Ethereum Project Rook is About to be Splintered

A long-running protocol on Ethereum might splinter weeks after members of its community accused management of conspiring against them.

The protocol, Rook, helps users avoid fees on Ethereum. The DAO that governs Rook is currently voting to create an independent, spin-off organization that would receive almost 60% of the DAO’s assets. If the proposal succeeds, management would receive a little more than 40% of the DAO’s assets and keep rights to its intellectual property.

The protocol’s governance token, ROOK, is up more than 25% over the past week, according to CoinGecko.

It is the latest drama to unfold in the world of decentralized autonomous organizations, or DAOs. In recent weeks, multiple DAOs have been accused of “decentralization theater” — of making an effort to appear decentralized when ownership and control of the business in question is, in fact, in the hands of a select few.

Shaky Tokenomics

Last month, the lone remaining co-founder said that pressure to innovate in Rook’s competitive sub-industry put management at odds with token holders who ostensibly control the Rook protocol.

Last year, members of the DAO approved a proposal to “streamline” the ROOK token, stripping it of its use for anything other than voting in governance proposals.

Despite the unanimous vote, users began to object to the token’s apparent lack of value. They also objected to the fact that ROOK was, in their view, trading at a discount. If each token were to represent an equal claim on the DAO’s treasury, they would be worth far more than their measly $16.

Rising Tension

A pair of proposals – one to fund the development team through the first half of 2023, the other to extend the tenure of its CEO and CTO through the end of March – garnered opposition.

“We acknowledge the tension between the team and community,” the co-founder, who goes by the pseudonym JZ wrote when proposing the Incubator DAO. “The source of this is an irreconcilable incompatibility between the competitive necessity to push technology to achieve the mission and the community’s expectation about project transparency, the token, and token holder’s desire to use the treasury for non-mission related purposes.”

Incubator DAO vs. Rook DAO

JZ, suggested Rook co-founders and core team would control Rook DAO and about 75% of assets via a multisig, while the rest of the community would control a new organization holding 25% of the treasury, called Incubator DAO, via the ROOK token.

The proposal was quickly panned. Rook holder Cmande3 called it an attempt by management to take the Rook DAO treasury for themselves.

1 Year of Runway

Members of the DAO hammered out a compromise with management after a weeks-long debate in the Rook Discord: the Incubator DAO would receive the majority of treasury assets — 57%, according to one estimate — while the DAO would keep 43%, or about $20M.

That figure was good for one year of employee salaries and other business expenses, according to the pseudonymous CEO, hazard.

“The team has taken the time and effort to give tokenholders a fully-vetted option to go their own way, de-fund the project, leave us with the liabilities, and do anything they want, today,” hazard wrote. “At this stage in the discussion, what we need to support that is only that enough remains behind to cover our minimum liabilities and a year of runway.”

Insiders Selling

But the agreement almost fell apart Thursday after DAO members noticed some in management selling ROOK tokens.

Hazard suggested it was a misunderstanding — a way to ensure the team didn’t have any voting rights in a newly-formed Incubator DAO. The team re-purchased the tokens its members had sold and committed to burning them in the event the Incubator DAO proposal passes.

“Okay Incubators — screenshot this,” hazard wrote, referring to supporters of the Incubator DAO proposal. “No team tokens going into circ[ulation], no team tokens using to vote, no team tokens being used in Incubator DAO gov. All the stuff you think is nefarious is just engineers sucking at politics.”
The voting to create an Incubator DAO ends Tuesday, and had 100% support as of Monday evening.