eIP 59: Contract for Services with Euler Labs

General Proposal Formal Submission
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Contract for Services with Euler Labs

Author(s): Euler Labs
Submission Date: 07 Mar '24

Abstract

The proposal requests a new contract for services for Euler Labs with an effective start date of 1 April 2024. Protocol security is a critical part of the services related to the proposal and represents the largest relative and absolute increase by comparison to the soon-to-expire previous contract.

Background

The current contract for services with Euler Labs Ltd. was entered into in May 2022 by the Euler Foundation, preceding the creation of the DAO. The contract covers research and development-related matters. Under the current contract, the Euler Foundation agreed to pay Euler Labs an estimated $5.7m USDC per year, for two years. Apart from complications arising from the events in 1Q2023, Euler Labs had been invoicing the Euler Foundation for its services on a calendar quarterly basis. The most recent invoice issued by Euler Labs was for 4Q2023.

Current Contract Details

Below is a summary of the key aspects of the current contract:

  • Commenced 1 May 2022.
  • The contract term is 2 years.
  • The contract allows Euler Labs to invoice the Euler Foundation an estimated $5.7m USDC per year (inclusive of all audit and other third-party vendor costs).

Motivation

Since Q2 2023 (post-protocol exploit), the Euler Foundation has engaged Euler Labs to contribute to the development of a suite of software products that were not expressly contemplated in the contract for services entered into in May 2022.

Euler Labs would like to enter into a new contract for services with the Euler Foundation that more accurately reflects the scope of technical and administrative services provided by Euler Labs to the Euler Foundation. Below is a list of the protocols for which Euler Labs has provided services as a contributor under the existing contract:

  • Euler protocol (v2) - Consisting of the recently announced Euler Vault Kit (EVK), which abstracts and modularises the properties of a lending protocol to enable v2 to offer greater flexibility and security for users than v1.
  • Euler Vault Connecter (EVC) - A communications protocol mediating cross-talk between vaults, enabling their use as collateral for one another.
  • Euler Governance Platform (EGP) - A revamped governance page integrated with Snapshot and Tally enabling users to vote on both on-chain and off-chain governance proposals.
  • Euler Swap - A modular decentralised exchange designed to integrate with Euler v2.
  • Euler Synthetics - A development kit for deploying synthetic assets on top of Euler v2.
  • FeeFlow - A decentralised auction mechanism allowing Euler DAO to convert any fees it receives on any platform into an underlying asset of its choosing.
  • RewardStreams - A protocol for projects to reward markets on Euler v2 or EulerSwap in a decentralised manner and allow users to receive rewards without having to stake LP tokens.

Euler Labs expects to continue to serve as a contributor under the new contract for these Euler ecosystem components.

Euler Labs grew its personnel related to this engagement to 25 in order to provide to the Euler Foundation the services that it requested under the current contract. Euler Labs believes that it is important for Euler Labs team members to be aligned and incentivised as contributors to the Euler ecosystem. To this end, Euler Labs is requesting, on behalf of current and future contributors, that the Euler Foundation agree, under the new contract, to make a one-off token grant of 1.6m EUL tokens to be allocated to for this purpose.

To date, 5.4m EUL tokens (or 20.5%) have been made available to Euler Labsā€™ contributors. An additional 1.6m would bring the total to roughly 7.0m or approx 26.4% of total supply. This would bring Euler in line with related projects Compound (26.2%); Aave (25.0%); Morpho (29.0%); Silo (28.5%). If approved, the tokens will be moved from the DAOā€™s main treasury wallet to its EUL allocation wallet.

As the community is aware, the Euler Protocol is expected to relaunch in 2Q2024, subject to audit completion. The announcements to date relating to the re-launch of the Euler Protocol, and associated components include:

Specification

If this proposal passes, the Euler Foundation will enter into a new contract for services with Euler Labs based on the scope of services outlined below. The remaining one months of the old contract entered into on 1 May 2022 will be cancelled. The effective start date of the new contract will be 1 April 2024.

