Nest leads: @Matthew_Graham and @ElliottWatts
Authors: @Matthew_Graham and @ElliottWatts
Reviewers: @prairiefi, @Hammad1412 and @Ahuja
Note: Where TBA is stated information is withheld and is awaiting input from other Nest before Index Council endorses the Budget / Owl Levels presented here within. This is to ensure consistency and alignment across the DAO.
Finance Nest - Season 1 2022
The Index Coop is a for profit organisation that is supported by the Finance Nest. The ultimate goal of Finance is to provide the community with the appropriate tools and guidance empowering the community to turn a startup into a profitable DeFi Citadel. A deep financial understanding is essential to create and maintain the best economic business model. Index Coop needs a deep understanding of its cash (token) flows, revenue streams and expenses along with an economic model (tokenomics) to drive the long term success of Index Coop. Value accrual is showcased through credible financial reporting which in turn provides stakeholders detailed transparent insights into our operations. CFA, ACA, risk analysis and DeFi analysts/strategists are at the heart of the DAOs Finance function and are essential in appropriately managing community assets, safeguarding the sustainability of the DAO.
Finance Nest offers the Index Coop community a qualified (University, Industry accredited & experienced) team with a proven track record across several leading DeFi protocols. A number of the Finance nest members have been hired through the Core Team hiring process, this nest proposal intends to summarise additional budget asks excluding costs incurred through the core hiring process and will be the reference point for what this Nest delivers, responsibilities and how performance and ultimately success is measured.
Finance Nest Structure
The Finance Nest has 5 core areas of operations with the overarching responsibility for managing the communities finances at day to day operational level whilst ensuring the community has sufficient run way to bootstrap a prosperous future. Financial reporting provides in-depth financial analysis of the business and our products which in turn helps to shape the future of the Coop and allow us to learn, iterate and improve upon past learning points from a profitability standpoint. Understanding the economics of how the DAO operates and where value accrues is critical to creating tokeonomics that incentivises members to act with a long term mindset with future stability and success of the Index at the forefront.
The image below shows the five main focus areas of the Finance Nest with the following sections outline the value proposition each core discipline offers the community.
Primary Objectives
Finance Nest Pods and deliverables are all focused on supporting the following Index Coop Primary Objectives in Season 1 (Feb 1st - June 30th).
- Ensure accountability and productive spend to demonstrate impact
- Tokenomics and value accrual for INDEX token holders
- Ensure the financial profitability and sustainability of Index Coop
- Manage funds and ensure smooth disbursement of funds across Index Coop
Each of these objectives are owned by the Pods.
| Pod name | Primary Objectives |
|---|---|
| Accountability and Financial reporting | #1 Ensure accountability and productive spend to demonstrate impact |
| Tokenomics | #2 Tokenomics and value accrual for INDEX token holders |
| Sustainability | #3 Ensure the financial profitability and sustainability of Index Coop |
| Operational Funding & Payroll | #4 Manage funds and ensure smooth disbursement of funds across Index Coop |
| Investment Account | #3 Ensure the financial profitability and sustainability of Index Coop |
Finance Nest Reporting
Following on from Q4 2021, Finance Nest will continue to provide transparency into the performance of each Pod via the governance forum on a monthly basis. The first iteration, of what is a progressively improving format, can be found here. With regular updates and accountability nests will become self monitoring through this process, with the goal of creating visibility, enabling reflection and continual learning. Finance Nest reports on the performance of its ability to deliver what it commits to the community. Coupled with internal reporting on DAO operations and nest success, we also have a duty to external stakeholders and our financial reporting across the last 7 to 8 months has been the envy of DAO’s across the space. This has been pivotal in providing essential information to investors and service providers such as debt DAO, where we are currently undergoing a due diligence process to determine credit rating of the organisation (more to come on this).
In addition to an ongoing thread on the governance forum, Finance Nest will interact with the community in the following ways.
- Governance Forum Posts
- Weekly Presentation during the Weekly Standup Meeting
- Monthly Community call (AMA style)
- Quarter Financial Update/Presentation
- Index Coop account publications
- #Finance channel in Discord
- Weekly Money talks chat in discord
Pods
Accountability and Financial Reporting
Contributor: @prairiefi, @ElliottWatts, @Hammad1412 and @Matthew_Graham
Finance Nest provides the Coop with credible Financial Reporting, the envy of many in the DeFi space that enables investors, partners and most importantly the community to gain deep knowledge of the financial health of the organisation. Professional reporting provides transparency and builds trust, complimenting Index Coop’s reputation and rapport within the ecosystem.
