Community Ownership & Compensation | V2 Proposal

Authors / Reviewers: @Pepperoni_Joe @Dev, @metfanmike, @Matthew_Graham , @iluscavia , @ElliottWatts, @Hammad1412 @prairiefi, @jdcook

Background

On 22 October as part of Index 2.0, the Compensation and Community Ownership group published a post outlining a path forward to address the challenges our community faces around talent attraction, retention, and community ownership.

This was followed up by three separate posts on 12 November expanding on how a Retroactive Airdrop (1), Priority Hiring Guidelines (2) and Dynamic Staking Model (3) could address these challenges.

Since sharing these posts we have received a range of caring and considered feedback from the Community, Investors, and Set.

This post provides a condensed summary (okay we tried!) of an updated V2 framework that covers the following core components of our compensation and community ownership work:

1. Principles of a successful Community Ownership and Compensation model

To ensure our approach is robust, we note the following core principles a successful model for Community Ownership needs to respect.

  • Reward high impact contributors and leaders

    • Competition for great people is white-hot. We must ensure that our high impact contributors are rewarded sufficiently and retained
  • Provide flexibility and fairness guaranteeing new and existing contributors a fair opportunity to build ownership in the protocol

    • We have seen the tension created by an “in” or “out” mindset when full-time compensation packages are the only meaningful path to contributor ownership. We must look to promote community ownership in a scalable, open and (as far as possible) permissionless way that unites contributors of all stripes
  • Align contributors’ incentives with long-term price appreciation of the INDEX token

    • Presently, contributors receive more INDEX per month if INDEX prices depreciate. This is a counterproductive incentive framework that rewards contributors if INDEX price goes down. A new ownership system should align all contributors’ incentives with INDEX price appreciation
  • Incentivise contributors to hold INDEX

    • To achieve sustainable community ownership, distributing tokens is not enough; we need to encourage contributors to hold their INDEX tokens
  • Allocate tokens in a way that does not impede INDEX price discovery

    • Index Coop’s continued operations are enabled through the value of the INDEX token. As responsible stewards of the community, we must ensure that any changes we implement avoid under sell pressure to ensure a sustainable INDEX price.

2. Community feedback

We received a broad range of feedback on the original proposals, both in public and private. Several common themes emerged:

  • General

    • Total Community Allocation felt too high (y1-y4)
    • Compensation may not adequately incentivize leadership and/or highest impact core contributors
    • Compensation may not encourage a long-term mindset (i.e. through lack of long-term vesting)
    • Challenge as to whether the community had “earned” such a generous community allocation - and whether Index Coop needed to demonstrate more success before contributors receive significant community ownership.
  • Airdrop

    • Airdrop % allocation felt too high (y0-y1)
    • Airdrop would not adequately reward active contributors fairly in comparison to those who are no longer active
    • The new compensation framework, especially the airdrop, unfairly treats existing full-time contributors. This was primarily due to the fact that those on full-time packages would receive a smaller airdrop package and would face worse liquidity profiles on their FT package in comparison to the airdrop.
  • Dynamic Staking Model

    • The Dynamic Staking Model was too complex, especially for new hires who require some certainty when considering whether to accept an offer.

3. Summary of Compensation & Community Ownership model V2

Based on this feedback, we would like to present the following V2 revised compensation and community ownership model for consideration.

We propose:

  • 1.5% of total supply to cover historic contribution from Y0-Y1
  • 5% of total supply to be ring-fenced for future distribution in Y1 (starting Jan 2022)
  • 16% of total supply to be targeted for community distribution over Y2, Y3, Y4 etc. With the amount allocated to be determined by the Index Council each year based on current market conditions, treasury health etc.

By moving away from a fixed yearly ownership distribution (i.e. Y2=4%, Y3=4%) towards a target overall percentage of 16% for years 2+, we feel better equipped to achieve long term community ownership whilst retaining the flexibility to adapt and readjust as we go.

This 16% could be used to compensate contributors, and/or our community at large (i.e. holders of our products).

