Coop Contributor Compensation Conversation

Say that title 5 times fast!! :stuck_out_tongue_winking_eye:

So the bulk of this is from a proposal i was going to get retroactive rewards for my work but after shopping it to the Business Development team and them pointing me to the Org call yesterday I realized that this is a coop wide issue and not an edge case for me.

Basically the Coop doesn’t pay contributors well enough and there is not a defined, results-oriented process for how much a contributor should be getting and for what work. One thing I really want to emphasize in this convo which has come up elsewhere is has little INDEX the majority of most active contributors own and that we can use this as a way to expedite autonomy and governance blockers.

(twitter was really throwing the perfect tweets at me today for this post. its like they are reading my keyboard)

So basically this post changed from “pay me for this” to “pay all of us more, here’s an example why” but i haven’t modified the actual body at all.

CREAM BD Rewards for Kiba

All data as of 20.07.2021

Since just 2 weeks after the Index Coop launched I have lead our integration with the CREAM.finance lending platform. In the 10 months since then I have only been paid a total of $15,000 despite DPI on CREAM now accounting for 7% of the entire Coop’s revenue. That includes work not related to CREAM like IIP-29 for DPI Intrinsic Productivity, writing the first coop newsletter, and building the product page on the index coop website.

This is a proposal to fairly compensate me for all of the value I have provided for Index Coop and DPI with my work on CREAM.

(the picture in the tweet adds mad context. plz click. idk why it won’t show in forum :sweat:)

A short history of DPI x CREAM

As you can see I have been very proactive on both the Coop and CREAM side to push this collaboration further. I even went so far as to modify the CREAM governance framework by creating the Listing Committee to make it easier for us to list Coop assets. This has led to DPI being one of the most supplied assets on CREAM and CREAM being the top DeFi protocol for DPI after Uniswap.

As of July, CREAM holds 20% of DPI. DPI is 34% of Coop revenue so CREAM accounts for 7% of the entire Coop’s revenue and 26% of all unincentivized TVL for DPI!

With $2k-4k in revenue per day from DPI this means CREAM generates $400-$800 in profit a day for the coop.

This doesn’t even include the DPI/ETH liquidity pool tokens that I am working on getting listed on CREAM. Once that is live these numbers could easily double. However if I am not being compensated for my work with DPI x CREAM then there is no reason for me to push for DPI/ETH LPs to be added to CREAM. I also want to get DPI listed on our L2 markets which will also help us drive liquidity there but there is not enough initial liquidity yet for us to be able to list DPI safely (been talking to BD about this)

Data Sources (20.07.2021):

DPI supply - https://duneanalytics.com/jdcook/DPI

Index Coop Revenue - https://duneanalytics.com/jdcook/Index-Coop-Revenue

CREAM DPI - https://app.cream.finance/markets/v1/0x2A537Fa9FFaea8C1A41D3C2B68a9cb791529366D

Iron Bank DPI - https://app.cream.finance/markets/ironbank/0x7736Ffb07104c0C400Bb0CC9A7C228452A732992

Other Coop Reward Packages

Liquidity mining rewards

Used to incentivize DPI supply and liquidity. CREAM achieves both of these by providing a productive usecase for DPI and supplying volume to LPs from liquidations. Even if we use the lowest LM rewards from latest IIP (12,785 INDEX / 69,204 DPI / month) that would mean my compensation for July alone would be 15,000 INDEX. While a direct comparison for raw DPI doesn’t work, this comparison can definitely be used for DPI/ETH LPs once they are added to CREAM.

MVI community methodologists

They generate just 2% of revenue and receive 15,000 INDEX over 2 years + $5,000 per month. I have been working on CREAM for almost an entire year and generate 3.5x more revenue than the entire MVI team yet have only received 2,200 INDEX and no USD rewards. So despite having 3.5x the results I have received 90% less compensation than these fulltime contributors. (!!!)

Proposal

For 9 months of work on CREAM and generating a significant amount of profit for the Coop I am requesting 15,000 INDEX as compensation.

Please keep in mind that a lot of this work was done in the first 6 months of coop when INDEX price was <$10-20 so please do not use current price for full evaluation. This is nearly a full year worth of compensation and also uses other Coop compensation packages as reference.