Objectives
#1 Ensure accountability and productive spend to demonstrate impact
Deliverables/Responsibilities
To provide the community with accurate and transparent financial reporting analysis
- Monthly Income Statement, Token Flow Statement, Balance Sheet, 1 page summary, medium articles and Budget v Actual spend analysis
- Quarterly Financial Report, Presentation and Video
- Collate and provide feedback on Nest level seasons budgets
- End of Year financial report
- Coordinate across Index Coop to ensure all financial transactions are correctly identified and assigned across the various financial reports
Support and improve Index Coop’s Nest budgeting, proposal and contributor rewards process
- Provide data led insights and challenge on Index Coop spend and Nest proposals
- Provide guidance on how to value contributor impact/rewards and ensure each Nest follows best practises
- Challenge forum proposals, spending and business case for investments
- Determine and Implement a means for difficult questions to be asked on the governance forum which does not lead to any negative sentiment towards any one/group of individuals
Success Metrics
The following quantitative metrics are intended to track and showcase the performance of the pod.
- No of reports (listed above) which were published / No of reports should have been published within the season 5 should be published
- Monthly financial reports published within the first 10 days of the month
- 100% of forum posts requesting funding reviewed on the forum where constructive challenge is made if appropriate
Accurate and timely publication of financial reports, targeting submission within the first 10 calendar days of the month. Overall high standard of requests for funding with clear spend, performance measuring and success metrics in place. This is measured based on feedback from Index Council and ideally, a downward trend in the quantity of Finance Nest driven changes to proposals being presented to the council / governance forum.
Pod Budget
Details TBA.
Tokenomics
Contributor: @Matthew_Graham, @PrairieFi, @Ahuja, 1Kx and others
Tokenomics is a DAO wide initiative that needs significant focus and attention, it should evolve and the Index Coop grows and develops, Finance Nest has the skills, expertise and overview of the DAO to provide structure and suggest a roadmap to the community, the nest will support and work with the community to develop a holistic model that is optimised for future value accretion.
Objectives
#2 Tokenomics and value accrual for INDEX token holders
Deliverables/Responsibilities
Provide the community with a tokenomics roadmap
- An INDEX tokenomics roadmap
Support and improve INDEX value accrual mechanisms encouraging the right kind of behaviour
- Providing insights into various alternative economic model
- Facilitating conversations with the broader community (money talks discord channel 4pm UTC Tuesday)
- Hosting community workshops exploring potential tokenomic ideas and concepts
- Engaging with major token holder around potential tokenomic changes
- Ongoing refinements for where value accrues across the DAO
Success Metrics
The following quantitative metrics are intended to track and showcase the performance of the pod.
- Number of community workshops held in deriving a fresh tokenomic model
- Number of meetings with investors/major holders/industry thought leaders discussing tokenomics
- Number of forum post recommending tokenomic changes
- Attaining support from Community/Council/Investors for proposed tokenomic changes
- Number of changes implement to the tokenomics model
INDEX tokenomics is overhauled leading to a new economic construct that favours loyal and active holders who display the community’s determined desired behaviours. INDEX tokenomics is actively reviewed and compared with the latest evolving trends within defi. Actively developed and endorsed by major token holders.
Pod Budget
This pods budget is mostly covered by the Core Hires proposal, IIP-128. In addition to Core Hires costs, a budget $5K per month is being requested to support any contributors contributions that fall outside of the core hire list.
Sustainability
Contributor: @ElliottWatts and @Matthew_Graham
Index Coop needs the ability to make informed forward looking financial decisions. Capital management at a DAO is a challenge, traditional start-ups do not usually have the luxury of a large bank balance so early into its lifecycle. We find ourselves with challenging scenarios to balance both a high growth high spend organisation whereby our current spend outweighs our revenue quite disproportionately and needing to utilise an increasing amount of stable reserves for short term spending gaps. Finance Nest has to ensure we have adequate reserves in low vol assets available to secure stability and the future of the organisation should there be a significant market downturn. Forward looking revenue forecasting, expense estimation and maintaining a runway in low vol assets is key to the long term success of the DAO. This pod tracks, forecasts and shares knowledge with other parts of the DAO to enable informed decision making on spending and initiatives, cash flow is key in a business, without good stewardship of funds all else fails.
Objectives
#3 Ensure the financial profitability and sustainability of Index Coop
Deliverables/Responsibilities
Provide financial forecasts and support Index Council/Nest’s financial data needs
- Maintain a DAO wide financial plan
- Bull market conditions financial plan
- Bear market conditions financial plan
- Provide input into DAO wide spend initiatives like contributor rewards, DSM, bonuses and liquidity provisions
Maintain a minimum 18 month stable coin runway
- Holistic financial planning around contingency reserves
- Maintain an 18 month stable coin runway
Success Metrics
- Provide seasonal Financial forecasts
- 18 months of stable coin runway ie: Stablecoin burn rate
Sustainability for the DAO is as important as a good product pipeline. Our overall goal is to build a treasury that is diversified to withstand significant market downturns supporting and ensuring the future of the organisation.
