Introduction of Community-Aligned Fees

Safe is pioneering community ownership with the introduction of Community-Aligned Fees. Recently integrated Native Swaps are estimated to generate an annualized $2.5 million. By pledging these fees to SafeDAO we aim to create community empowerment and flywheel for the Safe community.

An account-centric approach to accelerate mass adoption and create a community-aligned flywheel for Safe

Our whole industry is facing a key challenge: while rapidly growing, it has not yet matured to the point where it generates significant fees. Moreover, even when fees are generated, they often do not benefit the community but are captured by for-profit entities. This is a collective challenge since communities often act as ecosystem catalysts. By taking the notion of community-alignment seriously, this should also lead to them having agency over their sustainability. To set up community ownership for success, financial sustainability is a desired end state that must already be taken into account during the development and growth of the ecosystem.

When SafeDAO was initiated by GIP 29, it was clear from the outset that Safe's role as a critical infrastructure should result in a sustainable community-owned project. This ambition remains as relevant today as ever, with Safe accounts continuing to secure a systemically relevant proportion of assets (Source 1 and Source 2) and demonstrating strong growth in usage. The growth traction is not the result of a single entity. It is the result of several stakeholders building on top of Safe’s infrastructure. To strengthen the positive impact of stakeholders, it is essential to increase the involvement of the community as part of the governance model. The token transferability marked a significant milestone. It unlocked the ability to onboard new community members and drive token utility use cases. Led by the goals and principles of SafeDAO’s Constitution, it is important to take the next step and empower the vibrant community to generate the necessary financial resources for the funding of community-aligned initiatives. 

We will achieve empowerment through unity. Therefore, we need to rally behind a shared strategic focus and create a mechanism to align stakeholder incentives.

A. New Strategic Focus: Activation of Funds

In view of our ambitious mission and variety of goals, a periodical concentration on one focus helps to greatly increase the likelihood of success. There is a general understanding that Safe's main focus lies in increasing the Total Value Locked (TVL). We have succeeded in gaining ~$65B TVL and immense user trust. However, to create value for the community from this large potential, we now must go one step further. 

I. The observation: Infrastructure overload is slowing down potential for mass adoption

Our industry is evolving. In the past, infrastructure challenges were often cited as a blocker for mass adoption. Since then the infrastructure has progressed and many challenges are no longer an issue. Nevertheless, user numbers and user behavior have not changed to such an extent that the current state of adoption can be considered mass adoption. Although user acquisition is steadily increasing, there is still a lot of optimization potential in user activation: Out of a total of roughly 620M estimated users, only 120M qualify as monthly-active users. This leaves an unutilized potential of 500M users. When even existing users are forced to follow a buy-and-hold strategy, we must ask ourselves, where did we get stuck? 

It seems that we tend to overreact in a well-intentioned way by solving infrastructure problems solely by adding more infrastructure. A great example is to look at the innovation along the user journey of intents: We are seeing exciting progress when it comes to intent routing, solving, clearing and settlement. However, improvements at the account level have been neglected so far. This means improvements never reach the user. If we continue to focus on solving problems by continually adding new infrastructure, solutions will likely lack the needed user activity. 

II. The learning: To unlock potential, we must go where the user is, their account

It's time to break this pattern and unlock everyone's potential onchain by meeting users where they are - at the account level. Smart accounts can simplify the whole user flow by embedding key use-cases and solutions directly into user accounts. Smart accounts due to their programmable nature, have the potential to finally unburden users from infrastructure overload.

III. The reorientation: New Northstar -  From TVL To TVP 

Reflecting on the user experience elements that need to be adjusted before users activate their funds, it becomes clear that these revolve around security and convenience. In particular, the aim must be to offer benefits that go beyond secure storage. It seems to be the right time to double down and focus on value-adding services during the transaction cycle as opposed to value-adding services for idle funds. This strategic reorientation should also be accompanied by a change of the north star metric. The activation of Safe ecosystem’s Total Value Locked (TVL) should be measured in Total Volume Processed (TVP). TVP quantifies the total monetary value of all transfers involving Safe smart accounts. 

IV. The activation: $25B/month of existing TVP

In the recent past, we have invested considerable resources in contributing to the activation of funds.  As of Q2'24, there are over 10M Safe accounts in total, of which 2.7M are monthly active accounts (up 67% QoQ). Alongside the growth in active accounts, the number of transactions also increased by 67% QoQ, so that a total of 27M transactions were executed in Q2'24. Nevertheless, we are not finished yet

During the last few months, the total of all Safes consistently reached an average TVP of more than $25B/month. Looking back on the growth of the Safe ecosystem so far, we are optimistic about a strong TVP growth in the future. 

Finally, the focus to increase TVP is a means to an end. We are convinced that this reorientation will contribute to users getting the security and convenience they desire; the ecosystem will benefit from growth through increased volumes and the monetization of value-adding services during the transaction cycle will create revenue streams that contribute to the sustainability of the Safe ecosystem. All in all, an increased TVP will lead to net positive results. 

B. Mechanism to Align Stakeholder Incentives: Community-Aligned Fees

The Safe Ecosystem Foundation (“SEF”) has taken the initiative to orchestrate the first revenue stream for SafeDAO. As part of this, SEF has taken the recently introduced Native Swaps of Safe{Wallet} as an opportunity to create an alignment of ecosystem products and solutions with the community brand. More specifically, SEF utilizes its Safe-related trademarks to facilitate revenue generation of third-party integrations within Safe{Wallet} via a license model, with Native Swaps as the first integration of this kind. It should be particularly emphasized that Safe{Wallet} does not extract any value. Instead, revenue streams are pledged to SafeDAO. Looking at the generated fees during the first month of Native Swaps this income stream would create an annualized amount of ~$2.5M of Community-Aligned Fees. The intention is to give SafeDAO more agency regarding the use of funds. 

Beyond the revenue share of Native Swaps this should be seen as a possible framework for future revenue shares. The mechanism of Community-Aligned Fees involves three key phases: pledge, acceptance, and resource allocation.

I. Pledge: Transfer of Funds from 3rd Parties

Cornerstone of Community-Aligned Fees is the pledge of funds generated by 3rd party projects and/or Safe Ecosystem Foundation to SafeDAO. While value can come in different forms, pledging funds is a very strong value-add to the financial sustainability of the DAO. These funds can be generated from various sources, e.g. through 3rd parties own revenue generation through integration into Safe{Wallet}, incentive programs or other means. The pledging projects will not only just support a decentralized ecosystem; they will invest in the future of smart accounts and create a strong incentive alignment. Pledging projects, meaning those who have already added value, should not only be recognized, they should also be rewarded according to their pledge. Rewards could come in many forms. Besides distribution and discoverability support, pledging projects could also benefit from preferential resource allocation opportunities by SafeDAO (i.e. larger resource allocations depending on and in relation to the pledge).  

II. Acceptance and Resource Allocation

The Safe Ecosystem Foundation has published a proposal for the DAO to accept this revenue stream. If ratified, the funds received from 3rd parties will be part of SafeDAO’s treasury and as such they can be allocated according to SafeDAO’s governance and resource allocation frameworks.

Ultimately, SafeDAO should aim to optimize for the creation of a flywheel of shared success, where giving back means getting ahead. 

C. Outlook: Further Areas of Development

Many parts of this mechanism were intentionally kept open for the future. It is a kick-off to develop further details together with the community. Our goal is to start sooner rather than later in order to iterate on the experience gained and to progressively build a sophisticated system that raises the bar in terms of equitable governance, economic viability and technical capabilities.