HSP-004: Creation of a Due Diligence Team (DDT) under the House of Stake Security Council

[whendacha]

Creation of a Due Diligence Team (DDT) under the House of Stake Security Council

1. Purpose

To strengthen integrity, transparency, and risk management within the House of Stake (HoS), a Due Diligence Team (DDT) will be formed under the HoS Security Council.

The DDT’s primary role is to independently review potential conflicts of interest (COI) and provide clear, unbiased recommendations to the Security Council regarding:

Proposal approvals

Budget allocations

Appointments and partnerships

Adjustments to governance flows

2. Key Mission

The DDT will:

Identify and flag conflicts of interest in proposals, budgets, appointments, partnerships, or grant requests.

Verify the background and track record of proposers, advisors, vendors, or sub-DAOs involved in HoS operations.

Produce due diligence reports with actionable findings.

Recommend actions: approve, approve with changes, defer, or reject based on risk.

3. Team Composition

The composition of the DDT is determined and appointed exclusively by the House of Stake Security Council.

The DDT consists of 3 members, each with a combination of:

Proven practical experience inside the NEAR ecosystem (governance, treasury, community operations, etc.)

Hands-on governance track record in at least one other major Web3 L1 or L2 ecosystem (e.g., Arbitrum, Optimism, Polygon, Cosmos)

This ensures understanding of NEAR-specific context and broader industry best practices.

Eligibility Requirements

Members must NOT hold any paid operational role that creates a direct conflict of interest within:

House of Stake Core / Operations

NEAR Foundation / HoS Foundation

HoS service providers, contractors, or other conflicting entities

This guarantees independence and allows the DDT to investigate any actor, including the Screening Committee or contractors, if required.

4. Compensation

These are not full-time paid roles.

If a specific task requires deep research or expert investigation, the Security Council may approve discretionary one-off compensation per deliverable.

Budget flow:

Security Council pre-approves the budget request

Screening Committee must submit the proposal as-is to the HoS vote (without edits)

HoS governance votes on final approval

This structure prevents conflicts of interest and ensures DDT independence from the Screening Committee.

5. Core Responsibilities

COI Audits

Screen major proposals, budget requests, partnerships, and appointments for hidden ties, double spending, or self-dealing.

Pre-Vote Reviews

Advise the Security Council on whether proposals are safe to advance or need revision.

Periodic Transparency

Maintain a log of checks performed, decisions made, and concerns flagged (sanitized or public where possible).

Advisory Role

Recommend governance process improvements to reduce future conflict-of-interest risks.

6. Operating Procedures

7. Proposal Intake

DDT receives all proposals designated for Security Council review.

2. Initial Screening

Members divide fact-checking and COI analysis by expertise.

3. Fact Gathering

DDT may request clarifications from proposers or gather ecosystem references/backgrounds.

4. Draft Report

Each report includes a clear recommendation:

Approve as-is

Approve with changes

Defer (needs more information)

Reject (with explanation)

5. Submission to Council

DDT submits the final report to the Security Council.

6. Decision & Publication

The Security Council accepts, amends, or rejects the recommendation and publishes the outcome with minimal delay.

7. Transparency

Where appropriate, full or sanitized reports are shared with the community for accountability.

7. Term & Replacement

DDT membership is renewable with Security Council approval.

Members may be removed by Security Council vote in case of conflict or breach.

Vacancies are filled through the same nomination and vetting process by the Security Council.

8. Reporting Lines

DDT reports directly to the House of Stake Security Council.

Final decision-making authority remains with the Security Council.

The Council may accept, amend, or reject DDT recommendations.

Why This Matters

This proposal introduces the first independent audit layer within House of Stake.

It will:

Prevent self-dealing and hidden conflicts of interest

Add transparency to budgets, appointments, and partnerships

Provide accountability over the Screening Committee and contractors

Strengthen community trust and governance legitimacy

Align HoS with best practices from other L1/L2 ecosystems

[lrettig]

Hi @whendacha

Thanks for the submission. Your proposals went up onto the forum for discussion and temperature check nearly a week ago, which means they're nearly eligible for being put to a vote. The next step here is to get them into the right markdown format so that they can be merged here, and then to open PRs to merge each of them. See #16 for a sample, and let me know if anything is unclear.

Note: I'm not going to reply individually to all of the other issues here since you're the author of all of them, but the same goes for each one.

Thanks!

[whendacha]

---
hsp: 003
title: Due Diligence Team under Security Council
description: Establishes an independent Due Diligence Team under the Security Council to audit conflicts of interest, increase transparency, and provide governance recommendations.
author: Dacha
status: Proposal
type: Governance / Operational
category: Governance / Oversight
created: 2025-10-12
---

## **Abstract**

This proposal establishes an independent Due Diligence Team (DDT) under the House of Stake (HoS) Security Council to strengthen integrity, transparency, and risk management within HoS governance.