Mechanism Years covered % Allocation Rewarded for Vesting Max Vesting (when final vesting of community ownership is achieved)
Airdrop Y0-Y1 1.5% $ earnt as contributor since genesis Linear unlock over 6 months. No vesting requirement (i.e., no requirement to be an active contributor to earn the airdrop) July 2022 (6 months)
Dynamic Staking Model (DSM) Y1 5% Owl Level & INDEX ownership Reward for a given month vest in full after 6-month cliff (i.e., a requirement to continue being an active contributor in order to earn the reward) July 2023 (1 year and 6 months)
Dynamic Staking Model (DSM) Y2+ 16% Owl Level & INDEX ownership Reward for a given month vest in full after 6-month cliff (i.e., a requirement to continue being an active contributor in order to earn the reward) July 2023 (1 year and 6 months)

4. Vest

The timeline for when community allocation is received is a pivotal topic for success. In Web 2, vesting contracts have traditionally been used as “Golden Handcuffs” to incentivize long term alignment and retention.

We apply a similar principle to how we deliver community ownership under this model:

  • Under the Dynamic Staking Model, rewards earned in a given month will vest in full after 6 months and be distributed only if the contributor remained active within the community during that time. This means rewards earned in Jan 2022 via the DSM will be awarded in July 2022 if the contributor is still active.
  • Under the 1.5% community airdrop, we are proposing that the reward amount unlock linearly over 6 months. Vesting requirements of rewards from the airdrop will only be applied for those currently on FT contracts, to prevent receipt of airdrop and jumping to another opportunity
  • If a contributor ceases all activity with Index Coop - as defined as two months of no rewards from normal contribution - they will not earn any further rewards through the DSM and will also forfeit any of their unvested tokens

The forward-looking Dynamic Staking Model encourages contributors’ long term commitment to Index Coop and will provide a powerful incentive for retention. The airdrop acknowledges past contributors for value created and makes up for a failure by Index Coop to increase ownership for many high impact contributors who should have been transitioned onto a Full Time package many months ago (and have been patiently waiting whilst we figure all of this out).

By having the DSM rewards start after the airdrop rewards have been paid, we reduce sell pressure of INDEX and incentivise contributors to keep their airdrop rewards to build additional ownership and thus earn more through the Dynamic Staking Model.

The below diagram helps illustrate how this works in practice. It also helps us understand that under the current proposal, due to time lock and vesting, contributors would not be able to receive airdrop rewards and Dynamic Staking Model rewards simultaneously.

A= Airdrop linear unlock
D = Reward vested for Dynamic Staking Model (after 6 months)

Similarly, if a contributor ceased to be active within Index Coop in November 2022, they would forgo 6 months of Dynamic Staking Model rewards earned during their time working at Index Coop. This introduces a powerful incentive for contributors to commit to the long term at Index Coop.

In contrast to our existing Full Time package, the DSM is more generous for any contributors looking to stay with Index Coop over the longer time horizon of 2+ years. It is significantly less generous for contributors looking to leave in the next 18 months or earlier.

As such it provides more incentive for longer-term alignment than our current FT packages. It is also more transparent and permissionless - anyone can become an Owl Level, hold INDEX in their wallet and engage with the DSM over years without having to deal with HR or some compensation committee ever.

In many ways, the vesting mechanism of the DSM could be seen as an adaptation of a more traditional multi-year vesting contract with a 6 month cliff.

5. Dynamic Staking Model

A detailed explanation of the Dynamic Staking Model can be found here. A summary is provided below.

5.1 Summary

The ability to build sustainable community ownership is based on:

  • Total Community Allocation - The number of tokens we aim to deliver to the community to cover y0-y4.
  • Allocation retention rate - The % of tokens that are retained by recipients and which are not sold.

The Dynamic Staking Model (DSM) is designed to deliver a fixed % of INDEX to contributors each year. It is only available to white list contributors with a minimum Owl Level of Bronze and has an APY/return determined by a contributors’:

  • Impact (Owl Level)
  • Tokens held in wallet

As we know, commitment and contribution take different forms; most commonly, these are categorized under Talent, Treasure and Time. We have created a model designed to incentivize contributors to increase the impact of their participation (talent), while at the same time incentivizing them to increase their ownership of INDEX tokens (treasure) over a longer time frame (time).

5.2 Impact (Owls Levels)

In the model, more impactful contributions, as reflected by higher Owl Levels, are rewarded by a higher staking reward. The rationale behind this mechanism is that meaningful contributions receive a higher Owl Level (impact tier) and so should receive a greater reward.

5.3 Tokens

At the same time, a higher financial commitment to Index through large token holdings (skin in the game) is also rewarded. This concept is one that aligns the financial interests of contributors with those of INDEX holders at large. Let’s incentivize Owls to hold their stock in the family business, so to speak.

