Community led methodologies - Tier 2?

The discussion on IIP-15 has becomes slightly sidelined into a discussion on methodologists and rewards.

I think this is really something that should be discussed separately as it has a wider application.

During a call in November I suggested that we should consider if we should create a two tier system for methodologists / funds:

  1. Tier 1: DeFi Pulse, CoinShares, etc. Large organisations who can add value to the launch and marketing of the fund in terms of assets, reputation and reach.
  2. Tier 2: community led funds which rely on the coop for design, liquidity rewards and ongoing management.

I still think this is a good idea, and think that we should see if we can work something out. I think there are a few questions to discuss:

  1. Do we want to modify the structure to allow / encourage community led funds?
  2. How do we handle the streaming fee / reward the fund proposers?
  3. How does it fit into the methodology bonus programme?

For q2, I can see a few options that could be combined:

  • Methodologists / proposers propose a fee split with the coop and receive an ongoing income.
  • Methodologists / proposers receive a single payment of INDEX tokens when the fund is successfully launched with all fees going to the coop (I think Compound do this with proposers of new code including a bounty for the work they have done).
  • Methodologists / proposers get a bounty when the fund hits a KPI ($100 m AUV ? ) and all fees goes to coop.

If the methodologist / proposer don’t get an ongoing income from the streaming fee, then the coop should consider ongoing rewards / salary for the people managing the fund. I suppose it would be similar to the role I’ve being doing on DPI, a coop member with is product lead for a fund, keeping on top of the activity, KPI’s and building extrinsic use cases etc. Something for the guys looking at long term coop community retention to consider.

For q3, I think there are three options for Tier 2 funds:

  • Methodologists / proposers are eligible for the share of methodologist bonus based on income to the coop (i.e. as per the other methodologists).
  • The fund is ineligible for any methodologist bonus
  • The fund collects methodology bonus as normal (based on the % of streaming fees collected by the coop) but the bonus is redirected to the coop treasury. This would help the long term growth of the coop as it retains collateral, and generates more competition for the tier 1 methodologists. Note, I would consider that such strengthening of the coop is also in the long term interests oft he tier 1 methodologists.

I think it could be good to have a discussion on this, then some polls before raising an IIP.

Some other comments from IIP-15 discussion:

@setoshi @puniaviision @gdocter @Etienne @Celey @mcgpetch @TokenTerminal @scott_lew_is

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@DevOnDeFi @verto0912 @DarkForestCapital @LemonadeAlpha @reganbozman @Uncle @richard @dylan

I think it’s definitely something we want to encourage. From the experience of launching MVI so far we probably need to include a few steps prior to the external partner onboarding process, things like having an open discussion period and now that Set have launched the Asset Management Suite, encouraging individuals/teams to create a set there first to gauge demand and/or performance.

In my opinion the Index Coop should be looking to incubate these kind of proposals where someone can approach us with 3 months track record and we can put our weight behind marketing and integration. Where we are lacking is clear guidelines for levels of liquidity required and a defined way to measure the potential market size.

To answer the specific questions

  1. Yes, as above
  2. Streaming fee 100% to Coop makes most sense to me. Contributors who help manage the product can expect to be rewarded in the monthly distribution
  3. While the methodologist bounty is still running perhaps it makes sense to do something along the lines of Lemonade’s suggestion which is to split those INDEX rewards between the proposers and external partners/experts who provide input and help market the index. Tbh with Metaverse we had figured these rewards would be recycled into the Coop for use on LM incentives or similar, but given the point of INDEX is to help decentralise our governance, it could also make sense to use a portion to get outsiders interested.
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This is a different conversation, but want to surface that I am a bit wary of using “monthly distribution” to compensate every sort of effort in the Coop, including getting a new product supported by the Coop.

My gut says that there may be different / more ideal solutions.

I’ll be thinking on this more deeply :+1:

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Imo, this seems like an ideal case for the methodologist’s bounty.

I proposed this to DFC but I think the process for coming up with community methodologies should always involve the process of bringing in a council of people with domain knowledge in the index, having them review and make suggestions, and then utilizing them for promotion as well.

The Coop should get 100% of streaming fees in this situation, and the methodologist reward should be used to compensate the people brought in to comment as well as the original proposers.

Paying the streaming fee is sort of like a license for the methodology. If the methodology is born in-house I don’t see why we should pay to license it.

Because we’ll also need the methodologist bounty for liquidity, I’d propose something like an 80/20 split to start–20% going to Coop methodologists and outside council.

That said, I do like the idea of a position for those managing these products.

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Are we sure DeFi Pulse, CoinShares, and whatever partners the coop has is going to exist in 1-2, 10 years? Maybe they will get bought out, merged, or founders disband. Who knows if they will share the same community goals and values then.

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Thanks @overanalyser for raising this topic as I agree that this is something we should discuss.

On community launched indices:

I think that we should encourage them but with a certain caution. Part of the appeal of our products is their more institutional nature with comprehensive, objective methodologies. While the community can certainly deliver this, I’ve been thinking about what proportion of our indices should be community launched? Is it 20% (1 in 5), 25% (1 in 4) or 33% (1 in 3)? I’m personally more on the side of 20% or 25%, meaning that the majority of our indices should be from external methodologists.

On fees and the bounty:

The main question here, to me, is how do we reward/compensate the community methodologists?

Until now, my thinking was in line with @DarkForestCapital which was let’s compensate through regular rewards. But this take from @gdocter made me reconsider.

I now think that the community methodologists should be compensated through either the bounty or a fixed dollar amount or INDEX allocation. I like the idea of keeping the entire bounty for supporting the product launch (liquidity mining) or returning it to the Treasury. In my mind, a community launched index should maximise the benefit to the community. In this case, the community methodologists could be rewarded through a fixed payment for the launch, plus sort of options that get triggered/released when certain milestones are hit (like $100 million AUV, etc.). This construct, compared to just allocating a share of the methodologists bounty is better, because we can design it to capture the upside. For example, if $MVI reaches $500 million or $1 billion at some time in the future, it would make sense that the methodologists get to participate in that upside. This approach might introduce some complexity in terms of having to agree on all these parameters. So I see how allocating a share of the methodologists bounty might be a cleaner option.

I think that the fee should stay with the Coop. For $MVI, 5% of the fee was proposed to be allocated to the methodologists but that was meant to be for the compensation of outside advisors (like Mason).

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Much excellent stuff has already been said here, but I’d add:

  • Many of the incentives proposed above for community methodologists do not seem to link reward to the ongoing success of the index and the scale of that success.
  • We don’t want to incentivize behavior for simply launching indices and doing some continued work supporting them. Having a stable of excellent, large products is the goal.
  • I agree with @verto0912 that it could be optimal to consider KPI driven payments as a part of this reward and I would be open to considering streaming fee split.
  • Different indices for different investment themes might have different potential scale - DPI vs MVI - so we might need to vote on what the KPIs are there. Streaming fee % makes this simpler and easier - a potential streaming fee % could be less than it is for professional methodologists though.