DAOs and other collaborative projects frequently employ multisignature wallets to manage shared assets and access critical contracts. Striving for decentralization and safety, the adoption of multiple signers is a beneficial practice to enhance control decentralization by distributing responsibility and minimizing the risk of a single point of failure. Recognizing the time and effort invested in the signer role, it is reasonable to establish a signer reward system. However, information and resources on this topic are scattered across the web. Drawing inspiration from existing projects is not straightforward, as setups are often buried in lengthy forum threads, governance proposals, and Discord channels.

“There isn’t a lot of transparency around multisig compensation in various DAOs. This is not because people are hiding the information, but rather it’s simply because this information often isn’t publicly displayed in obvious places” - Amplice from Gearbox

Last fall, Multisight embarked on a mission to address this knowledge gap. Through our community research, we engaged in insightful conversations, gathered valuable feedback from a survey, and even experienced the lack of resources ourselves. We would like to express our gratitude to each and every person who contributed to this research. However, during our work, it became apparent that this challenge is intertwined with other related topics. In 2024, Multisight will continue to build an educational foundation on all aspects of multisignature wallets, enabling both existing and emerging projects to design configurations of their multisigs that fulfill their needs in an easily accessible and understandable manner.

With that said, let's return to the original question:

How to reward multisig signers?

For founders of smaller projects heavily committed to the project’s efficiency and operability, holding multisig owner roles themselves, a reward for their work may be considered nonessential. However, as projects grow and multisig participants gradually become more distant from the project’s founding core, incentives become a reasonable tool for rewarding their roles and responsibilities. A good reward system should compensate signers for their responsiveness and time committed to reviewing individual actions. It should also align reasonably with the value of managed assets and the frequency of multisig actions. As expected, all of this introduces a set of challenges, as numerous variables come into play, and risks abound from various angles.

Reward frequency

Many projects that implement signer incentives choose to distribute equal rewards to all multisig owners at regular intervals, such as monthly or at the end of their owner role. While this approach may seem intuitive, it creates a situation where owners can become inactive yet still receive rewards, leading to an unfair compensation structure for active signers. In more severe cases, the majority of owners may become inactive, negatively impacting the multisig's operations and compromising the efficiency of the entire setup.

A logical countermeasure would be to reward only actively participating signers. However, this approach also introduces serious risks by fostering a competitive environment where speed becomes more important than a thorough review of multisig actions. Such a setup might lead signers to overlook details in pending actions to secure personal rewards, ultimately compromising the heightened security promised by the multisignature feature.

Each project must determine its own optimal balance between responsiveness and security for its multisig. The key to finding and maintaining this balance is continuous monitoring and evaluation of multisig effectiveness. Ideally, owners should be familiarized with activity and responsiveness requirements before the start of their term, and other project members should consistently hold them accountable.

• Mutant Cats DAO, an NFT-related project, rewards its multisig owners every month

• Sushi, a decentralized exchange platform, provides rewards to its multisig owners annually

Reward currency

When determining the form of rewards, many projects choose to further incentivize individuals by providing rewards in the project’s token, if available. Considering the market's volatility and the length of owner role terms, it is often preferable to define rewards in traditional currencies or stablecoins. At the payout period, the reward amount is converted into the token's market value and transferred to the receiver. If a project is not associated with any token, rewards in stablecoins are a sufficient option.

• mStable, a decentralized finance infrastructure, provides USD rewards in their MTA token equivalent at payout date

• Gearbox Protocol, a decentralized finance protocol, rewards its multisig owners in a predefined amount of their GEAR token

Reward amount

Arguably, the most intricate component of the reward system is determining the actual reward amount. This decision hinges on the financial resources available to each project and the importance it places on its security. Additional expenditures can originate from the extent of the duties and responsibilities connected to the role of multisig owner. While there is no universally recommended amount for these reasons, we’ll further explain the most common process for multisig owners to better illustrate their time and focus demands.

Each multisig action begins with the submission of its details, and the format varies depending on the governance interfaces and tools employed. This process may involve manual data entry, uploading CSV files, or confirming submitted asset transfer requests. Accuracy in input data is crucial at this stage as it sets the foundation for the subsequent procedures. An action may involve only a single command or extend to multiple commands, demanding time and attention from the submitter, especially due to the intricacies of alphanumeric data involved. This task is usually carried out by an individual, but cooperation with other owners is possible.

A submitted action must be signed by multisig owners to reach the required confirmation threshold. During this step, signers verify that the data accurately reflects the proposed actions from the original data source. For each specific action, they must confirm the accuracy of all parameters (such as target address, token, token amount, etc.). This process can be demanding in terms of attention and time, varying based on the action details and the number of sub-actions involved.

The last step of the process involves on-chain execution, which is the most straightforward part. A possible time-consuming task is monitoring low gas fees on some of the expensive blockchains. Based on the internal agreement of the owners, this step can be left for the last signer or a dedicated owner can be assigned to it.

When defining the reward system, one should consider the overall expected activity during the owner’s term with all the demands associated with each action.

• Ribbon Finance, a decentralized finance platform, rewards its multisig members with an equivalent of 150-350 USD per month

• dYdX Foundation, a maintainer of the decentralized finance platform, compensates its core contributors with 1100 USD per month in a role that includes other duties besides multisig management

During our research, we have gathered more examples. Feel free to explore our collection of multisig setups, and perhaps you'll find a project similar to yours or gain inspiration for improving your setup.

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• Visiting our knowledge base at Multisight.app

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