5.4 “Dynamic” Staking Model

More details and worked examples of the dynamic staking model are shown here. In summary, the DSM is effective at building community ownership because it rewards contributors whose incentives are most aligned with the overall community. It does this by:

  1. Providing an attractive APY which incentivizes contributors to hold INDEX (increases allocation retention rate)
  2. Over time distributing a greater % of ownership to contributors who have a higher propensity to hold vs sell (gives more INDEX to those with the highest allocation retention rate)

5.5 Dynamic Staking Model estimated rewards

We propose the following reward breakdown through the Dynamic Staking Model to achieve a target y1 community allocation of 5% (i.e. starting in Jan 2022).

The figures provided here are illustrative based on several assumptions (below) which will likely be subject to change

Assumptions:

  • Number of contributors at each Owl Levels
  • Average token holding by Owl Level

Fig 1 - Revised DSM Monthly Ownership Allocation (table)

The table below shows the monthly reward breakdown based on Owl Level and INDEX Holdings across 5 Owl Levels categories.

As you can see, a change from the previous model has been the inclusion of a fixed standard INDEX stipend regardless of holdings. This was done to provide greater clarity and transparency to new hires on the fixed INDEX reward they receive.

Furthermore, including the categories of “Neon” and “Gold+” allows us the flexibility to further incentivise high impact contributors and leaders at INDEX Coop. Those who go through our new “Priority Hiring Process” will receive an increase in their fixed allocation of INDEX to reward their long term commitment and focus on Index Coop.

We anticipate current Index Coop “Full Timers” being moved onto the higher fixed INDEX allocation and additionally gaining access to the DSMs flexible reward based on token holdings.

We also want to make clear some new hires might be offered a different fixed monthly allocation of INDEX to the ones displayed above. This is to ensure the model can still provide flexibility to recruit top talent.

How monthly community allocation interacts with Owl Level and Token Holdings can be seen below.

This mechanism creates an attractive APY for all contributors across the spectrum. It encourages contributors to hold their tokens and ensures long term a community allocation will be distributed to those with the highest propensity to hold, versus those with the highest propensity to sell.

This will enable the Dynamic Staking Model to achieve a higher Allocation Retention Rates than any other ownership allocation mechanism currently seen in web3.

Finally, we received feedback that our previous model did not do enough to incentivize the highest impact contributors (i.e. Gold Owls). With the increased distribution rate for Gold Owls, coupled with their expected higher INDEX holdings, we anticipate around 80% of Community Ownership to be distributed to our high impact, and indispensable, Gold Owls.

We encourage you to experiment with this Dynamic Staking Rewards tool to get an estimation of the rewards you could anticipate based on your own Owl Level and INDEX holdings. Again, we want to note that the reward levels proposed here are only indicative and may be subject to change.

5.6 Conclusion

We hope the updates to the Dynamic Staking Model captured above, addresses several of the major feedback points for this model, namely:

  • The DSM is confusing and doesn’t provide stability for new hires
  • The DSM doesn’t incentivize long term contributors
  • The DSM doesn’t adequately reward the highest impact contributors and leaders

We also wanted to address several other considered challenges below:

  • Dynamic Staking Model creates a “hard cliff” after Y5 when it is discontinued
    • We are providing a fixed allocation via the DSM of “5%” only in year 1. The remaining 16% will be allocated flexibility over Y2+ based on market conditions and/or treasury health. Index Coop will retain the flexibility to adjust DSM rewards, parameters and yearly community allocation target throughout the program to guarantee flexibility and ensure the model is sustainable and driving the right outcomes.
  • Can the Dynamic Staking Model be gamed once third party borrowing markets for INDEX are created
    • These types of borrowing markets for INDEX do not currently exist, so there is no immediate risk to the model. However, over time they are likely to emerge
    • Thus, we propose over the next 6 months the DSM transitions to a "closed system”. This means that after 6 months only INDEX earned through the DSM, or which has previously been deposited in a custom-built Staking Module will count towards the total INDEX holdings.
    • This transition does not impact the integrity of the DSM as it will still serve its core purpose, incentivising ownership (INDEX) retention. However, it will negate the threat of medium-to-long term gaming via INDEX lending/borrowing markets.

6. Airdrop

6.1 Summary

The Dynamic Staking Model provides an effective forward-looking way to align incentives of contributors with the broader community, attract and retain talented contributors, and build sustainable community ownership.