New Contract Details

Below is a summary of the key aspects of the new contract:

  • Dated from 1 April 2024 (2Q2024).
  • The term of the new contract will be one (1) year.
  • The contract will be reviewed and considered by the DAO annually hereafter.
  • The total value of the contract is estimated to be $11.8m USDC.
    • The proposal is based on a carefully prepared forecast. Euler Labs Limited maintains its books and records in GBP, in accordance with UK GAAP and the Companies Act.
    • $4.1m of which is directly attributable to security-related services, which are expected to be performed by leading security firms such as Certora, Spearbit, Open Zeppelin, Chain Security, Trail of Bits, yAudit, Omniscia, and others.
  • One-off token grant of 1.6m EUL to be made available to Euler Labs for allocation to contributors.

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7 Likes
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In my opinion the contract is completely outside of industry standards in terms of amount to pay (considering also the hack story, and therefore actual proof of the level of the team in some matters), and looks like an attemp to avoid legal problems through DAO as a structure.

It would also be great to see a complete list of Euler Labs obligations under this contract and a description of the costs for each item in those obligations.

My vote is ā€œagainstā€.

2 Likes
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Cool.

Settle it ASAP.

Would like to know more also on how to restart Community.

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The new economic model hasnā€™t been released yet, has it?

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What is the thought process for 1.6m EUL? At current prices, this brings the total value of the 1-year contract to $23m ($11.8m USDC and $11.2m EUL).

Token grant needs to be vested for alignment of interest with token holders. Min. 2 years linear vesting in a smart contract (not ā€˜hand shakeā€™ agreement.

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First it should be stressed that EulerLabs is one the greatest team in the Industry and Im glad it is still working on Euler ecosystem. The previous year was very difficult for the team and Im grateful that despite all they did not give up.

At the same time it shall be noted that the Protocol has not been operational for almost a year. Despite that fact the DAO and Foundation fulfilled its contract with the EulerLabs for 2023, again despite the fact that the Protocol did not function.

Now we are talking about a very significant increase, as @Natural pointed out, itā€™s $23 mil.
While personally I do believe in the team, I don not think it would be wise for the DAO to approve this contract before Euler V2 is officially launched and operational.

I would be happy to give my voice in favour of this proposal once Euler is back, but for now I shall say NO.

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In favor of this proposal

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@Natural for the thought process behind the EUL, please re-read the original post.

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@Raslambek would you be happy if the funds were disbursed after the release of V2? Donā€™t forget the swap, synths, fee flow, EGP, Reward Stream and EVC. EVC is is already getting some good traction and interest from developers that want to wield its unique capabilities.

What else would we use the treasury for? Who else is better equipped to maintain / develop the Euler protocol? Labs needs fuel to keep going and frankly is a lean team. Other DeFi protocols have teams with 3x as many employees. Euler Labs has demonstrated time and time again its world class capacities and to reject this because it is priced annually in one large chunk is extremely short sighted.

They have literally been through hell and back for us when they could have abandoned the DAO / protocol and where would we have been then? Loyalty must be rewarded if we are to attract the brightest lights in the space to outcompete. The best teams are expensive. Do you want to outsource development to Fiverr? It is a lot of money in an absolute sense, yes, but it is absolutely in line compared to what other leading teams charge.

In case you missed it, please see this breakdown of how the funds are projected to be spent.

For me this is a simple yes. It is a lot, but it is within reason comparatively. This is close to as good value for money that the DAO can get: no other team will come close to delivering the same quality. We can afford the cost but we cannot afford to lose their demonstrated expertise and loyalty.

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I can see both sides here. Although it also must be shown to investors of Euler that the team respects the risk weā€™ve taken to invest into the company in the first place.

Why not a happy medium and await after the V2 launch?

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You are absolutely right there is a brilliant team behind Euler. And indeed there is canā€™t be a better way to use the treasury than investing into the development. Personally, I donā€™t see the requested amount as something extraordinary. If the team asked for more I would be glad to support it.

So once Euler is back, I will be the most active advocate for this proposal.
As for your suggestion

would you be happy if the funds were disbursed after the release of V2

The vote takes only 5 days, moreover we could use the fast track that requires only 24 hours. So Im sure the thing could be processed very fast once the time comes.

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Hi everyone, thanks for the feedback and kind words so far.

