Firstly, absolute stellar effort to all those that contributed to this proposal. Hats off to @Pepperoni_Joe and @0x_Dev 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.