KIP-83: Establish a 0.05% Protocol Fee to the DAO Treasury (in ETH)

Proposal
1

Date: 2025-11-05
Author: Community (PNK holders)
Status: Draft
Category: Treasury / Protocol Economics

Summary

Divert 0.05% of protocol-generated fees to the DAO Treasury, to be denominated and stored in ETH. The split is protocol-wide, minimally invasive, and does not alter court incentives, juror rewards, or user pricing beyond the de minimis 0.05% take.

Motivation

  • Sustainable funding: Creates a predictable, non-dilutive revenue stream for the DAO without minting PNK.

  • Alignment & autonomy: Lets PNK holders fund grants, audits, and growth directly from protocol usage.

  • ETH-denominated runway: Holding fees as ETH reduces sell pressure on PNK and simplifies budgeting.

Scope

  • Applies to: All protocol fees payable in ETH (e.g., arbitration/court fees, registry fees, or other on-chain pay-ins routed through protocol contracts).

  • Does not apply to: Third-party AMM trading fees or off-chain CEX activity. LP/market-making remains out of scope (covered in KIP-82).

  • Token handling: If a fee is paid in non-ETH ERC-20, the protocol swaps it to ETH via a pre-approved router with strict slippage limits (see “Specification”).

Specification

1) Treasury Destination

  • Recipient: DAO Treasury Safe (Gnosis Safe) controlled by the Governor: DAO_TREASURY_SAFE (to be posted in the execution thread).

  • Asset: ETH. Non-ETH fee inflows are converted to ETH before final deposit.

2) Fee Split & Accrual

  • On every fee collection by eligible protocol contracts, 0.05% of the gross fee is skimmed and routed to DAO_TREASURY_SAFE.

  • The remaining 99.95% continues to follow the current distribution (e.g., juror rewards, reimbursements, operational sinks), preserving existing incentive structures.

3) Conversion to ETH (if fee paid in tokens)

  • Router: Uniswap v3 (primary) with a fallback to a second DEX (e.g., 1inch or Swapr) gated by an allowlist.

  • Limits:

    • Max slippage: 0.5% (configurable via KIP).

    • Min lot size: Batches accumulate until ≥ 0.5 ETH equivalent to reduce gas; forced sweep available via governance.

    • MEV protection: Use deadline + anti-sandwich options where available (e.g., sqrtPriceLimitX96).

4) Configurability (via future KIPs only)

  • Fee rate (0.05%), router allowlist, slippage cap, and batching thresholds are parameters that can only be changed by a new KIP. No admin-only toggles.

5) Accounting & Transparency

  • Events: Emit ProtocolFeeRouted(amountETH, txOrigin, sourceContract) on each sweep.

  • Dashboarding: A monthly forum post with on-chain links summarizing accruals and conversions.

  • Tagging: Fees are tagged by source contract for granular reporting.

6) Interactions with Existing KIPs

  • KIP-66 (Juror Incentives): Unchanged; 0.05% is taken before any distribution logic so juror APR math is unaffected except for a negligible base reduction.

  • KIP-76 (Futarchy rule): Not required for this custodial revenue redirect; any spending of the ETH Treasury still follows KIP-76.

  • KIP-82 (LP custody): Complementary; this KIP funds the DAO while KIP-82 ensures DAO custody of LP.

Rationale

  • Tiny, protocol-wide skim: 0.05% is intentionally small to avoid pricing shocks while compounding into meaningful DAO income.

  • ETH as base asset: Minimizes PNK sell pressure and aligns with common L1/L2 costs and grant payments.

  • Programmatic, permissionless: Revenues accrue automatically at the contract level—no off-chain discretion.

Risks & Mitigations

  • User cost sensitivity: The increment is minimal (0.05%). If needed, future KIPs can adjust.

  • Swap slippage/MEV: Strict slippage caps, batching, and allowlisted routers reduce loss.

  • Contract complexity: Changes are isolated to fee-collection paths; audited patch and test coverage required.

  • Governance capture: Funds only accrue; any outflows remain gated by existing DAO rules (Snapshot + Futarchy where applicable).

Implementation Plan

  1. Code changes:

    • Patch fee-collection modules to add a treasuryCutBps = 5 (i.e., 0.05%) path.

    • Add conversion helper for ERC-20 → ETH with router allowlist, slippage cap, batching vault.

    • Emit new events; extend subgraph/indexer if applicable.

  2. Security:

    • Unit + integration tests (incl. rounding, zero/edge fees, revert cases).

    • Formal review & external audit.