However, it does not address a historic failure to build ownership among contributors. Since genesis, less than 2% of ownership has been delivered to the community at large, with many vital contributors having negligible ownership in Index Coop despite their impact and importance to the Coop.

Below we can see a summary of the initial token distribution along with vesting periods, highlighting when ownership becomes liquid. As can be seen below a large proportion of the initial token supply was distributed to liquidity incentives and airdrops to early holders and LP positions. Set, DFP and other investors have captured almost 47% of total supply.

The initial allocation per the medium article published here shows 70% intended for the ‘community’ and 30% to founders, the below table highlights a significant mismatch in that initial allocation.

Retroactive airdrops to early contributors are not a form of wealth redistribution - it’s actually a late payment for wealth that was in fact created by contributors, especially as the airdrop more powerfully rewards contributors that are still active. This late payment helps quickly increase long-term, high-value contributors’ INDEX holdings, to use in the DSM, and lessen their attraction to external opportunities over the 6 month period before the first DSM rewards vest.

6.2 Calculating the Airdrop

The calculation for the airdrop is guided by:

  1. The 1.5% of total $INDEX mentioned above which the airdrop will distribute
  2. A contributor’s value contributed to the Coop in the first year, as measured in USD value of $INDEX they cumulatively received from October 2020 to December 2021. We then add 75% USD on top for contributors who are still active (as defined by receiving rewards (or impression mining rewards) in two of Oct, Nov and Dec ‘21).
  3. First year starts Oct ‘21 as very little rewards were earned in Oct ‘20
  4. A contributor’s personal participation in the airdrop will equal:

Example:
If you’d contributed A. $100k of value in the first year, the community had contributed, B. $1m of value and C. total payout via the airdrop is 1.5% out of 10,000,000 tokens the model would deliver you the following tokens:

(A. $100,000 / B. $1,000,000) X (C. 1.5% X 10,000,000) = 15,000 $INDEX

Once the rewards for December have been finalised, we will share an updated model which shows the final airdrop amount contributors would expect to receive. The general distribution logic before special situations is discussed and potentially catered for, below.

6.3 Airdrop and “Full Timers”

Given that: i) the airdrop is now 1.5% not 7%, ii) we have added an active/inactive lookup in the airdrop model, iii) we have increased the fixed INDEX allocation in the DSM and iv) we have increased the overall rewards from the DSM, we propose “Full Timers” (still active, logically) are eligible to receive the airdrop in full.

6.4 Vesting

An individual’s airdrop will be received monthly over six months with no requirement to maintain active status. Contributors active and inactive are eligible for their airdrop tokens over six months. Given the airdrop is substantially smaller now, with an active/inactive lookup in the model, we think this distribution logic is fair.

6.5 Airdrop key changes

  • Reduction in the community airdrop from 7% to 1.5% of total allocation
  • Changed payout details to make the airdrop payout over a period of 6 months, after which point the rewards from the Dynamic Staking Model will come into effect
  • Lookup for active/inactive in the model, to reward contributors still here
  • Inclusion of impression mining into rewards
  • Full Time contributors will receive their airdrop in full, with no reductions or additional vesting terms.

7. Priority Hiring

The final aspect of the proposed Compensation and Community ownership work was an updated set of Priority Hiring Guidelines. This should be seen as a minor improvement, not a comprehensive overhaul of the Full Time Hiring Guidelines. More details of our “Priority Hiring” guidelines can be read here.

In summary, the Priority Hiring Guidelines seeks to identify the highest leverage contributors and/or most strategically important roles at Index Coop and provide them with a competitive salary and compensation package to retain them for long via:

  • Fixed yearly salaries
  • Fixed Owl Level, and so INDEX allocation per month
  • Priority hires also get access to the Dynamic Staking Model like all other contributors

Simply put, some contributors need long term employment stability and a fixed yearly salary. In web3’s competitive labour market, failure for Index Coop to provide this stability would be a major oversight. Thus, the need for Priority Hiring Guidelines.

Based on feedback, we have moved away from the term “Full Time” and embraced the fact that contributors may participate in multiple DAOs - and that is ok. However, there is an expectation that everyone who goes through the “priority hiring” process will be primarily focused on Index Coop.

