Third-Party Audit for ZK Migration

[mental lake]

Posting this based on the suggestion of several E11 IMC members. @foggy pond thanks for the encouragement today!

Given that the DAO is migrating all transactions to the L2 ZK, now it is prudent (if not imperative for transparency) to have an audit performed and documented. Since the DAO has never had an audit , I suggest the IMC & ICC engage in a process of retaining a reputable third-party accounting firm to audit the DAO's finances and provide guidance on how to navigate these challenging times. This is particularly relevant given macro conditions and the crypto market.

I, along many past significant ILV stakers, have suggested this to both E9 & E10 IMC members, but they seemed ill-equipped to understand the importance of such matters. History and financial results have proven this was an oversight, while millions of stake were invested in none revenue producing projects. The forecasted financial outcomes never materialized.

Given @foggy pond professional background and now member of E11, I would hope the current council would give this matter its proper prioirity as the ZK migration is already underway. The first meaningful step the DAO can take to restore trust and transparency. Unfortunately, trust has not been restored by "building" more on the Arena, nor "hyping" ILP in 2025. This strategic horse is dead, its time to dismount.

As a basic starting point I recommend:

1. Hire a third-party accounting firm to perform an audit following GAAP. his is a normative business practice and globally practiced throughout the civilized world. Reputable DAO's conduct regular audites and any ascertion comes from either ignorance or dishonesty.

2. Review all practices and procedures related to signatories, fiduciaries, and custodianship of funds. If we as a DAO do not now, the regulators will tomorrow. And that will be costly!

3. Define Labs contractual relationship to the DAO as an indepedent contractor of the DAO. Review existing agreements.

[foggy thistle]

You've described the planned execution, but could you better explain the purpose?

Are you suggesting that team members have been siphoning funds away from the DAO? Or something else?

Let's say the audit is done and the DAO performs well, or poorly, what would you then suggest?

Given the obvious cost for undertaking such an excercise I'd like to better understand the purpose and planned execution after a given outcome.

[mental lake]

"What gets measured gets improved" -Peter Drucker. If you do not account for financial management in any business, you can never improve how the leadership allocates capital. It is such a foundational business discipline, and an expectation from investors. If you want to raise capital outside of a world of imagination, then this is by far the most pragmatic "to do" the DAO can take. If you ever want somebody to buy another $1K NFT for speculative future cash flows, then do it. I guess Illuvium is the exception to the other millions of businesses that operate on the planet following such standards (or a protocol)? Ask your boss, Sam Withers, or even your girl if basic accounting and accountability is crazy radical.

[foggy thistle]

In your own words, you need a tool for measurement.

What is your tool for measurement?

For example would you ask the auditor: Was investing X/Y resources in Illuvium Zero a good/bad investment, and how do you determine that, given game development is a creative field?

Or would you be measuring if salaries are appropriate amounts given industry standards and so on?

Or are you suggesting that money was funnelled outside of the DAO in ways where it wasn't tied to the progression of its systems, game development and so on.

[mental lake]

Well, I would start with this measurement, and ask what is the most probable path to reverse this trend, because nothing else matters if the DAO doesn't. This one thing makes all other things unnecessary or irrelevant. Right now, the plane is on its final descent and headed for a crash landing!

@foggy thistle Nov'24 you and Kieran stated that he could raise funds at a world-class level. Not to worry, the next round was in the bag (putting a few words in both of your avators here). Kieran on Jan '25 AMA says we going to raise the round. Well, we the DAO have not raised a single Satishi. Then in June '25 we had a small window. I called Kieran out in this forum. Nothing but an arragent response and ZERO results. Now we sit at a 90% draw down from ICO, with no positive cashflow, and an uncommunicable strategy for how we are going to drive revenue for the foreseeable horizon other than Indie RTE games. Look around we are on the death's doorsteps as a DAO. I reach out to 50 former loyalists of this DAO today and none of them were engaged or want anything to do with this project. These are former IMC, ICC, stakers, and landholders.

[stone chasm]

I agree that transparency and good governance matter, especially as the DAO matures. That said, I’m concerned about timing and scope here.
I want to be very direct about trade-offs here, because at this stage trade-offs matter more than principles in isolation.

