DSM Summary Overview

Title: DSM Summary Overview
Author: @anthonyb.eth
Review: @Pepperoni_Joe @ElliottWatts @prairiefi
Created: 16th March 2022

Links & Resources

Mar 7, 2022 [FORUM] Owl Level Framework

Jan 28, 2022 [SNAPSHOT] IIP-128: Priority Hiring Round #1

Dec 24, 2021 [SNAPSHOT] IIP-118: Priority Hiring Guidelines and directional commitment to the DSM & Airdrop

Dec 20, 2021 [FORUM] IIP-118: Priority Hiring Guidelines and directional commitment to the DSM & Airdrop

Dec 8, 2021 [FORUM] Community Ownership & Compensation | V2 Proposal

Objective

The Dynamic Staking Model (DSM) is an incentive and reward mechanism designed expressly to increase contributor ownership. This aligns contributors’ incentives with long-term price appreciation of the INDEX token by incentivizing contributors to hold INDEX in a way that does not impede INDEX price discovery.

Summary

The Dynamic Staking Model (DSM) is an opportunity for Index Coop contributors to earn yield on their INDEX as a way to build more voting power and ownership. The DSM is currently applicable to Priority Hires only per the passing of IIP-118.

Rewards are calculated monthly and will vest in-full after six months, only if said contributor is still actively contributing to Index Coop.

Calculation

The DSM rewards are calculated monthly based upon two factors, Owl Level and INDEX holding. Rewards are calculated using the average daily INDEX holding throughout any given month (rounded to the nearest whole number).

Contributors (priority hires currently) have already provided a ‘Ownership Wallet”’ which Finance Nest can use to review holdings and calculate rewards. Contributors can only receive their DSM payout to their specified “Ownership Wallet”. Only INDEX in the specified address will be counted. This means no LP positions or other tokenized forms of INDEX will be included, and unvested INDEX will also not be counted in the calculation.

Monthly Marginal Yield Rates

INDEX Bronze Silver Gold Gold+
1-100 4.17% 7.29% 12.50% 14.58%
101-500 3.33% 5.83% 10.00% 11.67%
501-2,000 2.50% 4.38% 7.50% 8.75%
2,001-6,000 1.67% 2.92% 5.00% 5.83%
6,001-12,000 1.25% 2.19% 3.75% 4.38%
12,001-24,000 0.83% 1.46% 2.50% 2.92%
>24,000 0.00% 0.00% 0.00% 0.00%

Currently, the only active participants in the DSM are those in the Priority Hiring Round 1. All of these contributors will be at the “Gold+” Owl Level. Owl Levels for all other contributors have been finalized per the Owl Level Framework
.
These reward rates are marginal meaning that a Gold+ contributor with 600 INDEX will earn yield of:

1 - 100 INDEX: 14.58%, 14.58 INDEX

101 - 500 INDEX: 11.67%, 46.68 INDEX

501 - 600 INDEX: 8.75%, 8.75 INDEX

TOTAL: 70.01 INDEX

The total amount will be rounded to the nearest whole INDEX, so in this case that would result in an accrual of 70 INDEX.

Monthly DSM Rewards will vest fully after six months. A forthcoming proposal will propose that the vesting be changed from a six month cliff to a linear vest.

We imagine we will continue to make iterative improvement to the DSM, with future adjustment possibly including:

  • NFT for contributor based on Owl Levels
  • DSM staking vault accessible to white listed addresses (or holders of Owl NFT)
  • Trial of the DSM for engaged community members

FAQs

Q: Who is eligible for the DSM?

A: 28 Priority Hires (Gold+ Owls) as outlined in IIP-118.

Q: Will other contributors have access to the DSM?

In March, Finance Nest will estimate the cost for expanding access to the DSM to contributors of Bronze, Silver, and Gold Owl Level status. This will be formally approved via IIP.

Q: Can a contributor update their Ownership Wallet?

A: Yes, you must submit the request to the Finance Nest coordinator via this Google Form. The change will go into effect in the following month. You may not change your address midway through the month.

Q: How much INDEX will be allocated to DSM?

A: Per IIP-128, there is an allocated budget of 179,017 INDEX for both the equity component of the Priority Hires’ salary, as well as the DSM. This equates to 1.79% of total supply. This budget was estimated to last until January 31, 2023. Once these funds are used - any further funding for the DSM and/or priority hire equity will need to be requested via the IIP process.

