@jdcook Appreciate you applying an analytical approach to determining fair compensation in this post. 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.