Introduction
Tokenomics and Governance
Fees, Currency, and Consensus
Smart Tokens and User-Defined Assets
Core Architecture and Ledger Logic
Infrastructure and Tooling
Community Inclusive Organization
Central to Topl’s vision of creating a robust and vibrant impact economy that prioritizes productive contribution over speculation, is a firm foundation for project governance. Without a well-designed governance foundation in place, the long term vision and purpose of the project cannot be guaranteed.
Standard practice for crypto projects seeking to implement such a governance foundation is to settle on some combination of on-chain and off-chain voting and to plan for all voting procedures and any associated fund dispersal to eventually be handled by a DAO.
To understand why we intend to introduce a new model of project governance, we must first briefly address the shortcomings of traditional DAO style setups for layer 1 protocols such as Topl.
DAOs, or Decentralized Autonomous Organizations, can be thought to come in three primary varieties (with the obvious potential for hybridization) that we will call as follows:
Smart-contract fund custodian - “The DAO” is perhaps the most pure example of this first DAO variety. Stakeholders pool capital into a smart contract in exchange for voting tokens that entitle them to vote (directly) on what to do with the pooled funds and participate in the potential returns of such investments on a pro rata basis.
Variable tuning mechanism - Most commonly found in DeFi protocols such as Maker or Aave, a DAO-style setup can be used to allow for the tuning of various parameters such as liquidation ratios and stability fees that are central to how these protocols operate.
Consensus rule validator - While DAOs are least commonly found in layer 1 projects, a notable and long-running exception to this is Decred. The Decred blockchain uses a well-developed on-chain process of voting to approve any changes to the consensus-level rules of the protocol.
Although any Topl DAO would have to draw from all three above functionalities, it is not this combined functionality that represents the shortcomings of DAO style governance. Rather, it is the simplicity with which they must necessarily operate. If we explore any of the above introduced DAOs further, we can see that they are consistently paired with substantially less developed off-chain procedures such as admin-moderated discussion forums to handle everything except final execution. The challenge here for the governance of layer 1 blockchains like Topl stems from the long development cycles and the repeated rounds of approval for any substantial development effort.
As is readily apparent from examples such as Eth2 or Cosmos Stargate, the critical compromises, decisions, and work of an upgrade is done long before a network validators activate a new protocol version at a predetermined block number. Both in theory and in practice, the design of DAOs as presently conceived effectively relegates any community governance to a mere rubber stamp for decisions that have already been made and often carry too much momentum to halt without deleterious effects for the project.

# The Topl CIO (Community Inclusive Organization)

As an alternative to the DAO, we propose a new model of governance that we believe better addresses the realities faced by blockchain projects and more accurately solve the much discussed principal-agent problem. Upon decentralization (more on that timeline, here), the Topl blockchain will be governed and led through a Community Inclusive Organization or CIO.
The first and most critical difference between a CIO and a DAO is that the former is intended to recognize the reality of long term involvement by a legal entity in project custodianship and execution. By accepting this reality, the CIO can implement rigorous and well-founded protocols for its own governance and relationship with the project ecosystem rather than allowing such protocols and relationships to be relegated to a footnote and unrealistically dismissed.

## Jurisdictional Prerequisites

The Topl CIO will be formed as a foundation in one of several contemplated jurisdictions. While the jurisdiction chosen may affect some formation and reporting requirements of the foundation, the chosen jurisdiction will necessarily allow the following:
The CIO will not have any capital stock or other form of capital ownership. There will be no “owners” of the CIO, only a governing board.
The governing board of the CIO will be elected based on external parties (Arbit holders).
In addition to allowing the preceding two features for the CIO, the chosen jurisdiction must offer a consistent and friendly legal environment for crypto projects while also providing tight regulatory integration with a major economic block. For these reasons, a number of jurisdictions are currently under consideration including, the Netherlands, Switzerland, Malta, and Portugal.

## CIO Governance

The CIO will be governed through a two-tiered structure with a directly elected Governing Delegation along with a secondary Executive Council elected by and composed of members of the Governing Delegation. The purpose of such a two tiered structure is to effectively capture the viewpoint diversity that the Topl ecosystem hopes to foster while still allowing the CIO to provide effective and efficient guidance to the project.
The Governing Delegation will be variable in size depending on the number of monthly active addresses on the Topl Blockchain. Initially it will be comprised of 10 members and follow the following formula for expansion over time:
$governingDelegation=monthlyActiveAddresses^{(1/4)}$
Meanwhile, the Executive Council will be composed initially of 5 members including an Executive Director along with Directors for each established Committee. At inception, Committees will include Protocol Design, Research, Ecosystem Growth, and Monetary Policy. Committees can be added or removed at the election of Arbit holders.

## Election Process

Voting for the Governing Delegation will be conducted off-chain but with the cryptographic guarantees made available by verifiable token ownership.
Elections will be regularly scheduled at two year intervals, with the possibility for snap elections to be called as well if necessary. A snap election may be called by submission of such a request that is supported by a yet to be determined percentage of the current Arbit ownership. In the event of a snap election, the subsequent regular election will occur two years from the date of the snap election (provided there is no subsequent intervening snap election).
Following either a regular or snap election, the Governing Delegation will have 60 days to appoint a full Executive Council. If such an appointment is not successfully made, a election for a new Governing Delegation will be held.

## Voting

While maximum voting power will be determined by Arbit ownership, Arbits must be “spent” in order to be used to cast a vote. These spent Arbits will enter into a CIO reserve fund that can be used to incentivize network development, growth, and participation. While initially counter-intuitive, the purpose of such a “pay-to-vote” scheme works to address one of the central criticisms of PoS governance, namely that they are quite literally plutocracies. With conventional POS governance, holding of the network token grants a user control in all votes in perpetuity (at least as long as they maintain such a holding). In Topl’s voting model, ownership grants such influence in only a single vote.

# CIO Activities and Token Holder Control

Many blockchain projects seek to eliminate (or substantially minimize) the role of any organizational entity beyond the full set of token holders in an attempt to resolve the potentially conflicting interests that result from the principal-agent dichotomy, by simply eliminating the agent. While appealing in its logical simplicity, such an argument neglects that the realities of governance for complex projects will in one way or another produce agents, the only question to be answered is how well these agents are governed and aligned. You can find more on the “agent-vacuum” here (blog coming soon).
The Topl CIO will act to propose and discuss priorities for both ecosystem growth and continued protocol development as well as work to formulate standards and potential revisions to the project’s architecture, tokenomics, and monetary policy. The CIO will be tightly controlled by Arbit holders through annual budget submissions and approvals. As the CIOs reserves will be composed only of Polys (Topl's value stable currency) and Arbits, the CIO has no ability to fund its activities without the explicit approval of the Arbit holders.
A second key activity of the CIO will be to act as a supervisory body on any and all contractors or developers who have received project funds. As especially research and software development efforts can require extended periods of work, benefiting from multiple steps of review and reporting, such oversight will be greatly beneficial to the quality and consistency of work funded by the project.