Q: Can parameter changes be made to the DSM?

A: The Index Council can alter the parameters of the DSM. Discussion on this will take place publicly for at least 5 days. We anticipate the responsibility for approval parameter changes will be delegated to another group within Index Coop. It is important to reiterate that parameter changes do not equal budget approval, and any further funding outside of that requested in IIP 128 must go through the IIP process.

Q: Will INDEX LP Positions or other forms of INDEX be included?

A: No, not at this time.

Q: How will the average daily INDEX be calculated and by whom?

A: Finance Nest will be responsible for calculating the average INDEX held by each DSM-eligible contributor for each month using the end-of-day INDEX held in the wallet (UTC time) using an Excel spreadsheet and Etherscan API.

Q: How will disputes regarding the DSM be resolved?

A: Contributors will be able to file a dispute using a Google Form.

Q: Will DSM participants be negatively impacted if they choose to sell their INDEX?

A: Although the intention of the DSM is to reward contributors with voting power and ownership of the protocol, they are free to use their INDEX however they like. However, unlike traditional vesting packages, contributors who consistently sell their INDEX receive a significantly lower payout from the DSM than those who hold their INDEX. This both reduces INDEX sell pressure and rewards contributors seeking to build ownership in Index Cooperative.

8 Likes

Thank you for this very concise and clear post - though a few of the items were a bit of a surprise, it was much needed clarity on the DSM and how it will affect all of us.

Could I get clarity on this particular statement? Is this stating that Index held prior to the start of DSM or purchased on the open market will not be included in the DSM calculation? In essence, its a closed system and you can only earn rewards based on the previous DSM output you have received?

2 Likes

Thanks for for the clarity here! Just looking for a bit more. So the calculation would be the number of INDEX held each day (11:59 UTC, snapshot taken?) averaged over the month? This was previously reported as a snapshot of index on 0:00 UTC on the first of the month, so just making sure I understand how this is being captured.

How will this be reported monthly? I would love to see a report of my vested and unvested DSM accrual following each month of participation.

Noting that while this is a level-up in clarity it really highlights that this program is intended to bring all active contributors along in terms of protocol ownership and the long tail of non core non gold+ while holistically essential are not incentivized to act in the interest of the DAO beyond payday, in the same way I am, as it stands. I find this unsettling and ask that Finance prioritize quantifying the impact of expanding his program to all initially intended participants for an April 1 start date, inclusive of governance considerations.

While I expect the impact to overall DSM distribution to be on the order of under 10%, the impact to individual non-core contributors and natural alignment with DAO sustainability will be massive when this program includes silver and bronze Owls.

3 Likes

Hi, I can provide clarity here

This means that any rewards earned through the DSM but have not yet vested (all DSM rewards have a 6 month vest) will not count towards the DSM calculation. Here is a worked example below utilising the numbers provided by @anthonyb.eth

The above shows that the contributor who holds 600 INDEX has earnt 70 INDEX through DSM rewards for one month, this does not vest for 6 months, meaning that the 70 INDEX earned will only count towards the DSM once it has vested and is present in the contributors nominated INDEX holding wallet.

The DSM absolutely counts INDEX acquired on market (one of the main objectives of the DSM is that it encourages contributors to buy on market and increase their stake in the Coop) the DSM is closed to the extent it is only open to active contributors but one can increase their rewards by acquiring more INDEX on market or through the contributor rewards process.

Hopefully that answers your question.

5 Likes

As a non core hire, I must say that I find the whole process around the DSM to be a little unsatisfactory. A few questions / comments:

1. Do we have a mandate for the DSM?

IIP-118 appears to approve priority hires and “Directional commitment to the DSM and Airdrop”

Was there a follow on vote for the air drop?
Was there a follow on vote for the DSM?

I don’t think there was one for either, but one is happening and the other not…

2. Why is the DSM live for core hires but not other owls?

I understand that compensation was part of the core hire process (and so falls under the core hire process):

However, it seems like all the other owls are being neglected while the gold+ owls build DSM rewards.

Why not start all owls at the same time?

3. Liquidity INDEX is omitted.

I understand the challenges in tracking the number of INDEX held in LP tokens. However, diverse provision pf token liquidity is one of the key signs of health for a protocol. The implementation of the DSM actually, removes community members from being part of the INDEX decentralisation.