Those working across many other DAOs in a more flexible way will find the flexible compensation framework more suitable to their changing situation. It is important to highlight that those under the flexible hiring framework can still expect to receive significant rewards for value delivered.

With the creation of the Index Council on November 30th, the order of prioritising for contributors and positions to go through “Priority Hiring” will be determined by the Index Council.

8. Treasury

Treasury disclaimer - Finance Nest to the best of its ability has provided an estimate of the potential future balances and with unknown costs is unable to provide a detailed picture of the next 12 -18 months. We are working with members of the DAO to create a more detailed budget and cashflow forecast that will be presented in due course.

We invited Finance Nest to review this proposal to provide feedback on its financial viability. Taking into account expected future costs and also the DAO’s current and future reserves balance

If this proposal were to pass, non-earmarked reserves would total 379,747 INDEX and $4,727,000 USDC. In addition to this, Index Coop would also have a ring-fenced warchest of 1,500,000 INDEX and further $5,000,000 in USDC to be maintained in the event we have to deploy a significant amount of capital in the future.

Current treasury balance

The below table does not include Index coop product streaming fee balances at the start of November these totalled approx $2.7m

Current Balance $INDEX USDC reserves
Treasury Balance November 1st 2021 1,856,561 $9,727,000
INDEX to release in vesting contracts 2,273,186 n/a
Total treasury holding 4,129,747 $9,727,000
Earmarked reserves $INDEX USDC reserves
Treasury minimum balance (15% total supply, warchest) 1,500,000 $5,000,000
Y0-Y1 Airdrop community allocation (1.5%) 150,000 na
Y1 Dynamic Staking Model community allocation (5%) 500,000 na
Y2+ Dynamic Staking Model community allocation (16%) 1,600,000 na
Non-earmarked reserves (remaining balance) 379,747 $4,727,000

It is also important to highlight again, the “Y2+ Dynamic Staking Model community allocation of 16%” will be delivered flexibly, and allocation in a given year will be decided by the Index Council with input from Finance Nest factoring in market conditions, treasury health etc. This will provide Index Coop the flexibility to ensure its long term longevity…

9. KPI bonus

Originally this proposal had suggested some percentage of the Community Ownership would be unlocked once a series of ambition KPI were reached. However, in the face of some budgetary uncertainty, and to reduce complexity, we have now removed this recommendation from the proposal.

We do not want to close the door entirely on KPI options, rather keep the concept but not commit with this group, and handoff work that’s been done to the Index Council to consider at a later date.

10. Timeline

We will seek to take this proposal through IIP to signal a directional commitment to the Dynamic Staking Model, Airdrop and Priority Hiring Guidelines.

After this, we will go heavily into the implementation specifics with Engineering WG. We want to note that there are various ways in which the proposal above can be implemented with greater or lesser degrees of complexity.

The implementation approach will not materially impact the mechanisms as proposed.

Mechansim Effective from
V2 Priority Hiring Effective immediate
Dynamic Staking Model Jan 31st
Airdrop Jan 31st

A summary of the changes for current FT folks is provided here.

Next steps

The immediate next step is to gather constructive feedback and questions before hopefully moving towards IIP.

Please share your constructive feedback below.

Temperature check
  • I support this proposal progressing to IIP
  • I do not support this proposal progressing to IIP
  • Abstain

0 voters

17 Likes

We really look forward to more feedback from contributors and investors - and hope we have moved a step forward to what you called ‘Slaying Moloch’ @Thomas_Hepner and what other DAO members have called our biggest organizational and scaling issue.

LFG!

8 Likes

Kudos for the work that has gone into this! The level of detail is impressive and amount of consideration given is very apparent.

I do have one question and it’s really just a point of clarification in the accounting/numbers. In the V1 proposal, @Dmitriy_Berenzon noted in his reply that “In the genesis event, the treasury was allocated 52.5% of the total INDEX supply, of which approximately 41% remains.”

In this post, the image breaking down the initial allocation states “Community treasury = 52.5%, of which less than 2% has been delivered to core contributors.”

Assuming all numbers stated are correct, just wondering where the other ~9% of initial allocation to the treasury has been spent? Possibly the stablecoin diversification we executed? If so, that would make perfect sense - but if someone from @Finance.Nest could clarify, it would be much appreciated.

6 Likes

Shoutout to the people who’ve put countless hours into crafting this proposal.