I think verto mentioned a revenue stream share instead of outright payment which i am fine with going forward, if coop ever decides on that structure, but that does not correct for past unpaid work which is what my proposal is about.

Feel free to discuss my request for compensation and the broader DAO efforts like shifting funding to working groups.


Appendix

DPI Supply Breakdown

Kiba Index Contributor Rewards

4 Likes

Hey Kiba, the most fundamental difficulty with this is that we have no way to attribute TVL in Cream to being a reason for people purchasing DPI. Cream doesn’t generate any profit for the Coop, the DPI being held there does, and it would just go elsewhere if that option wasn’t available.

The highest yield for DPI is still the Uni LP pool at 10% in INDEX + trading fees, and with that only accounting for 14% of supply, it’s hard to see the 0.6% supply rate at Cream being a reason for DPI to be purchased. The utilisation ratio is also just 17.3%.

You knew the rough comp levels when carrying out the work and didn’t raise any disputes at the time. If this post is just a way to start a convo around a different method of compensating this type of activity, then it does the job. I’m sure the BD/IB teams will also be interested in having the same discussion. In terms of comp for this activity specifically, the reward to Michael Petch for work with Fireblocks seems like a more appropriate place to start.

8 Likes

Would need to dig into everything more, but feels like a big assumption to say DPI unit supply has been driven by Cream and it’s 0.36% supply APY. It feels more like a place people put their DPI because, why not? We don’t have any productive options outside of Cream atm, but that will change. Rari, potentially Aave soon. How should we view compensation if new lending markets take the majority of that supply from Cream? Like, this is an opportune time to ask for more rewards for that, but in 3 months - 6 months the case could be completely different.

I think DFC said it best about the reward you are seeking.

3 Likes

One of the bigger painpoints we heard from whales about DPI was that they couldn’t leverage it so would prefer to hold individual tokens instead. CREAM is providing valuable utility to DPI holders that isn’t provided anywhere else, leverage. CREAM doesn’t mint new DPI but they provide a valuable usecase for DPI holders. So no we can’t look at how many units of DPI CREAM mints but we can look at how many units of DPI that CREAM supports. CREAM does drive profit, in fact CREAM is so far the most profitable integration for the coop. We have spent $0 on incentives for the platform, barely any marketing or comms, etc. while also holding more DPI than uni, sushi, or any other defi platform.

There is nowhere else you can leverage your DPI.

The highest yield for DPI is at least on sushi where you get ~12% APY in onsen + 5-10% APY on the pool fees. You can earn that 25% in a day if you are a good trader and deposit your DPI on CREAM and leverage into more DPI. So DPI holders would rather leverage on CREAM than earn a calm 20% APY in a good farm.

The purpose of CREAM for long tail assets is to leverage them, not earn interest

So you are looking at the wrong data @DarkForestCapital @jdcook . Utlization rate is about lending you need to look at % of tokens being used as collateral (collateralized / minted). 91% of all DPI on CREAM are being used as collateral for loans on the platform.

The 20% of DPI supply in CREAM is locked in the protocol until they pay back millions of dollars of loans

If anything you are arguing in my favor - I’m the only one at the coop thats been able to accomplish this type of integration. And again, this is about PAST WORK. What happens in the future happens, but the results at present are very clear. For my next round of compensation for CREAM the data will change if other competitors join. We’ve been saying “AAVE sune” since November 2020.

So i should have asked for $500k upfront to get DPI listed on CREAM to compensate for the full lifetime value of the deal to the Coop all before hand? Results and data based compensation is the preferred method of any high performing individual, everyone i’ve talked to on BD would prefer something like this and have already changed how they reward contributors before/after deals are made because it is not effective to pay 100% upfront based on promises.

He got $20k just for listing and I barely got $2k. Thats before you factor in how big of an impact CREAM has on DPI and Coop. Also how much DPI is managed through the fireblocks platform? Useless comparison if you can’t actually show profitability of each integration.

Well CREAM is likely going to add DPI/ETH LPs to the platform and adding DPI to polygon once we have launched our liquidity there so I imagine my ask will be a lot bigger in a couple months.

2 Likes

I wholeheartedly agree with what @Kiba is saying here. We need to have better incentive alignment for long-term value creation, especially in BD/Institutional Business/Integrations groups, for results that benefit Index Coop.

