TLDR: Hop protocol will in future use fees to support the costs of running the DAO while directing 10% of those fees to (non Hop affiliated) public-goods funding.

Hop is a protocol that "allows users to send tokens from one rollup to another almost immediately" through its "scalable rollup-to-rollup general token bridge." While the protocol first went live on mainnet in July of 2021, a number of improvements to both its service and its governance process were recently introduced to the DAO. In December of 2022, Chris Whinfrey wrote post in the forums that guided community members to three requests-for-comment that would significantly affect Hop's future. One of these RFCs pointed to the protocol roadmap; another sought comment on a plan for protocol fees and public goods funding. Both plans were recently overwhelmingly approved in Snapshot polls. We'll take a closer look at the latter proposal below.

The Proposal: HIP-16 Fees and a Commitment to Public Goods Funding

Fees have long existed in HOP — Whinfrey says that $7m have been collected so far — but they have been given only to supply-side participants (such as AMM liquidity providers). With the development of v2 of HOP, there is now an opportunity to build in a protocol "fee switch" — which could help pay for the some of the costs of running the DAO: "Even a small protocol fee would provide significant funding to help cover general DAO expenses such as development costs, grant programs, foundation costs, and more." It also provides an opening to decide whether to "to enshrine a commitment to public goods funding directly into the protocol."

"We wouldn’t be here today if it weren’t for Ethereum and the many other public goods that exist because of the Ethereum community. Diverting a portion of fees would allow Hop to give back to the Ethereum community and the broader world perpetually through public goods funding."

The proposal intends to include a fee switch for each of the DAO-produced modules, with 10% of those fees set aside for public goods "outside of the immediate Hop ecosystem."

Discussion of the proposal was generally very supportive, with several pertinent questions raised. Should legal advice be sought sooner rather than later? How exactly will the public goods funding be enacted -- by automatically sending a portion of the fees to a specific external address, similar to Gitcoin's Matching Grant Pool or Optimism's Retroactive Public Goods funding account? The DAO will have to decide; as Lefteris Karapetsas commented, there will need to be "a way to keep agency over which system to use."

Voting ended on January 24, 2023 with almost 100% voting "Yes" and 691 addresses participating.

Governance Process

Hop’s standard governance process was recently updated with the passing of proposal on January 10. Where the previous process followed the familiar path of request-for-comment post ➡️ Snapshot temp-check ➡️ on-chain proposal, the new framework (discussed here) allows for certain small actions to take place without a vote of any kind as well as for Snapshot-only Hop Improvement Proposals (HIPs). The Snapshot proposal to update the governance process states that “this HIP is the first to be governed by its own proposal and would also fall into [the category] for which only a Snapshot vote is necessary.” The proposal discussed above similarly requires only a Snapshot vote. HOP is the governance token through which DAO members can participate in such governance.

The Big Picture

We’ve seen that discussions of fee-switches — no matter what their purpose — can be very fraught, as with Uniswap. That a proposal to introduce a fee switch and direct a portion of it to public goods funding went over so smoothly here with the HOP DAO is unusual. Of course, the comparison is apples to oranges: Uniswap is a massive DEX that would be introducing a fee while Hop is much smaller in scale and intends to redirect an existing fee. This is nevertheless an example of the timeliness of design changes: earlier is often better — though in this industry it is sometimes impossible to anticipate what challenges might be faced (or opportunities presented) even over the relatively short course of year. Hop has moved early enough, it appears, and is doing its part to keep the public-goods flywheel running.

We’ll be tracking this proposal activity closely at Boardroom. Follow our newsletter to stay up to date. If you’re a voter in a protocol, make sure to check out Boardroom Portal.

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