I’m sure most of the Coop can appreciate this post is just the tip of the iceberg above hundreds/thousands of Discord ping pong sessions, spreadsheets, uncomfortable meetings, designing complex models and simplifying them for plebs like me. And then taking feedback from the community and partners (very graciously) > to the drawing board to develop something more sustainable and calculated.

Designing a compensation framework for so many different stakeholders is a gruelling task that I’m sure the Coop will look back on one day with endless appreciation :pray: @Pepperoni_Joe @DevOnDeFi @Metfanmike @Matthew_Graham @iluscavia @ElliottWatts @Hammad1412 @jdcook @prairiefi

WAGMI

15 Likes

I want to commend @Pepperoni_Joe for driving this effort. Just a massive lift from him. Many of us chipped in, worked on models, provided feedback, drafted bits and pieces, etc. But Joe was the glue that brought everything together.

While undoubtedly this model may not be perfect, I believe it does an exceptional job at creating a pathway for strong incentives for top talent to come to the Coop and stay. I think it also provides flexibility to accommodate individual circumstances. And I think it provides part-time, flexible contributors with a really great opportunity. Striking a balance between all of these has proven difficult, but I believe this is a strong foundation.

A critically important piece of this that I want to highlight is how this will allow us to be aggressive in going out and getting the kind of talent (eng, quant, financial eng, product, etc) we need to bring in-house to take the next step as a DAO.

With Y2+ (16%) not being overly prescriptive, we also have the flexibility to iterate on this model in time.

Let’s go win!

17 Likes

stablecoin diversification, further LM programs beyond the initial 2-month, and other expenses are the likely culprits

Hi Weeze, thanks for your message. I can provide some clarity on this. Based upon the above numbers I can summarize below where the ~ 11% of total supply has been spent as I am finalizing the close of the November financial statements.

Spending

  • Strategic Raise - assuming a token price of $24.26 ([Discussion] Index Coop OTC Sale Next Steps) $10m equates to 412,201 INDEX or ~ 4.12% of supply
  • Contributor rewards - to date we have issued 130,036 INDEX or ~ 1.30% of supply
  • Full timer vesting contracts ~ 0.8% of supply
  • Additional LM programs ~ 3.5% of supply
  • Various other spending ~ 1.28% of supply

This gets you roughly back to the 11% spent.

10 Likes

Tremendous lift by all involved and I echo @jdcook in his commending @Pepperoni_Joe for his tireless efforts in driving this forward.

9 Likes

Hats off to all Giga brains who made the proposal. :pray:

6 Likes

Just want to add, as someone who was quite critical of the original proposal, a big show of appreciation for all the time and effort that went into rethinking the implementation to present here today :clap:t2:

13 Likes

Please guide me to the path, how to advance from one owl level (copper, bronze, silver, … ) to the next.

1 Like

Awesome work by all involved in this project.

3 Likes

Well done & cool to see super simple but interactive and applied learning tools included here

3 Likes

I like to give Joe hell at times but this is so awesome and I’m very proud to see how far you’ve come as a contributor in such a short time

This proposal pushes us toward a more community owned org and goes a long way towards valuing the contributions made by community members past, present, and future

Congrats

14 Likes

Firstly, absolute stellar effort to all those that contributed to this proposal. Hats off to @Pepperoni_Joe and @DevOnDeFi for really driving this proposal to where it is today.

After much thought, pondering if it is worth the potential backlash that goes with what I am about to say, I’ve decided the right thing to do is share my thoughts. There are some details within the construct of this model that have left me pondering.

The construct of this model is to service the need to enable contributors to build ownership outside of the monthly contributor reward program. This is framed by the headline 22.5% figure as community ownership. It is a bit narrow in how community ownership is framed. INDEX earned through sweat equity is worth the same as INDEX through the DSM.

During December, Index Coop distributed 22,400 INDEX to contributors, excluding Full Timers. Over 5 years, this is equivalent to 13.44% of total supply or 1,344,000 INDEX, or $26.88M @$20 per token. If the 22.5% was distributed over 5 years, it could but might be not be based on how this post is written, that is 22.5% + 13.44% = 35.94% to contributors. When I think 35% over 5 years, it weighs on me, add in the 0.15% the full timers each receive and the math is marginally worse. The competition for talent isn’t likely to go away any time soon, the industry still in it infancy. The runway needs to a long than 5 years which leads me to think this model is unsustainable.