@DarkForestCapital @jdcook

One mental model I have for thinking about what the “right price” is for this is asking the following questions:

  • How much would we reward a contributor for securing a Tier 1 CEX listing (i.e. Coinbase, Binance, etc.)?
  • How much would we reward a contributor securing an Aave integration for DPI?

15,000 INDEX (~$300k) might not be the right number, but if the answer is only 200 INDEX ($4k) we’re simply not going to be able to retain the A players we have on the BD / Institutional Business teams at Index Coop.

From my personal experience working at a FinTech company that did enterprise sales, I’ve seen that it can take months or years to get enterprise/institutional business deals/partnerships like what we just saw with BitGo. I really don’t feel that like that has been recognized for how important it is to the Index Coop’s success.

It takes continued engagement from top tier professionals to secure these top tier listings and integrations with key institutions.

We are dramatically undervaluing these kinds of contributions at the Index Coop and we need to fix this. Going through the exercise of determining fair compensation for @Kiba would be one way to build the right framework for BD & Institutional Business Working Groups while also doing the “right thing” for @Kiba.

4 Likes

I’m posting the Index Coop Principles here as a reminder for what I believe we should be thinking about when evaluating this proposal:

Note: Although I am working with @Kiba as a Methodologist on DATA, I would not receive any of the INDEX he is requesting and am only commenting as an INDEX tokenholder and community contributor.

  1. Long-Term Thinking: Is the Community incentivizing business development by community contributors that drives long-term value creation?

  2. People > Profits, Fairness, Empathy: Has Kiba been compensated fairly for his work on getting DPI listed on CREAM? If not, what is a fair reward for past efforts?

  3. Transparency: Is it transparent how the types of contributions Kiba has described are rewarded by the Community?

1 Like

I fail to see how C.R.E.A.M. is generating revenue for the Coop. Are you saying these DPI are being minted only because they can be supplied to C.R.E.A.M., and not at all because of demand for its inherent value as an index? You are claiming these DPI tokens would not have been minted were it not for C.R.E.A.M., which is quite a strong assumption.

Of course asking for $500k upfront is an impossible way of doing business. Making a claim on INDEX at its price of a year ago also seems a bit far-fetched to me. However, asking for a fixed bonus or commission on revenue before starting the work sounds more logical to me. This didn’t happen. Can I ask what your expectations were at the time?

Nonetheless I do think successes such as these should be rewarded, also retroactively. The obvious problem here is quantifying your contribution. Maybe a good start would be to state the amount of days that went into this for you, and to state what you think is a fair compensation for that time and energy?

3 Likes

I’m saying they would not have been minted OR they would have already been redeemed.
There is no real way to get accurate data on this unless the coop wants me to delist DPI from cream and do an A/B test. The continual growth of DPI on CREAM over the last 9 months - reiterating all with $0 in incentives - is indicative enough imo.

If someone wants to present counter-evidence then please go ahead. I have laid out a data based argument and have not seen a data based refutation, just personal opinions.

I expect the Coop to treat contributors fairly and give them appropriate awards for the results the create. It was week 2 of the coop. I was one of maybe 5 community contributors and I was doing what it took to make DPI successful. Based on the data I have been a large help in making DPI successful otherwise there would be 0 DPI on cream and I wouldn’t even bring this up.

No one will work for hourly wages that moves capital in these sizes. If you want to pay someone for 5 hours of work to make a $5M sale, you’re not going to get anyone selling coop products. Plain and simple. The entire BD team is opposed to this approach afaik (im not on bd nor do i speak for them).

I believe I’ve sufficiently done that above. If there is other data you want to see then please ask. Coop has a massive problem of overthinking things. I don’t care if its the perfect reward structure. Just acknowledge the work I’ve done, pay me fairly for it, and I’ll keep doing good things for you guys. As it stands I wont be doing any more work for the coop which is a bigger loss than whatever payment you’d give me for this.

3 Likes

@kiba referencing your data - let’s say CREAM had consistently been holding 20% of DPI for 8 months (which it hasn’t) and that DPI was generating an average of ~$600 per day - that would be ~$144k of revenue for 8 months. You are asking for 200% of the revenue that has been generated under the most favorable conditions possible to come back to you. So let’s stay with the current scenario (which, again, is very generous) - we look retroactively and give you back 10% of the revenue that as been generated “by CREAM” - ~$15k. That seems like a much more appropriate starting place, imo.

