In April 2022, Hedera announced that the Hedera Governing Council had entered into an agreement to outsource essential services previously performed by Hedera Hashgraph, LLC personnel to Swirlds Labs, as the Council continued its focus on network governance, industry standards, public policy, and treasury management. (Mance Harmon, Dr. Leemon Baird, and Hedera Development and…) Those organizational changes, which were effective May 1, 2022, included that Mance, Leemon, the product, engineering, and marketing teams, and back office personnel, moved to Swirlds Labs. Since then we at Swirlds Labs have been laser focused on building out the network services, optimizing network performance and bringing awareness to Hedera.
On Friday, February 24th, Hedera announced <https://twitter.com/hedera/status/1629224906515701762> the planned distribution of hbars to Swirlds Labs, which generated a lot of questions from the community including:
- Why is next year’s budget pre-paid this year?
- How are hbars handled in Swirlds Labs accounts?
- How do the periodic adjustments work?
- What are the allocations of budget across different functions?
- Does Swirlds Labs have other sources of revenue?
In this post we will tackle each of these questions one by one, and please note that the information here is accurate as of the time of writing but is subject to change in the future.
Why is next year’s budget pre-paid this year?
There are a number of reasons that Swirlds Labs thought it made good sense to receive prepayment of its budget under the contract with Hedera. When we were forming Swirlds Labs, we were very focused on establishing it as a truly independent entity, which in our view entailed, among other things, having responsibility for our own financial management, risk mitigation, and administrative controls. Swirlds Labs wanted sufficient latitude to manage the contract’s budgeted hbars in light of all the volatility and uncertainty in the crypto market; prepayment of the annual budgets allows Swirlds Labs to exercise its own judgment and discretion about how to manage our business risks and financial affairs. In addition, one of the things we heard from existing staff during the reorganization, and from candidates during our hiring process, were concerns around the medium-term economic viability of Swirlds Labs as a stand-alone entity. To hire the best talent in the industry it is necessary to reassure them that we have the resources to commit to them in future years. The prepayments from Hedera also help provide that assurance.
How are hbars handled in Swirlds Labs accounts?
The hbars that Swirlds Labs receives from Hedera go into a single account initially (0.0.55981). They are then transferred to other operating and holding accounts, where they are staked to different nodes to help secure the network without receiving rewards. At the appropriate time, hbars in the operating accounts may be sold to pay for business expenses or granted to personnel as part of their compensation.
How do periodic adjustments work?
The price of HBAR is constantly fluctuating. As Swirlds Labs does budgeting a year in advance, and receives hbars up to two years in advance of when they may be needed, the rough budget is paid for in hbars using a conversion price of the trailing 30-day average ending December 31st of the prior year. Then, depending on actual spend versus the prepaid budget (which are approved by Hedera) and the actual price of hbars when they are used, quarterly adjustments or “true-ups” are made to reconcile the amounts. If the price of HBAR increases, such that fewer hbars were needed to cover the approved expenses, Swirlds Labs credits the unused prepayment against the next annual prepayment and conversely if the price goes down, Hedera sends Swirlds Labs more hbars to make up the difference. For the coins that will be sent to Swirlds Labs for 2024 operating expenses, we do not anticipate those to be used until January 2024 at the earliest. Throughout the year, if the price of hbar is considerably higher than the conversion price used to determine the prepayment amount, it’s possible those coins won’t be used until late 2024, or even in subsequent years, as they will be credited to the subsequent year’s prepayment.
What are the allocations of budget across different functions?
Today Swirlds Labs is primarily focused on the success of the Hedera network, and the budget allocations for 2023 are roughly as follows:
- Engineering/Product/DevOps: 59.8%
- Marketing: 25.9%
- Back office (HR/IT/Finance/Corporate): 14.3%
Does Swirlds Labs have other sources of revenue?
We are focused on the success of the Hedera network, and our work under contract with Hedera is the primary source of revenue for Swirlds Labs. However, for Swirlds Labs to become a long-term viable business in its own right, we will build revenue- and TPS-generating products and services on the Hedera network to the benefit of the ecosystem. We aren’t quite ready to share our first product with you yet, but there is work being done behind the scenes. We can’t wait to tell you all about it. But please don’t hold us to a timeframe. Let’s just say there’s no shortage of cool stuff being ideated in Leemon’s Lab.