Why 5 years? It is one more year than this model reference here. We can distribute those rewards over a longer time horizon, sure, that could happen but everyone’s expectations are anchored by the first version of the model and this proposal is loosely worded to provide flexibility. This means every year we will debate what is sustainable and what should we allocate to DSM, price will be a factor for sure. DAOs do not debate how much to pay themselves or others very well. Opinions are broad and the topic close to, too many hearts.

When I think about INDEX as an investment, I view this DSM concept as being net negative for the overall tokenomics model. I’ll use an example, mStable. Deposit imUSD into a staking contract, receive MTA tokens with a lock and vesting period, very similar model to stake INDEX into DSM and get back INDEX after a lock, no vesting period. Let’s look at the MTA price chart, down and to the right. mmm. MTA has a staking program where MTA can be staked for yield as well. Perpetually accumulating MTA through staking, didn’t offset the down and to the right against printer go brrr fiat.

The rational behind this, if you know you are going to get a lot more INDEX by continuing to stake and you are happy with your INDEX allocation… why would you stake more ? I think the very rational and prudent financial thing to do is to sell vesting tokens when you know a lot more are coming your way in the future. Most people are not going to reinvest in perpetuity, they will sell in perpetuity. Contributors are selling on market now why would they decide too holder more tomorrow… This DSM program is a gold mine only while the price is high. Because of this construct and seeing what continuous sell pressure did to MTA’s price, the risk of a holding INDEX increases. The airdrop lends itself to a similar narrative around ongoing sell pressure, with the added kicker, the recipient carries a tax liability. My conclusion, perhaps this is a component of a larger tokenomics overhaul but implement this first and we are going to be in for a rough 6 months post airdrop.

I really like what this proposal represents and I do care about the problem it is trying to solve. I just don’t know that having continuous sell pressure on INDEX is the right way. Before folks ask, there isn’t enough USDC to buy back the INDEX. If price does tank, we can’t stop the locked and vested tokens from coming available, so there would be a lag of ongoing selling like there was with DPI:ETH farmers.

11 Likes

Interesting perspective Matt! Thank you for sharing. Definitely not an easy topic to bring up, but I do think we’re all aligned in our desire to maximize long-term value for Index Coop and INDEX.

Excited to hear some more open dialogue on this topic! :slightly_smiling_face:

7 Likes

Massive kudos to the whole team that worked on this. In my mind, solving for compensation & community ownership in this new type of organization / digital nation we call a DAO is one of the most interesting problems there is in the world right now!

I agree with @Matthew_Graham’s take here. This proposal goes a long way towards solving community ownership, with the 22.5% distributed via airdrop + DSM, & compensation, with stipends + coordinape + bounties, but it does not solve all, and I’m not sure passing & implementing this alone leaves us with a sustainable path forward. The below should probably be its own forum post, but it is here for now.

It’s not just about redistributing $INDEX, it’s about creating value together. For $INDEX to appreciate, demand must exceed sell pressure. It is naive to think we can eliminate sell pressure by incentivizing contributors to stake all their $INDEX by giving them more $INDEX that we don’t want them to ever sell. It’s time to treat the $INDEX token as a product that we must increase demand for to survive. It’s no secret that the $INDEX token has been the neglected child here at the coop.

That said, I don’t think we should be overly reactionary, nor overly focused on the short term, but we also should not naively ignore what the market is telling us: Governance tokens are massively out of favor. “DeFi 1.0” governance tokens have taken a beating across the board since the highs of the Spring as the institutional bid never came / hasn’t come yet, and crypto-natives dumped their DeFi blue chips in favor of newer, sexier “DeFi 2.0” tokens that offer massive yields to incentivize holding.

Solutions to increase $INDEX demand

Low hanging fruit first

  • Messaging. The value of metagovernance is poorly understood – this is all brand new! I guarantee there are some people reading this forum post right now that have no idea that $INDEX holders wield all the governance power from the underlying tokens in the $DPI smart contract. @AcceleratedCapital has done some great work on this recently & @0xJosh’s mirror post on the topic is currently my pinned tweet

Tokenomics

  • I’m not saying we should have @ncitron whip up some ponzinomics contracts just yet, but I do think the Wise Owls should commission / delegate a group to conduct a strategic review of the tokenomics models that are out there.