But aside from your specific reward - I know the folks in BD are thinking about this - would be great to hear some of their thoughts ( @Metfanmike @fallow8 @BigSky7 no pressure) on how we should be thinking about rewarding activities like this.

3 Likes

@jdcook Appreciate you applying an analytical approach to determining fair compensation in this post. :pray: I think it’s a very important exercise.

I reached out to your on Discord and we discussed so just want to highlight some of our conversation and point out where I think your analysis is missing.

My fundamental critique is that your analysis is based on annual revenue generated. I think it should be based on impact of revenue growth on valuation of INDEX.

Revenue is not how community contributors, DFP, or Set Labs are compensated for their efforts. Across these organizations, about ~126k INDEX (~$2.9m) was awarded in the month of June alone.

For instance, INDEX currently has $223m FDV per CoinGecko. Annual recurring revenue, generated via streaming and mint/redeem fees, is ~$2.3m extrapolating June’s ~$188k revenue across all products. This means INDEX is trading at ~97x forward revenue.

If I agreed with the assumptions you are making here, this would imply CREAM is generating $216k in ARR for Index Coop ($144k/8 months * 12 months).

Applying Index Coop’s current streaming fee multiplier to your scenario analysis implies the CREAM listing is driving nearly $21m of INDEX valuation ($216k X 97 = ~$21m)!!

If this were the case, Kiba’s request for $300k worth of INDEX is only ~1.4% of the value created for INDEX tokenholders. In my view, this is completely fair.

As we walked through in our Discord chat, even if the value of the CREAM integration is only generating 20% of the 20% in incremental revenue (i.e. 4% of DPI supply), that’s still ~$43k in annual streaming fees from @Kiba 's work. Applying the same 97x multiple as above gets you to ~$4.3m in added market cap to INDEX tokenholders. In this scenario, Kiba’s ask is ~7% of the value created for INDEX tokenholders.

I currently see 2 ways for the Index Coop to fairly pay @Kiba and other future BD / Institutional Business efforts. Importantly, these both solve the problem of “communism” with the Coop (i.e. every BD person should not be paid the same).

Option 1. Determine a streaming fee split for BD / Institutional Business Work (this framework for tech SaaS sales suggests 20-25% of annual contract value)

Option 2. Reward generously in INDEX: Depending on how you model the value of the CREAM listing, @Kiba’s request for $300k INDEX is likely somewhere between 1% and 10% of the value of the listing in terms of INDEX market cap.

I don’t think we’re ever going to get a perfect answer, but I strongly believe the more you compensate people based on performance (i.e. revenue or profits generated) the happier the Coop’s contributors will be and the more INDEX price will increase from their efforts.

Personally, I’m slightly leaning in favor of #2 because I think it’s easier to implement than #1 and it incentivizes distribution of INDEX to a wider array of contributors.

Here’s my (naive) approach for thinking about how to reward Kiba fairly with a framework we can reuse for future integrations.

A - TVL of DPI: ~$126m
B - Streaming Fee: 95 bps; 0.0095%
C - INDEX Revenue Multiplier: 97
D - Percentage of DPI on CREAM: ~20%
E - Value Capture by Contributor: 1%

DPI Forward Streaming Fees = A X B = $1,197,000
INDEX Market Value of Streaming Fees = A X B X C = $1,197,000 X 97 = $116m
Value driven by CREAM = A X B X C X D = $116m X 20% = $23m
INDEX Rewarded to Contributor = A X B X C X D = $23m * 0.01 = $232k of INDEX

In my view, D and E are clearly the most subjective. That’s why for D I just took the DPI locked in CREAM (20%) and then for E chose an arbitrarily low percentage of value created (1%) that was somewhat consistent with the rough analysis @jdcook and I did together.

Option #1 is probably better for long-term alignment between IC and Contributors in my view, paying out only for revenue generated over time, rather than the full lifetime value (LTV) of the integration. So for instance, if Aave listed DPI and all DPI TVL on CREAM migrated to Aave (a dubious assumption), then the contributor would only receive a cut of the revenue generated in that year, but could still harvest fees over a longer period of time. This basically implies that BD would be compensated the same way External Methodologists are.