I admit I’m biased here, I don’t like centralised liquidity. I much prefer to have many smaller actors providing liquidity than single entities. Using the DSM to ENCOURAGE community member to LP would do a great deal to diversify the breath (and stickyness) of INDEX liquidity.

I’m doubly biased on this point, as I’m currently using > 3,000 INDEX to provide liquidity, and I would plan to increase this to >5,000 INDEX in the near future. With the implementation of the DSM, I would be financially incentivised to remove all my Liquidity from the chain.

Can we design the DSM to encourage INDEX liquidity?

5 Likes

I see the balance between giving rewards to core hires (who are akin to co-founders and key strategic hires) and ensuring that high-impact, later joiners are appropriately incentivized. We’ve proposed an item for the Index Council agenda on “Roll out performance-based compensation” which could address this. If people agree this topic needs to be addressed, let me encourage them to Upvote it in the agenda queue.

2 Likes

I would say that the DSM is somethign different to “Performance based compensation”. As far as I understand it, the DSM is a flat rate vesting programme to encourage INDEX hodl’ing by community members. As such, the performance of the individual / coop / INDEX price is irrelevant.

3 Likes

My understanding is that the purpose of the DSM is two-fold: to increase contributor ownership and also as a talent incentive. For example DSM is referred to as “an incentive and reward mechanism” and as a way to “retain talent”. To the extent that it’s also an incentive mechanism it’s worth including in a broader discussion about incentives.

3 Likes

From my perspective and memory, one of the primary purposes of the DSM was to place governance power in the hands of active contributors. That way we could have more voting influence on the proposals that we are putting forward. The fact that our governance token also has a financial aspect of it necessitates the need to consider the incentives as well and those were secondary, but important considerations.

I am with @overanalyser here. Whether the DSM is the right tool (vs performance based compensation, etc) is an open question that could be considered, but in a sense that train has already left the station. The priority hires have DSM that is now accumulating whereas no one else does. On the surface, it looks like Gold+ got DSM over the finish line for their demographic, and then moved on to other issues.

4 Likes

Hi, just want to post an update here. @Finance.Nest will be providing a cost analysis to @Pepperoni_Joe who has taken ownership of rolling out the DSM to the broader community upon his return this month. He will be putting together a proposal to be discussed and processed through a community snapshot vote.

4 Likes

Can we get an update on unvested DSM allocations to date for those that are active in it?

Hi Mel,

This sheet has the information you need, DSM rewards for February and March.

4 Likes

Hi @anthonyb.eth @Pepperoni_Joe as I decentralised the “priority hire” Paid Performance and SEO role and could have “found stuff to do” to remain in the role I did not see that as being in the best interests of the coop, given the level of reward I receieved.

Can you advise where this leaves me in terms of the DSM accrued? Will I be penalised in terms of the DSM for making a decision to reduce contributor costs as opposed to actively participating below the strategic level at which I typically choose to operate?

I will be submitting contributor rewards this month and next in order to close out the performance reporting for the two paid learn to earn campaigns but am not actively taking on new opportunities for the remainder of S1.

2 Likes

Hi @lee0007,

Thanks for your question! I am drafting a forum post which will address your question in full and I will update here as well once I am finished.

Thanks,
Anthony

1 Like

Following up, these parameter changes should address your concerns. Thanks for your patience!

I see that DSM rewards are being calculated and allocated for GOLD+ owls:

Has there been any progress on including the other contributors within the DSM?

3 Likes

Thank you. For transparency I am also adding my comments here: There were many ways I could have remained busy, even inflated hours. Except coming from a start-up background I prefer to optimise my own and my team’s time for cost-efficiency. With these changes, it appears to me IC is effectively incentivising toward being ‘busy’, as opposed to delivering impact i.e reducing costs. The current design incentivises people to maintain even increase hours which will drive up contributor reward costs

1 Like

Hi @lee0007,

I completely agree. The reason we made these specific changes to solve specific problems with the DSM that either weren’t clear or had poor incentive alignment.

As you said, we still have the problem of incentivizing busyness. This is something I hope to address soon, but did not want to address as part of a DSM parameter change.

1 Like

Hey OA,

We alluded to this in the council minutes, but the DSM will be likely replaced by a new system pending negotiations with Set. We (the council) hope to include benefits for flexible contributors, but the nature and eligibility of those benefits are TBD while we continue the negotiation process.

Thanks,
Anthony

2 Likes