Pod Budget
Details TBA.
Operations Funding & Payroll
Contributor: @PrairieFI, @ElliottWatts, @Hammad1412 and @Matthew_Graham
This pod provides Index Coop with day to day on-chain operations support. The Operations Account is supported by this pod, it provides members from all across the coop the ability to have fast and easy access to capital. With eleven signers, spanning all time zones and every Nest, we realise great efficiency through process standardisation and efficiency of scale (contributor rewards being paid from one wallet for example). This pod is responsible for ensuring this one wallet is used for all short term funding and is readily accessible for all that need access. This pod is not accountable for how funds are deployed, just that the requestor has the appropriate approvals in place, be it through snapshot or approval from the Index Council, that the wallet is adequately funded ahead of time. Transactional metadata which are processed on-chain provides efficiency and problem solves for the Accountability and Financial Reporting pod when it comes to asset tracking and cost review.
Objectives
#4 Manage funds and ensure smooth disbursement of funds across Index Coop
Deliverables/Responsibilities
Operate a single wallet that provides streamlined process to distribute all of the Coop’s financial transactions
- Monthly Operations Account reporting
- Managing risks, security, structure of the multisig, assets held within multisig, requesting funds and coordinating timely execution of transactions
- Writing guides for signers to follow when validating transactions. Ie: Checklist
- Monthly Transaction mapping, cost centres definition and generating financial statements
Coordination of the contributor rewards process
- Management, oversight and improvement of the contributor rewards process
Robust management of short term funding capital, cash flow and operational security risks
- Reacting to crisis events requiring community funds to overcome challenges
- Short to medium term money market fund management
- Determine the minimum amount of unproductive assets held
Success Metrics
- 80%+ of transactions being executed via the Operations Account (excl. Dev wallets for products)
- No of reports listed in initiatives which were published / No of reports should have been published
- Less than 15 minutes for processing time sensitive transaction
- No more than 3 failed transactions due to signer issues per month
- Zero incorrectly executed transactions per month
The goal of this pod is to ensure the smooth financial operation of the DAO through one wallet. This multisig provides a high level of security through the expertise, integrity and track record displayed by all signers over the last 6 months. Coupled with processing and improving the payroll process for contributors at every owl level within the Coop.
Pod Budget
Details TBA.
Investment Account
Core Contributor: @Matthew_Graham, @Ahuja, @PrairieFI
The investment account intends to provide the treasury with passive low risk exposure to DeFi strategies to support the Index Coop’s growth and long term financial sustainability. Yield generated from this will be cycled into funding the DAO wide initiatives and is considered another income stream for the Index coop.
Objectives
#3 Ensure the financial profitability and sustainability of Index Coop
Deliverables/Responsibilities
Identification of diversified portfolio and a strategic asset allocation that complements Index Coop’s growth and long term financial sustainability
- Explore the potential use of derivatives to capture upside in INDEX price whilst minimising downside capture (Hedging)
- Develop and maintain a diversified Asset Allocation strategy and yield generating strategies with a focus on capital preservation
Active management of Index Coops Investment Account
- Active Risk management for investment account
- Incl. Yield, Strategic Assets & Diversified Asset Management
- Responsible for maintaining multisig, requesting funds from Treasury and coordinating timely execution of transactions
Reporting holistically on Investment Account structure and purpose
- Quarterly Sub-asset class investment analysis and range recommendations
- Provide performance tracking and reporting of the Diversified Asset Allocation strategy
- Provide quantitative modelling supporting strategic asset purchase
- Provide quantitative modelling supporting product sales to various Treasuries via BDWG
- Monthly Investment account reporting
Success Metrics
Operate a single wallet that manages all of the Coop’s strategic assets and diversified portfolio holdings.
- No of reports listed in initiatives which were published / No of reports should have been published
- % of assets held within the Investment Account deployed productively
- % of assets that can be liquidated at a moments notice if ever an operational need emerged
- Nominal annualised ROI on assets
- Performance relative to benchmark indices
The main goal of the Investment pod is to utilise our capital reserves and turn them from passive holdings to productive low risk investments, generating passive yield for the organisation supporting and offsetting some of our operational expenses.
Pod Budget
Details TBA.
Overview of Finance Nest in Q4
Finance Nest was the first alongside TOC to pioneer the OKR focused proposal for the nest structure with each of the pods in Q4 operating semi-autonomously and being accountable to deliver against their respective objectives and initiatives. There is more detail given below on the specific initiatives carried out in Q4 for each key result.
Contributor List
Details TBA.
Funding Request
Details TBA.