month period will be an opportunity to collect enough data on how much overhead this working group brings, along with its effectiveness.

Phase 3: 12-Month Growth Period

Learnings from Phase 2 will be used to decide how aggressively more token swaps should be conducted. Under the circumstance that too many DAOs are under the MGWG’s management, the team may look to onboard a third or fourth member via an election. The primary day-to-day activity during this phase will be monitoring other DAOs’ forums and votes to ensure 100% participation in partner DAO governance.

Operating Expenses & Budget

A more comprehensive budget will be provided after the completion of Phase 1—below is the Phase 1 (trial) budget:

*Costs are subject to change during the later phases of this program, depending upon the number of DAOs under management—the trial phase will primarily be composed of negotiations and token agreement term construction (pricing, custody, etc) for one or two DAOs. The above balance is therefore representative of only the trial period.

Working Group Members

Arana Digital
Arana Digital is a firm specializing in DAO operations and governance. Its members have managed over $40M in voting power across numerous protocols, including Uniswap, Aave, Compound, and Arbitrum. The AD team has collaborated with various Foundations, service providers, delegates, and token holders on DAO-based initiatives, from treasury management research to BD/growth programs. AD’s sister arm also invests primarily in liquid Solana tokens and are therefore acclimated with the ecosystem’s dapps and infrastructure.

Keyrock
Keyrock is a global leader in market making, OTC, and option trading for digital assets. Providing liquidity to markets since 2017, their 170-strong team is spread across the world. Keyrock’s commitment to the industry is practical, not theoretical—from supporting Web3 startups through an accelerator program to injecting capital into promising DeFi protocols. With Keyrock, the future of digital assets is not just envisioned; it’s actively being built.