2 Likes

So after JD used data to show a more reasonable outcome, we are switching to a different method of calculating to arrive at a similar dollar value? Why wasn’t that approach used earlier in the conversation or as a response to the OP?

For someone so interested in our guiding principles it’s also funny that there was no rush to increase the community methodologist bonus, despite it asking for a total of $40k in bonus up to $100m AUM. Yet the initial DATA proposal was asking for 2% of INDEX supply at the same AUM, or $4m, a 100x increase. Surely it was unfair then what we were requesting? In fact, our proposal was used above to argue that we are getting paid too much relative to MVI’s revenue! That’s despite recycling our methodologist bonus, chosing for the fee split to go entirely to the Coop and are still making time to help lead community initiatives forward. Perhaps we should’ve just milked it for all it was worth and not worried about winning together with the Coop as a whole.

I question what direction our culture is taking when I see contributors that have disappeared for a while come back and suddenly feel that certain things are super important, and that the Coop has to bend over backwards to fix them. Coincidentally these things happen to relate to product onboarding and methodologist rewards just as they launch a product. Likewise with this proposal and now threats to cease work (alongside the insults that came in the Discord recently).

If you want to threaten the Coop to leverage rewards for personal gain that’s your choice, but it goes against the culture and environment we’ve built here.

I tried to empathise with the general idea, and know there is a proposal being worked on to discuss more appropriate framework for this type of thing which I support. I’ll be waiting for that post to appear before trying to have a hopefully more reasonable discussion about this stuff.

9 Likes

Apply that to all Index Coop products on CREAM and I’m down. Just bump it up to 20% since I don’t get any compensation or stipend for incentives from the BDWG so I cost the coop nothing and am purely paid on performance.

We’re all trying to figure out a fair way to compensate this work together. The coop doesnt have any way of handling this currently which is why it is so controversial. Figuring out how to value BD/IB work will make the entire coop better.

Thomas is taking us a step deeper and looking past revenue generated and at value accrued to the DAO in terms of marketcap. It’s not part of OP because I’m not smart enough to think of that. It seems like a much better valuation metric for contributions since that is how the market functions and represents real dollar value going to the coop’s treasury from fees + INDEX price.

I’m not threatening anything. I’m just going to do nothing. If you perceive me stopping my work as a detrimental attack to the coop then thats exactly why you should pay me fairly. If you don’t pay people, don’t expect them to work for you. This is how the world works.

Methodologist rewards are completely segregated from contributor rewards and already have a set structure so isn’t really relevant to this imo.

You and verto both received 0.15% of total INDEX supply upfront, not based on any performance and a $60k a year salary. So DATA costs the coop less and as methodologists we assume a lot more risk (no salary or guaranteed INDEX) so should be more highly rewarded.

@DarkForestCapital

There’s a lot to cover in this, a lot of it (seemingly) unrelated to the topic of the forum post.

I would love to chat in our 1-on-1 tomorrow about it some more so I can fully understand your perspective.

I had not given it serious thought (beyond the principles) because I was waiting to see how community would respond and actually my comment as the conversation over Discord with @jdcook who said he was excited to see it shared and the resulting discussion that would ensue.

Frankly, I’m confused and disappointed that my ideas were completely disregarded in your response to my analysis.

Firstly, I don’t know how compensation for CREAM is related to DATA other than that @Kiba and myself are the most frequent posters on both topics.

Secondly, I largely agree with Nassim’s comments about the Community Methodologist Program. I think having a streaming fee included as part of your comp would have produced better incentive alignment. I voted for the Community Methodologist proposal at the time because I thought it was more important to have you and @verto0912 on-board maintaining and developing MVI than the specific details of the proposal.

I’m glad we have you both as contributors to the Coop and as Community Methodologists aside from any other concern about incentive structures. I value what you both do. :smiley:

This simply is not true. I’ve heard this multiple times from different people in different contexts and it saddens me greatly to see that our contributions have not been noticed. @Kiba and I have both been actively involved in the Index Coop since 2020. In the past three months alone we’ve done the following:

Kiba also worked on Intrinsic Productivity (which I helped with) and I helped form the Autonomy Working Group.

There is a lot more “behind-the-scenes” work we’ve both done that is just not visible in forum posts or community calls.