I want to clarify a few of the points made here and answer some of the questions.

First, I can somewhat understand why thereā€™s a focus on the larget possible headline number in these kinds of cases, but I would strongly encourage everyone to look at the breakdown shown in the spreadsheet and consider what is being provided relative to the broader industry.

If you take away the security budget, the annual spend is $7.7m. That covers Euler v2, the EVC, Fee Flow, Reward Streams, Euler Swap, and Euler Synthetics. Itā€™s an exceptional outlay for the cost, especially given the quality of what has been produced.

Average annualised compensation for people in Q3 2023 was ($1,091,102) / 23.3 * 4 = $187,314 [corrected via edit]. For a team made up of senior engineers, it should hopefully be clear from this that we are not paying exorbitant salaries. We are extremely lean and run on a responsible budget. Pay was frozen following the exploit and people have stayed at Euler Labs largely because we offer stimulating work and a nice culture, not because they are overpaid.

As for the EUL token grant, this would simply bring Euler closer inline with other projects and in my view it is still on the low side. The grant is designed to help Euler Labs retain team members and hire new talent and and give them a say in DAO governance over the long-term. The plan is to allocate this to individuals on a performance basis under locking conditions that inventivise long-term alignment. It should not be viewed as some kind of immediate cash bonus.

If the overall spend is concerning, then there are a few options for reduction. We could remove Euler Swap or Euler Synthetics from the contract and develop them for separate projects. I think that would be a shame, given that they have been custom-built to work with the lending protocol, but it would reduce the cost by $3.5m.

The other option would be to lower the security budget, which is admittedly high compared to what many projects are spending for similar protocols. I am strongly opposed to that. I know $4m+ is a big number. Itā€™s important to recognize that it covers more than just audits though. It includes security reviews, formal verification, fuzz testing, mechanism analysis, code competitions, bug bounties, internal security engineers, and more. It enables Euler software to be audited by the very best firms and individuals in the industry. Weā€™ve brought many of them in-house to audit the process as well as the final code. I would be very uncomfortable lowering this budget or doing security any other way.

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Full support. Michael and the team have been through hell and back. They kept shipping and with v2 around the corner itā€™s important that they have the funds to keep shipping.

Excited for the re launch team!

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I strongly oppose any compromise and cost cutting. Take the money and deliver something beautiful!

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Agree with @river0x . I would also oppose any separation of budgets and cost cutting.

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We strongly support @euler_mab and the team and their continued efforts to ā€˜ā€˜make Euler great againā€™ā€™.

@euler_mab

what are the specifics of this token tx, are tokens vested if yes how, will they be delegated, etc?

These questions are important when it comes to the token liquidity and price, we donā€™t expect Euler Labs to sell the tokens any time soon as the contracts cover the costs using USDC.

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I find a much more reasonable plan when the team sets some KPIs for new launched products, and depending on the implementation of these KPIs receives certain rewards, so that the goals of the token holders and the team are aligned.

I would also vote for reducing the security budget, which takes up a huge part of the requested amount (indeed, as mab noted, the salary part is very small), and most often the security budget is simply an inflatpd price for the paper/time of ā€œsecurity specialistsā€ who, like Practice has shown, are not responsible and do not bring the desired result in the end.

Letā€™s reduce security budget and increase the salary pool of people on the team who really drive innovation forward and have loyalty to the protocol.

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Correct, none of the EUL tokens would be sold. Nor would they be delegated. They would reside in a multi-sig wallet until claimed by relevant contributors. Those contributors are allocated tokens on a performance basis. Allocations always come with conditions on unlocking depending on circumstances. Existing allocations have unlocked on a non-linear basis over a 4 year period, for example.

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Offcourse in support, thereā€™s no other team that would be able to get euler back in track other than euler labs.

KPI related stuff and others are irrelevant. Goal is to become the #1 money market in space or die trying.

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I will be voting in favour of this proposal. A significant portion of this budget seems to be for R&D and marketing already, which will help make the protocols being developed competitive.

I am also strongly opposed to cutting any costs for security, especially after the year Euler has had.

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Sign the contract and get started, win-win is the way to go