The DDT will:
- Review potential conflicts of interest (COI)  
- Verify backgrounds and track records of proposers, vendors, and appointees  
- Produce due diligence reports with clear recommendations  
- Advise the Security Council before proposals, budgets, or appointments move to a vote  

By introducing an independent audit layer, this proposal increases trust, reduces self-dealing risks, and aligns HoS governance with best practices from leading Web3 ecosystems.

---

## **Context & Alignment**

The House of Stake Constitution and NEAR values emphasize:
- Transparency  
- Accountability  
- Decentralization  
- Community trust  
- Responsible treasury stewardship  

However, current governance flows rely heavily on internal committees (e.g., Screening Committee), which may face conflicts of interest or lack independent oversight.

Other L1/L2 ecosystems (e.g., Arbitrum, Optimism, Polygon, Cosmos) have introduced checks and balances such as risk committees, COI policies, and external audits to maintain governance legitimacy.

This proposal aligns HoS with these industry best practices by creating an independent Due Diligence Team under the Security Council.

---

## **Situation**

As HoS governance expands—more budgets, proposals, appointments, and vendors—the risk of conflicts of interest increases. Examples include:
- Self-dealing or favoritism in budget allocation  
- Undisclosed relationships between proposers and service providers  
- Lack of background verification for appointed roles  
- Screening Committee making decisions without independent oversight  

**Current issues:**
- No dedicated body to detect or evaluate conflicts of interest  
- No formal due diligence process  
- No independent review before proposals reach governance vote  
- Community concerns about transparency and accountability  

Without a COI audit layer, HoS risks repeating failures seen in other ecosystems (e.g., NDC, DAO controversies) and losing community trust.

The DDT resolves this by providing structured, independent review and recommendations to the Security Council before decisions are finalized.

---

## **Mission**

### **Objectives**
The Due Diligence Team (DDT) will:
- Strengthen integrity, transparency, and trust within HoS governance  
- Identify and flag conflicts of interest (COI) in proposals, budgets, partnerships, and appointments  
- Verify the background and track record of proposers, advisors, vendors, and sub-DAOs  
- Ensure proposals are aligned with NEAR values and HoS Constitution  
- Improve governance decision quality through clear, unbiased recommendations  
- Provide independent oversight over internal governance bodies (e.g., Screening Committee)  

### **Outcomes**
- Reduced self-dealing and hidden conflicts of interest  
- Increased transparency in decision-making and budget flows  
- Stronger accountability for all actors within HoS  
- Higher community trust and greater legitimacy of governance outcomes  
- Alignment with industry best practices for DAO governance and risk management  

---

## **Team Composition**

The composition of the DDT is determined and appointed exclusively by the House of Stake Security Council.

**The DDT consists of 3 members**, each with a combination of:

**1. Proven practical experience inside the NEAR ecosystem**, such as:
- Governance  
- Treasury or budget management  
- Community or operations leadership  
- Proposal evaluation or compliance  

**2. Hands-on governance track record in at least one other major Web3 L1 or L2**, e.g.:
- Arbitrum  
- Optimism  
- Polygon  
- Cosmos  
- Other established DAO ecosystems  

This combination ensures deep understanding of NEAR-specific context and broader industry best practices.

---

## **Eligibility Requirements**

To ensure independence and avoid conflicts of interest, DDT members must NOT hold any paid operational role that creates a direct conflict within:
- House of Stake Core / Operations  
- NEAR Foundation / HoS Foundation  
- HoS service providers or contractors  
- Any entity that may be subject to DDT review  

This guarantees the DDT can investigate any actor, including the Screening Committee or contractors, without bias.

---

## **Core Responsibilities**

### **1. COI Audits**
Screen proposals, budget requests, partnerships, and appointments for:
- Hidden financial ties  
- Double spending  
- Self-dealing or favoritism  
- Undisclosed relationships  

### **2. Background Verification**
Check track record and reputation of:
- Proposers  
- Advisors  
- Vendors / contractors  
- Sub-DAOs or affiliated entities  

### **3. Pre-Vote Reviews**
- Advise the Security Council before proposals advance to governance vote  
- Recommend revisions or mitigations when necessary  

### **4. Due Diligence Reports**
Each report must include:
- Summary of findings  
- Identified risks  
- COI assessment  
- Recommendation:  
  - Approve as-is  
  - Approve with changes  
  - Defer (needs more information)  
  - Reject (with explanation)  

### **5. Governance Process Improvement**
- Recommend updates to governance flows to reduce future COI risks  
- Provide suggestions for transparency, accountability, and fairness  