Just because we are not trying to be FT contributors does not mean we are not contributing. Please see my comment here for more context about my own personal motivations.

It’s not a threat to say you will not work under certain terms and conditions. @Matthew_Graham saying on a community call that he was planning to “scale back from the Index Coop” if things did not change in a direction towards Autonomy is not a threat. It’s not a threat to ask for compensation you think is fair, and walk away if the negotiating partner is unwilling to meet your terms.

I’m not sure what these insults are. I have not personally seen them.

My feeling here is that yourself and other community members personally do not like @Kiba because of disparaging/insulting comments he has made, some of which I have seen and others I have not. Is this fair? If that’s the case, I think we should deal with community conduct separately from fair compensation discussions.

Is there a proposal being worked on somewhere? If so, this is the first I’ve heard of it, in which case, we probably are just having a communication issues. :man_shrugging:

Regardless, it is not Transparent to me who is involved in making these decisions or why our suggestions/ideas are (seemingly) being dismissed?

@DarkForestCapital @gosuto Here is Vitalik Buterin explaining why funding people retroactively is better than paying up front in decentralized governance.

5 Likes

Long time reader… first time writer. This is all my opinion and obviously not financial advice.

As a new contributor (two months into being a contributor) on the newly formed POC WG (attended launch meeting today… great job @Pepperoni_Joe), I am trying to wrap my head around contributor rewards as they were established, what they are now and what they will look like for our INDEX Coop DAO moving forward.

I spent the last couple hours reading this discussion educating myself, rather than sleeping. I might regret that tomorrow. I am looking forward to working together to figuring this out (an iterative process). This challenge of our DAO (and presumably many DAOs in DeFi) to be able to recruit and retain top talent. With thoughtful analytical dialogue and open positive discussion, we remain a strong community that’s building a culture of empathy, education, and value added that’s fairly compensated.

On a side note, of the 388 INDEX internship applications I read this week, hundreds looked to our DAO as a beacon (pun intended) to show the way on how to be a contributor to and add value to Defi… IMO the best ecosystem in the world.

Regarding Vitalik Buterin explaining why funding people retroactively is better than paying up front in decentralized governance… IMO that’s about building public goods and encouraging more development that might otherwise not be funded, thus not created. I might be misinterpreting this and/or it could be applicable for compensating value added in a DAO too. Because I agree value add should be compensated fairly. With fairly being the operative word and hard to pinpoint/define at times.

I will continue to chew on what I just read about the Coop Contributor Compensation Conversation… which I agree @Kiba is difficult to say five times fast.

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Yes I saw Vitalik’s presentation; that is actually what brought me here! Remembering your discussion in one of the meetups last week.

Anyway I don’t think there is disagreement on the fact that there should be a retroactive compensation for the listing. However not having made arrangements up front makes it very difficult to quantify. And to be frank—but this may just be my limited world view—but I find demanding amounts in the range of $300k-$500k for a listing a bit detached from reality. Is it really such an impossible feat?

Also I see a Kiba being a member of the CREAM listing committee? Is that not a huge conflict of interest…?

Lastly, @Thomas_Hepner, I fail to see how the fully diluted value of all INDEX is related to this and why we should then apply at 97x multiplier to all calculations. I don’t think the perspective of (fully diluted) valuation being based on revenue generation is applicable here or in the cryptospace in general.

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My stupid opinions:

1 You’d better ask CREAM for more compensation!

Have you asked CREAM for more compensation? Most of the works you listed above benefits CREAM more, CREAM takes profit from DPI lending/borrowing, Index Coop takes profit from DPI holding, and people buy DPI not because it listed on CREAM!

2 You have been paid in time from Index Coop part
We all agree that you provided value for Index Coop with your work on CREAM, but I think you have been paid in time from Index Coop part.




3 Some of the works you listed above are nothing on behalf of Index Coop

You proposed to create CREAM listing team on CREAM forum, then you proposed vote for you on Index gov forum, you will get 25 CREAM tokens per month as rewards from CREAM as a listing team member.

4 As a contributor we all want to be compensated fairly, thank you for pointing that out!

No offence, let me know if I’m wrong!

6 Likes

This is an interesting thread and an important topic. I share @Kiba’s view that compensation is critical for attracting and retaining top talent as well as the reality that we are unlikely to land at a perfect structure here. That said, we should nonetheless work together to arrive at a construct that makes sense for both the contributors and the Index Cooperative at large.