A full financial / GAAP-style audit right now is not just low impact, I believe it is actively harmful to the DAO’s chances of survival. It would consume a meaningful portion of our remaining runway and, more importantly, pull time and attention away from the one task that actually determines whether Illuvium continues to exist: shipping a first, playable version of the MMO and attempting to generate revenue.

An audit will not tell us how to reverse the current situation. Auditors do not assess whether building Zero, Arena, or the MMO was the “right” creative or strategic choice. They do not fix product-market fit. They do not create demand. At best, an audit produces a retrospective report on processes and controls; at worst, it accelerates runway depletion while providing a new surface for blame.

Spending a high amount of $ trying to prove what could have been wrong in a formal report does not improve outcomes.

If there are specific risks tied to the ZK migration like custody, signatories, access controls, then a narrowly scoped review focused only on those areas could have made sense and might have been proportional. But a broad historical audit at this moment risks ensuring the very outcome you are saying you want to avoid.

Personally, I would rather give the DAO a real shot at survival by:

• Preserving runway
• Keeping contributors focused on delivery
• Shipping something that can test whether revenue is even possible

If that succeeds, a full audit later is rational and valuable. If it doesn’t, an audit now won’t change the ending... it will just get us there faster.

[foggy thistle]

You're using a lot of subjective wording here. Market Cap drawdown has no objective link to financial irresponsibility, not in the crypto space from what I can gather at least, especially if it was 'hidden'. Could you be more specific about how an audit would illuminate why a market cap is decreasing?

[foggy thistle]

This is basically what I was trying to get at yep.

Not sure how it improves the DAO, improves market cap or anything inbetween tbh. I mean 2 years ago I could see its value, but doesn't feel like it accomplishes anything at this stage.

Again unless relaxed is suggesting they are committing fraud, which is an entirely different conversation.

[foggy thistle]

Talking on the loyalists point.

Are you suggesting loyalists would return after an audit? In both a positive and negative scenario?

[mental lake]

@foggy thistle @stone chasm @foggy pond I do not have all (if any) answers. I am simply stimulating a main thing, which is the DAOs/ILVs reputation. You guys know after this thread dies I will go away for another 90 days as I have done before. I could care less about misallocation of funds so strike that concern. All I care about is to give us a prayer of recovering some of our capital...that is it! I believe reputation only procedes revenue. Right now, the reputation is drawn down lower than the MC and I think we all know it. It is time for the DAO to step up and stop outsourcing our treasury, our reputation, and our strategy to generate revenue. Our contractors have failed. Otherwise, put the horse down.

[foggy thistle]

Okay I think the reputation discussion is interesting.

To recover reputation you'd expect a positive outcome to come out of the audit?

So let's assume the auditors say everything is legit. Their assumption for 16 months runway feels highly accurate.

You expect the token price to increase due to reputational repair?

[mental lake]

I think a confirmation of proper accounting (not GAAP level) is essential for any chance of a raise alongside an absolute WOW vertical slice. Think we have all been way too naive for far too long.

[mental lake]

Thanks for the substantive feedback. A "review" from a third party accountant be minimal expense, EP-1 screwed me out of more coin and NFT value distruction than it would cost. ILV'25 did a hell of a job destroying our constituents assets...you got tons a shit meme coin that lost less in such time frame and ILV was already down 80% from ICO.

[mental lake]

This assumes our in-house CFO keeps the books according to acceptable accounting standards. So it should be a breeze to review.

[foggy thistle]

If its cheap, and doesn't take much time to prep, I'm not against it

[foggy pond]

This is completely speculation on your behalf and poor framing, ILVs perf has tracked similarly to the rest of the gamefi segment really.

[mental lake]

Is this speculation? youare out of touch!

@foggy pond ILV's base of holders have completely capitulated under your term

[foggy pond]

So has the entire market you are being ridiculous.

[mental lake]

No -92% since ICO is entirely different reality...maybe this explains why you guys have no conceptual idea why accounting and financial oversight matters

I am not even trying to be insulting, but I am baffled.

[foggy pond]

You continue to baffle yourself. Your logic is flawed, no amount of insults hurled will fix that.

[mental lake]

Run a pair chart of ILV since ICO against all the majors that were entrusted with say more than $50M and get back to me.