### **6. Periodic Transparency**
- Maintain a log of reviews performed and concerns flagged  
- Share full or sanitized reports with the community when appropriate  

---

## **Operating Procedures**

### **1. Proposal Intake**
- DDT receives all proposals designated for Security Council review

### **2. Initial Screening**
- Members divide fact-checking and COI analysis based on expertise  
- Identify obvious red flags or areas needing deeper investigation  

### **3. Fact Gathering**
DDT may:
- Request clarifications from proposers  
- Request disclosures of relationships or incentives  
- Gather ecosystem references or background information  

### **4. Draft Report**
Each draft includes:
- Summary of findings  
- Identified conflicts  
- Risk level  
- Recommended action (approve / approve with changes / defer / reject)  

### **5. Internal Review**
- DDT members review each other's work  
- Achieve clear, unbiased final recommendation  

### **6. Submission to Security Council**
- DDT submits final report to Security Council for consideration  

### **7. Council Decision**
The Security Council may:
- Accept the recommendation  
- Amend the recommendation  
- Reject the recommendation  

### **8. Publication**
- Final decision and outcome are published with minimal delay  
- Full or sanitized report may be shared to ensure transparency  

---

## **Term & Replacement**

### **Term Length**
- DDT membership is not strictly time-limited but is renewable with Security Council approval.

### **Removal**
Members may be removed by Security Council vote in case of:
- Conflict of interest  
- Breach of trust or confidentiality  
- Non-performance or ethical violations  

### **Vacancies**
- Filled through the same nomination and vetting process by the Security Council.

---

## **Compensation & Budget Structure**

### **Principle**
These are not full-time salaried roles.

### **Discretionary Compensation**
If a task requires deep investigation, the Security Council may approve one-off compensation per deliverable.

### **Budget Flow (to ensure independence)**
- Security Council pre-approves budget  
- Screening Committee must submit proposal as-is  
- HoS governance votes on final approval  

This prevents Screening Committee interference and preserves DDT independence.

---

## **Reporting Lines**

DDT reports **directly to the Security Council.**

The Security Council may:
- Accept, amend, or reject DDT recommendations.

Final authority remains with the Council.

---

## **Governance Integration**

Before a proposal goes to vote:
1. Screening Committee drafts proposal  
2. Security Council forwards to DDT  
3. DDT conducts review  
4. DDT submits report  
5. Council decides whether proposal advances  

No proposal with major conflicts reaches vote unnoticed.

---

## **Transparency & Accountability**

- DDT maintains a log of reviews and findings.  
- Reports may be public or sanitized.  
- Final decisions are published promptly.

---

## **Why This Matters**

This proposal introduces the **first independent audit layer** within House of Stake.

It will:
- Prevent self-dealing and hidden COIs  
- Add transparency to budgets and appointments  
- Hold Screening Committee and contractors accountable  
- Strengthen community trust and governance legitimacy  
- Align HoS with best practices from Arbitrum, Optimism, Cosmos, etc.  

Without independent due diligence, HoS may repeat past failures (e.g., NDC).  
With DDT, HoS becomes one of the most transparent governance systems in Web3.

---

## **Milestones**

- DDT Formation: Immediately after approval  
- Process Setup: Within 1–2 weeks  
- Initial Reviews Begin: After setup  
- First Transparency Log: End of Month 1  
- Quarterly Audit Reports: Every 3 months  
- Annual Review: 12 months after launch  

---

## **Reporting**

### **Quarterly Reports**
- Proposals reviewed  
- Conflicts identified  
- Recommendations made  
- Council decisions  
- Improvements proposed  
- Any compensated investigations  

### **Annual Review**
- Deep performance evaluation  
- Effectiveness of DDT  
- Systemic risks  
- Recommendations for continuation or improvement  

---

## **Security Considerations**

### **Governance Security**
✅ Prevents power concentration  
✅ Independent oversight  

### **Conflict of Interest Security**
✅ No paid operational roles  
✅ Mandatory disclosures  

### **Economic Security**
✅ Prevents treasury misuse  
✅ Minimal cost, high ROI  

### **Abuse Prevention**
✅ Council retains final authority  
✅ DDT cannot veto  
✅ Members can be removed if compromised  

---

## **Conflict of Interest**

I’ve read and agree with the House of Stake Conflict of Interest Policy.  
This proposal establishes a structure to prevent and mitigate COIs.  
The DDT itself will comply with COI standards and maintain independence.

---

## **Copyright**
@whendacha 

---

## **Disclaimer**

This proposal establishes an advisory oversight mechanism to improve transparency and conflict-of-interest prevention within HoS.

It does **not** modify the NEAR protocol or validator mechanics.

Final decision-making authority remains with the **House of Stake Security Council.**

[whendacha]

@lrettig done