A good retroactive rewards scheme should be:

  • Results-based - the activity drives Index Cooperative North Star metrics.
  • Measurable - the value is attributable to the activity and measurable with relative ease.
  • Simple - the rewards calculation should not be an administrative burden.

A few key concepts are emerging throughout this thread:

  • Results drive comp. Deals should directly drive Index Cooperative North Star metrics. So, to @Kiba’s (and Vitalik’s) point, retroactive rewards make sense when there is concrete value creation, especially when that value creation takes time to emerge. Compensating upfront for an enterprise deal or partnership is sure to miss the mark (we’re just not sure in which direction we’re off), but assessing after the passage of time better rewards work that drives true value to the business.

  • Acquisition > Retention. Strategies that directly drive new AUM flows and strategies that may help to preserve existing AUM are both important, but they are not the same as far as business impact. That difference is meaningful. Acquisition strategies bring in AUM that would not have otherwise existed. We should avoid misattributing acquisition to a retention strategy. Acquisition brings in new revenue. Retention can reduce churn to help extend a revenue stream but it’s not a new revenue stream.

  • Benchmarking against other incentive programs will repeat past mistakes. In its short history, the Index Cooperative has put in place some programs that clearly have made little economic sense and are wildly off in the compensation provided relative to the value created. The external methodologist program is an example in my eyes. Most of us would also likely agree that the liquidity mining program was overly generous. But rather than looking to existing programs that we can agree are faulty to inform new ones, we should put in place a construct here that makes sense on its own - while separately improving those (currently) egregious programs. Note: since it was called out by others, I want to make clear that I do not count the MVI methodologist construct amongst these overly generous programs. I believe the MVI construct is well within the normal bands of an early-stage startup compensation package.

  • Revenue is a (far) more reliable indicator than INDEX valuation. The governance token is - as we all know - extremely volatile and influenced by a multitude of factors. We cannot reliably point to a particular initiative as driving the valuation of the project. However, we can reliably point to revenue generated from the AUM acquired through a given initiative.

Given this, what is a relatively simple construct that can be periodically measured to compensate a community member for an initiative that in hindsight has proven to be a clear success for the Coop in creating value and driving concrete North Star metrics?

My proposal:

  • Construct. There would be a quarterly review of initiatives to understand the AUM flows directly attributable to the deal.
  • Term. Five years. Many initiatives (e.g., custodian token listings) will take time and effort to get off the ground. This term reflects that reality and the account management responsibilities that will come with the effort.
  • Revenue Share. The community member leading the initiative would receive a % of the revenue generated from that AUM. That community member can - at his/her discretion - share the revenue with other team members that may have contributed. The share would decrease over time, based on the following schedule:
    • Year 1: 25%
    • Year 2: 20%
    • Year 3: 15%
    • Year 4: 10%
    • Year 5: 5%
  • Denomination. Since streaming fee revenue is denominated in a given product (i.e., new units of DPI), the revenue share would be in product units - not in INDEX. This keeps things super simple and ensures that the IC Treasury is always capable of financing the payment at a net positive. It also makes forecasting much easier than if the payment was denominated in INDEX.

This proposed construct could work for:

  • Custodian partnerships
  • Centralized exchange listings
  • Direct sales
  • On-chain partnerships (but where new AUM is created)
  • DAO Treasury Sales

Hypothetical Example

Let’s go through an example using a recent initiative - BitGo’s listing of DPI for its custody clients - but with hypothetical numbers:

  • The BitGo partnership will give us transparent visibility into aggregate holdings of DPI (total AUM and number of users) across BitGo’s customer base. It’s measurable.
  • The price of DPI at the moment is around $315, and I’ll assume that price for the entirety of the example.
  • Let’s assume the average AUM for Q321 from BitGo is 31,746 units of DPI (worth $10mm). Again, these are units that can be directly attributed to the BitGo listing of DPI because prior, custody of DPI was not possible. This is also retroactive because we would only know this figure once the quarter has ended.
  • That average balance of DPI would generate 75.40 units of DPI (worth $23,750) over a full quarter.
  • The proposed revenue share for the quarter would be 25% or 18.85 units of DPI (worth $5,937) because we’re in the first year of the initiative.
  • This assumes 25% of total revenue generated. If the 25% revenue share is only applied to Index Cooperative’s cut of DPI revenue (70% of total) and not the total revenue generated from the product, these figures would be reduced to $4,156.
  • This logic would continue each quarter for five years.
    • The community member obtains reporting on the average balance of each product
    • The Treasury calculates the revenue generated (in product units)
    • The Treasury distributes a retroactive payment to the community member.

