This post is one of six exploring the comprehensive overhaul of Compensation and Community Ownership at Index Coop. Whilst each topic is a stand-alone piece, they are interrelated. We recommend reading through the posts in the following order:
- Compensation & Community Ownership - Next Steps
- Retrospective Airdrop to historical contributors (this post)
- Dynamic Staking Model
- V2 Fixed Salary Hiring
- Owl Levels (not yet released)
- Flexible Compensation (not yet released)
It is also worth noting that these discussions of airdrop, staking and compensation are occuring in parallel. They are interconnected and can be approved and implemented independently - hold ups in one area does not prevent implementation of another.
The holistic picture of our new Compensation and Community Ownership work was mentioned in the kick off post and is displayed again below.
As part of a series of posts and discussions on the subject of compensation and community ownership this post seeks to introduce a component part - a retroactive airdrop to historical contributors. For those reading about this subject for the first time, the kick-off post is here.
This post explores what overall percentage of $INDEX contributors could be allocated. With a target ownership % for Index Coop contributors outlined, we propose that this target % of community ownership be achieved through i) a retrospective airdrop to cover contributions in Y1 and ii) even more significantly, use of a staking model to support long-term contributor ownership going forwards in Y2, Y3 and Y4 (the staking model to be explored in a separate post).
This proposal will focus on detailing the specific mechanism and approach for a retroactive airdrop to contributors for their energy and impact brought to help move the Index Coop from 0 to 1 in the first year of operating (October ‘20 to October ‘21).
Background: what is ‘community ownership’ and why is it important?
Community ownership is what it says on the tin: ownership of a protocol substantially spread around its contributors and users, who have influence over the direction of the protocol - in contrast to TradFi, where companies are owned by insiders, privileged and/or larger investors and where little stake and, crucially, influence is held by the typical employee. DAOs and protocols represent new vehicles for harnessing human talent and potential, seeking to evolve from the most efficient vehicle for the last few hundred years til today - the joint stock company.
Community ownership is important for some of the reasons cited above, especially influence (being able to regularly vote on the direction of the DAO), but also to help us achieve a core goal of crypto: creating a more widely distributed ownership economy. 40+ years of monetary experimentation - Bretton Woods 1, 2, the Greenspan Put, QE 1, 2, X, Covid Money Printer Go Brrrr, etc - combined with leveraged fractional reserve banking have created a deeply unequal world today - most accurately described by three classes:
- Workers who own their labour and little else. No/limited savings. Getting left behind fast as if they hold assets at all it’s in cash (rapidly inflated away by central bankers)
- Middle classes who own their labour (often more information economy work) and some savings/assets. Rising above Workers steadily, but getting left behind The Rich fast, and finding the cost of their key life items (University/College) inflating fast. The ‘Pinched Middle’
- The Rich who own assets, businesses, have many credit facilities, often footprints in many countries and a roster of advisors to help them optimize their assets, credit, taxes, generational wealth transfer, etc. They own most of the assets and are getting wealthier faster and faster
The current financial system - by constantly inflating asset prices and eroding the purchasing power of fiat money - screws Workers, slowly squeezes the Middle classes, but vastly enables The Rich with lots of assets and vast access to efficient credit. The crypto economy seeks to destroy this current, rigged system via many prongs, including sound money (thanks Bitcoin!). Another of the key ideals of this crypto economy is wider ownership of the productive assets that make the economy tick, hence why we think enabling contributor ownership of the Index Coop is essential. This ambition might not be realized as perfectly widespread ownership, but substantially wider ownership will represent a valuable leap forward.
Other DeFi protocols are interesting to observe regarding how they have sought to enable contributor ownership, some doing it more tightly in a narrowly focused manner (Yearn), others seeking to do it a little more generally. Thanks to many contributors for helping pull together this data, which shows a range of % ownership numbers (top of range 48.5%, bottom of range: 5%) with a mean and median of 23% and 22%. Exact definitions and counterpoints are hard to establish, but crude yet powerful direction can be derived from this external contributor ownership data.
We believe enabling a contributor ownership % of 28% is reasonable for the following reasons:
- It does better than the mean and median above, evenly more greatly incentivizing the community
- We’re in a white hot market for quality crypto talent, which links to the bullet above
- It gives the contributor base, should it decide to act with one mind (quite unlikely maybe!), the same token voting influence as the largest token holder (Set), which will enjoy 28% when all tokens are vested
- We need to act NOW to increase ownership of contributors fast - we’re losing talent to other DAOs which have moved faster and more decisively to achieve their ownership ambitions
A quick side note on ownership = responsibility: if we achieve such a substantial contributor ownership target, beneficiaries should bear in mind that ownership of a business or protocol does bring responsibility. There may be situations in years to come where the Coop looks to raise capital strategically and the token holders are one of a number of options to call on (including credit lines).
How are we improving contributor ownership?
- Retrospective airdrop for contribution value added in Year 1: 7% of the aforementioned 28% of tokens - 700,000 $INDEX
- Contributor staking model: yielding 7% in Year 2, 7% in Year 3 and 7% in Year 4. Detailed in a separate post
…We think this could enable a slightly more niche meme than Olympus DAO’s 3,3 of ‘7,7,7,7’
Kudos to @codemathics for ^^.