Whether we update ours or not, we should be making that decision from an informed position of strength, not resting on our laurels or clinging to a skeumorphic idea of tokens representing equity in a TradFi startup. Tokens give us new design space to play with, and I believe there are likely opportunities for us to use that to bootstrap growth & get that flywheel spinning.

edit: i’ve also proposed that we should have a twitter spaces series where we bring on the DeFi 2.0 hivemind to co-market $GMI & also get feedback / ideas on our tokenomics from folks at Olympus, Convex, Abracadabra, etc.

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Thanks for sharing this open feedback @Matthew_Graham :pray:

I’ve shared some thoughts below in response to the points you’ve raised:

We have deliberately designed the model to provide flexibility to respond to any changes in future. Meaning the target 22.5% ownership could be delivered over the next 5,10 or 75 years (hopefully not!).

It is impossible to both retain the flexibility to build community ownership in a sustainable way, whilst simultaneously avoiding ongoing discussion around the optimal allocation for a given year.

Yes, if the INDEX price doesn’t budge at all over the five-year distribution period you’ve assumed, if we don’t grow AUM (and therefore revenue) at all during the next several years to partially or fully finance our operations (including salaries), and if the team nonetheless remains completely intact in the face of such catastrophic, multi-year underperformance, your math is correct.

However:

  1. This is exactly why we didn’t commit to a set distribution timeline in the final proposal, despite what earlier iterations may have laid out. In a year’s time, if we need to pull back, we will do so.

  2. If that growth-less scenario actually plays out, and Index Coop doesn’t meaningfully grow its AUM (and therefore revenue) over the next several years, we will have far bigger problems than the remaining size of the Treasury. We likely wouldn’t even be a relevant going concern.

Ultimately, the size of the Treasury will be a key input into deciding what the subsequent year’s community ownership allocation will be, and we are in agreement to proactively manage these variables over time.

Drawing any comparison between DSM and mStable is flawed given they serve entirely different purposes. Unlike other staking programs which rely on quasi-tokenomic, the DSM is designed expressly to build community ownership in a sustainable way and ensure we can retain top talent to support long term growth.

This is a symptom of every equity/ownership package in crypto. Our current Full-Time package exhibits this characteristic. This is why we designed the DSM to explicitly help address these issues by:

  • Directly incentivising INDEX holdings via an APY
  • Creating a dynamic system whereby more INDEX would be allocated towards those with the highest propensity to hold

It is impossible to build community ownership and retain contributors with competitive packages if we don’t put more INDEX in their hands. And, if some contributors do things such as ‘buy a reasonable sized house’, that’s ok - their de-risking makes them even longer-term thinkers, similar to founders taking some off the table at A, B, C, etc, rounds.

Under this proposal <4% of ownership (400,000 INDEX) would vest to the community via the DSM and airdrop from Jan 2022-Jan 2023 (1.5% on the airdrop, 2.5% for 6 months of the DSM).

This is less than half of what was just allocated in y0-y1 on the initial liquidity mining incentives (9%) and LP provider airdrop (1%).

When combined with the anticipated stickiness of airdrop and DSM rewards - in a model designed expressly to incentivise ownership retention, actually sell pressure is far less than you are forecasting. We are also actively looking at ways to increase INDEX liquidity, to handle larger buy or sell pressure in the market.

Agreed, clearly building a more practical value proposition for INDEX is a high priority right now. However, I don’t think stalling out on a compensation framework whilst we wait for this to come to fruition neither accelerates our progress on that front - or addresses the immediate crisis we have around contributor retention.

Let’s also acknowledge a hard reality. If contributor ownership and compensation is not fixed immediately we will lose at least 5 Gold Owls to competition over the next few months, with more likely to follow suit the longer this is dragged out. Our core contributors have been waiting patiently for these issues to be fixed - further delays jeopardise the very future of Index Coop.

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Hey @TheYoungCrews, this is something we are currently working on with Governance Nest, bringing wider awareness to MetaGovernance and its value proposition, through a series of articles and other educational content. A component of the INDEX token that is currently not widely known or understood.

cc: @mel.eth @Lavi

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There was a previous discussion to provide UMA or Revest options that would vest only on achieving certain long-term North Star metrics. For example, one would receive 1,000 INDEX only if a certain product TVL reached $2B or annual holder growth was >200%. I believe PieDAO is using UMA options very effectively.

Giving options would have the advantages of providing long-term aligned incentives, enhanced retention, building a performance culture, and ensuring that the business is in a strong enough position to afford giving away tokens.

Is that idea dead?

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