  3. Deployment:

    • Deploy updated contracts or upgrade modules (depending on architecture).

    • Point to DAO_TREASURY_SAFE.

  4. Ops:

    • Publish runbook (sweep cadence, monitoring).

    • Set up dashboards (Dune/The Graph) and monthly reporting template.

Parameters (initial)

  • Treasury cut: 5 bps (0.05%).

  • Router allowlist: Uniswap v3 (primary), Backup DEX (allowlist ID #2).

  • Max slippage: 0.5%.

  • Batch threshold: ≥ 0.5 ETH-equivalent before swap/sweep (configurable by KIP).

  • Deadline buffer: 5 minutes per swap.

Timeline

  • Week 0–1: Spec freeze, test plan.

  • Week 2–3: Dev + internal testing.

  • Week 4: External audit.

  • Week 5: On-chain upgrade & activation.

  • T+30 days: First revenue report.

Costs

  • Engineering + audit costs; ongoing gas for batching/conversions (offset by batch thresholds).

Backwards Compatibility

  • No migration for users; marginal fee change only. Existing incentive distributions continue with a tiny pre-cut.

Governance

  • Quorum/Threshold: Standard for protocol changes.

  • Execution: Governor proposes and enacts contract upgrades / parameter initialization.

  • Amendments: Any change to fee rate or routing parameters requires a new KIP.

Voting Options

  • Yes — Approve KIP-83: Route 0.05% of protocol fees to the DAO Treasury in ETH per the spec above.

  • No — Reject: No change to fee routing.

  • Abstain.

1 Like
2

I think this fee structure makes a lot of sense to kickstart a dao income stream and move slowly to a sustainable kleros ecosystem. thanks for that proposal!

how would such s fee get implemented?who could do that and how would the dao pay for that? it seems we the dao are in a bad situation cause the coop took all the ico money and i guess is unwilling to transfer eth to the dao for free. i have the feeling the coop wants us to get our eth by minting more pnk and dilute the wealth of pnk holders even further. i hope the coop will realize that the dao rightfully owns the eth the coop took until the dao is mature enough. what is mature enough ? do the team members have an intrinsic motivation to transition to the dao or do they prefer the coop cause the coop doesn’t have to care for the pnk price? i still don’t get the benefits of having a coop if you can just have a dao and why the coop thinks we are not mature enough to manage our own money. the team is probably the largest pnk holder and they should start acting like one and not relay on the big eth treasury they took from the ico. becoming more efficient and pnk aligned and treating pnk more like btc then fiat would be great to see. start becoming more a dao by acting as a dao. don’t hude in the coop which is intransparent and wasteful

3

We can ask the Cooperative to do it for a small amount of minted PNK; or someone from the community can offer to code it up for an even cheaper amount.

4

we pnk holders are obviously 100% dependent on the team. the team is kleros and the team is still choosing the coop over the dao. until this doesn’t change we have 0 say. they are also the biggest pnk holders and if kip 81 passes they are even stronger. i think they try to somehow hide how much pnk the team holds. i guess they hold around 400mio pnk. so in theory they can do whatever they want anyway. the dao is just show how it is now in my opinion

5

Do you realize that the Coop is a de facto non profit (cannot give dividends)?
Also all jurors are allowed to join the Coop.

This isn’t the case. First because it isn’t the case legally and the coop would probably not be able to give this to the DAO (because being a coop, it must ensure that the assets are only used for the purpose of the DAO).

Second, because the coop got sources of funding outside of the token sale (Uniswap airdrop, French/EU grants and yield farming).

You have to keep in mind that back in the days, DAO tooling was almost non existant. But you do have a point that if it were to be done today, going full DAO would be an attractive option.

Team members have PNK allocations. No dividends from the coop. So they should generally be aligned with the DAO.

I don’t know exactly how much anyone own (some sold, some bought extra), but my guess is that you are overestimating this amount by a 2X factor. Also keep in mind that “the team” is not an entity. You have individuals having PNK and they can (and do from what I noticed) vote differently.

6

I will oppose the proposal for the following reasons:

  • This amount if very low, and would require extra development and increase protocol complexity for almost no impact.
  • Overall, if the DAO needs funding it is better to get it from PNK minting than protocol fee. Protocol fees takes a share of revenue from active jurors while PNK minting affects both active and inactive jurors similarly.
  • Kleros is still in growth phase (attract first before you are able to extract) and I’d advise to help/subsidize integrations instead of getting revenue from them now. Kleros is at a very low stage compared to its potential and the goal should be to realize its potential, not extract on small values.
3 Likes
7

Great points. I agree.

2 Likes