Why do an airdrop now?
While there are a range of reasons why contributor ownership has not been looked at intensively enough to-date, this issue does exist. This has meant current contributor ownership is estimated to be <2% of total circulating supply, leaving contributors who work day in, day out to build our project with virtually no stake or real ownership in the project they have helped to build.
Doing an airdrop now, more than a year after launch, enables the DAO to airdrop tokens to proven contributors who have demonstrated that they care deeply about the community, products and protocol. Thus, we avoid airdropping $INDEX tokens to mercenaries who will just sell them and push down the token price. We also have a year’s worth of month-to-month contribution data to leverage as part of a simple but robust model to inform which contributors receive what tokens as part of the airdrop. This seems far better than an at-launch, crude airdrop which is blind to future value add and commitment. We note there was a small, 1% airdrop at launch - so this is technically the second airdrop, though much more substantial.
Finally, doing an airdrop now will enable core contributors to step up their $INDEX holdings as the staking model is implemented, benefiting from the APY offered by the staking model and incentivising contributors to continue to HODL.
How to implement the airdrop? Who benefits?
We propose 7% of the contributor ownership goal of 28% be distributed to the contributors via the airdrop - 700,000 $INDEX to be airdropped.
We believe this percentage of the overall core community tokens being distributed via the airdrop is reasonable as it recognizes:
- The value of helping a project early in it’s life - moving it from 0.0 to 0.1, 0.2, etc. These contributors took more risk at an earlier stage, when Index Coop was much more of an idea than a living reality with a portfolio of products and impressive TVL (>$500m)
- The value of continuous contribution - accumulating more context and ability to add value, which is recognized via monthly rewards
- That contributors in years two, three and four also need to be well incentivized too - let’s look after the founding generation and generations of contributors to come
What will I and/or other contributors receive in the airdrop?
Before we introduce the model, some high level guidance (some is repetitive but given to over-communicate on an potentially very sensitive topic).
The model’s logic is guided by:
The 7% of total $INDEX mentioned above which the airdrop will distribute
A contributor’s value contributed to the Coop in the first year, as measured in USD value of $INDEX they cumulatively received in that year
First year includes Oct ‘21 as very little rewards were earned in Oct ‘20
A contributor’s personal participation in the airdrop will equal:
A. Personal contribution value in Year 1, divided by B. Total community contribution value in Year 1, multiplied by C. 7% X 10,000,000 $INDEX
Example: if you’d contributed A. $100k of value in the first year, the community had contributed B. $1m of value and C. equals 7% X 10,000,000 tokens. The model would deliver you the following tokens:
- (A. $100,000 / B. $1,000,000) X (C. 7% X 10,000,000) = 70,000 $INDEX
This model shows a general distribution logic before special situations are discussed and potentially catered for below.
By way of comparison, in Year 1 (Oct ‘20-Oct ‘21) full-time and community contributors earned 134,731 $INDEX compared to 700,000 tokens we propose we airdrop via this model. Their airdrop alone would therefore increase contributor ownership for Year 1 value add by 520%.
Contributors should be able to search for their Discord name in the model Google Sheet and note their potential airdrop.
Request: please review the airdrop model and provide feedback where you feel there are broad methodological issues or inconsistencies. If you feel anything has been missed specifically relating to your rewards/work, please flag this to us using this form Retrospective Airdrop - inconsistencies form.
To remind again, please also bear in mind doing this work in public on such a sensitive topic is hard - those working on this have brought their best efforts over hours and hours and have worked in good faith.
Side note from @DevOnDeFi: I believe this exercise has brought out the very best of knowledge, skills and perspectives in this working group and I am deeply thankful to the co-authors and reviewers.
Previously contracted Full Time contributors (FTs) who are still active in the DAO
We value our FTs deeply, and it’s unfair that they’ve become occasional targets of ‘us-versus-them’ in the DAO - in fact we should always heed signals that incentives are driving divides between contributors. We believe it would also be unfair if this airdrop rewarded long-term but non FT contributors more than FTs who have already opted to bore a layer deeper into the DAO - and show highly focused commitment. It wouldn’t be equitable if folks lost out by becoming FTs in the past because the FT packages were quite humble and conservative compared to other packages in crypto (example one, two, three, four).
As such, we propose that for this small number of FTs we assume the months they earned a humble $5k as part of their FT package were in fact earned at $10k/month to input into the airdrop model above. And, where the airdrop would hypothetically deliver FTs more $INDEX than their current FT package’s vesting schedule over two years, we let their FT package’s vesting element vest as per its design but top them up with their airdropped tokens minus their FT package’s vesting component. We understand these folks may have already notified their tax authorities as to their FT vesting package, and will need a ‘top up, custom airdrop’ to participate and not fall foul of tax tripwires. We believe we should work as a DAO to ensure these folks are equitable beneficiaries of the airdrop too, working around their tax mechanics.