Assessing this construct:

  • It is directly attributable to new AUM flows. If the initiative didn’t exist, the AUM would not exist.
  • It is 100% retroactive and fully financed. There is no guesswork as to the value of the initiative, as the initiative must first generate revenue before a payment is made.
  • It is simple and forecastable. Because the payment is funded in units of DPI (using our example), the Treasury does not have to do any complex calculations to arrive at an appropriate INDEX price (because INDEX wouldn’t be the basis of the payment) and can confidently forecast retroactive revenue share compensation and know that the Treasury will be earning enough units to finance the payment.
  • It is temporary. While there is sufficient lead time for the initiative to take off, if the momentum continues, the out years should - on average - produce gains that will increasingly and then solely accrue to the Index Cooperative, making the overall revenue share over the five-year term smaller and smaller as time progresses.
  • It encourages the community member to continue to nurture the initiative to make it as successful as possible. The BitGo listing is great, but without proactive work, it won’t yield much. I would be very incentivized to turn this into a multi-billion dollar opportunity for the Cooperative. And the Cooperative community will be very happy if I’m able to do so.

Would love to hear any feedback, and I’m happy to review in particular with @Matthew_Graham.

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Great post @Metfanmike, a lot of this makes sense to me. I really really like this:

Here are some areas I think are worth exploring more.

I am not sure what you meant by acquisition is > retention. It seems like the bulk of the paragraph talked about the differences between the two. If we are talking the importance of the two (retention v. acquisition), I could argue retention being more important than acquisition in some cases. I just wanted to get this out in the community and don’t view this as the core of your post. Feel free to clarify more if you think its worth addressing.

Correction: updating to reflect my sh** math

I believe the thought process here needs to be flushed out more. Based on the logic are we saying the Index Coop would only retain 42 bps of the 95 bps DPI streaming fee in Year 1? I could also easily see a scenario where incentives are potentially underwritten by the Coop in the early years, more negatively impacting revenue to the Coop.

What assumptions are being underwritten as far as account management? I would imagine this should fall outside of the scope of those actively going out to procure deals?

I’m kinda burning out right now, but I think should help frame some of my thoughts.

For what it’s worth, I think your proposal is a great start to help push the convo forward (My thoughts may come off as more critical, but this is not the intention). I would be happy to help out in any future work around this.

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Thanks, @helmass! Appreciate the feedback and the opportunity to clarify.

Acquiring new AUM translates directly to adding incremental revenue. That’s 66.5bps for every new dollar that comes into the product. Retaining our existing holders by minimizing churn is of course important, but the growth needed to make this project fly is fueled by new AUM flows.

Fortunately, we are not saying that at all. =)

DPI has a streaming fee of 95bps, 70% of which (i.e., 66.5bps) goes to the Index Cooperative Treasury, with the remainder (28.5bps) goes to DeFi Pulse. We’ll assume 66.5bps is likely the base here (I could argue that the methodologist should contribute as well since they benefit from the increased AUM, too, but let’s put that aside for now). Here are the bps earned for IC and the community member, respectively. The Cooperative retains ~50bps of the 66.5bps DPI generates for it in Year 1.

I’m not sure, to be honest. It’ll be very situation-dependent. Frankly, if something takes off - without any follow-up work required - and somebody put the effort in to get the deal done, I’m fine with them earning a share of the resulting revenue. The higher likelihood is that in most cases, there will be ongoing work required. Think about the many different types of activities that could fall under this proposed construct. For example, with BitGo (i.e., a custody relationship), I’m going to be educating their salesforce, doing webinars (ideally directly to the customers), and having 1-on-1 conversations with their customers (have one tentatively scheduled for tomorrow). Is that the same as a CEX listing in the ongoing work? Or a DAO Treasury sale? Most likely not. But the defining commonality is bringing in new AUM flows that stay around to generate revenue for all parties.

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