FTs who have moved to become external methodologists
We also believe we have a duty to FTs who have fairly and reasonably moved to become external methodologists of their Metaverse Index. In the case of these folks, we believe they also deserve to participate in the airdrop - due to large, historical contributions to the DAO from its earliest days - and be topped up or made good above the $INDEX they have received from their now exited and partially vested FT packages. For the months these people worked as FTs, we also believe we should calculate their monthly USD rewards as $10k not $5k.
While we note that most airdrops, as they are remembered from 2020, are crude and indeterminate of value of long-term contribution and/or potential alignment - often simply getting sold on the market - we think the beneficiaries or this airdrop should enjoy this liquidity profile, which offers some instant liquidity but also creates some on-going alignment too:
- 33% of air dropped tokens: fully liquid. Arrive in wallet - or as NFT (more below) - on day one of airdrop contract deployment
- 33% of air dropped tokens: vested monthly in Year 2 (we’re in this year now)
- 33% of air dropped tokens: vested monthly in Year 3
Update: in case ‘vesting’ is not clear above, contributors receiving the airdrop need to be active at the Coop on future monthly vesting dates in years two and three to receive their tokens.
We note the crucial importance of contributors not receiving large amounts $INDEX and suboptimally herding to sell on a thin market - knocking down the token price - so we think it’s fair to add a condition to the airdrop - that our Treasury gets first refusal when folks are looking to sell. It’s ok for folks to need or want to sell - we all have bills, debts, hope for our kids’ education, etc - but it’s also important we do this intelligently and communicatively as a contributor-base. Treasury aims to build out more of a discrete OTC desk in time too, matching seller demand for buyer demand (typically funds or strategic investors).
Distributing the airdrop to contributors could have implications (including tax and others), so we propose investigating whether we can airdrop NFTs to contributors which have $0 internal value but which can be used, at a future time of the owner’s choice, to call the state value of $INDEX denoted on their NFT from the Index Coop Treasury.
Index Coop does not and will not give tax advice, but there has been popular demand to investigate this method, and we also note engineers building tools for such use cases (example from Consensys). Our Engineering and Treasury Teams will need to research available tools, or proprietary options, to enable this NFT idea - this Pod stands ready to assist too. We can also include the Design Working Group if we want to make the NFTs look awesome too.
Stretch goal: some of the contributors to the group working on this project have raised a high-minded and noble idea - the ability for airdrop recipients to be able to, before the airdrop happens, allocate some of their future participation to other people. Example: contributor 0 receiving 10,000 $INDEX in the airdrop can complete a process to say he/she/they want 1,000 $INDEX to go to person A, 500 $INDEX to person B, 300 $INDEX to person C.
More technical scoping work is needed regarding the NFT as a delivery vehicle idea and also the enable-recipients-to-share-proceeds-with-friends idea. We do not want to make light of this scoping work or engineering execution.
We feel a contributor airdrop is essential to retain top talent and ensure a successful future. Whilst newer contributors will not be eligible for the airdrop, they will have access to the staking model as a means of building their own ownership in the protocol. There are also close synergies with the staking model and airdrop.
More details on the staking model are provided here, but a central tenet of this model is that it rewards contributors with vested $INDEX based on their Owl Level and $INDEX holdings. This incentives contributors to increase their impact (Owl Level) and buy/hold $INDEX. Those contributors who do buy/hold $INDEX will receive a greater % of future Index rewards through the staking model. Thus, the airdrop can be seen as a way to bootstrap the launch of the staking model, and give all contributors, regardless of if they have previously had to sell $INDEX the options to continue to receive further $INDEX Ownership. This should also reduce the sell pressure for the airdrop. As a further incentive, NFT/token airdrops used within the staking model will count for an additional 10% of $INDEX, further nudging behaviour.
Working additional 10% incentive example: This would mean if I received 1,000 $INDEX from my Y1 airdrop, and had 100 $INDEX in my wallet, when calculating my staking rewards I would receive 1,200 $INDEX (1000*1.1)+100, in this example this could equate to an additional 120 $INDEX per month (10% APY). Thus, by keeping my airdrop rewards my future ownership allocation is increased.
Conclusion & discussion
Compensation and ownership in a DAO is a huge, multi-faceted and tough subject anywhere, and especially so when - as others have said - it’s discussed and beaten out in public. Doing it >12 months after Genesis and launch is even harder (truly!). We would deeply appreciate the community’s thoughts generally but especially on:
- The overall % of community ownership to achieve
- The merit of doing a retroactive airdrop
- The percentage of $INDEX to include in a retroactive airdrop
- The model’s suggested distribution to contributors in the airdrop
- The handling of special situations: FTs, ex-FTs
- Liquidity constraints of airdropped tokens
- Potentially sending NFTs to contributors to make it easier/optimal for them to receive their participation
We believe the airdrop, if implemented well, can be a jump-starting feature of the DAO - bringing core contributors even more deeply into alignment as ‘owners’ - but also be seen in time to be an equitable and legitimate feature of the DAO’s maturation and improvement. However, this is not an easy thing to get right, so do share your critiques and feedback.
Thank you for your time. We truly look forward to the comments.