IIP-138: MVI Revised Fee Split and Streaming Fee Increase

Governance Proposal
1

IIP: 138
Title: MVI Revised Fee Split and Streaming Fee Increase
Status: Proposed
Author: @DarkForestCapital
Co-sign: @verto0912
Reviewers: @edwardk @Cavalier_Eth
Gov Review : @asira
Created: 7th March 2022

Simple Summary

Having studied the revised economic arrangement for the DATA index in IIP-117, and after working closely with IC product and Set engineering to try and reduce gas costs during rebalances, we propose bringing MVI in-line with a consistent and more long-term fee split arrangement to improve product sustainability.

Abstract

TL;DR on the proposed changes:

  • Streaming fee increases from 0.95% to 1.5%
  • Revenue is split between Index Coop and MetaPortal 60/40 after gas costs are paid for rebalancing.
  • Rebalancing itself reduces frequency to be at least quarterly, with some discretion to rebalance sooner if beneficial.
  • MVI baseManager contract is upgraded, as per IIP-64 to include the MetaPortal multi-sig as a signer for changes.
  • Assuming the IIP travels smoothly through the governance process, we would aim for the changes to take effect after the March rebalance (circa 3rd April).

Motivation

While Set continues to cover gas costs for product rebalancing, we are aware this will not always be the case. In the future, the Index Coop will bear the costs and as methodologists we expect to share the burden proportionally. There are a number of changes we are looking to make to address this, and it makes sense to roll them all into one and future-proof MVI as best we can at the same time.

Moving to a post-gas fee split means we are incentivised to work together and reduce cost (something we have been doing already!) but this solidifies the arrangement. Beyond the change to fee split, we would also propose increasing the base streaming fee to 150bps, keeping all other parameters the same (annualised, realised through inflation per block). This change is justified by market research suggesting holders are fairly insensitive to the streaming fee. Additionally we would welcome the inclusion of mint/redeem fees, but from conversations with EWG understand that it is extremely unlikely to be available short term, and even when built will require a migration. While we see this as some of the highest ROI that the Coop can provide for its products, it seems infeasible based on how the contracts are currently built.

Informed by data compiled by Julien at Cercle DAO, we see that rebalancing quarterly since inception would’ve outperformed the current methodology with monthly rebalancing. Furthermore, bi-monthly rebalancing would’ve yielded even better performance than the quarterly rebalancing.

We propose moving to a somewhat flexible rebalancing frequency, but at least quarterly, at the discretion of the methodologist. Subject to, of course, giving engineering the required heads up on new token inclusions.

Let us briefly touch on why we see flexible rebalancing as the best path forward at this point. Managing a product on the Ethereum mainnet is a constant and delicate balance between the cost of rebalancing and adding new tokens so that the product can continue to effectively capture its theme. Rebalancing quarterly allows for 4 inclusions per year, which we see as inadequate for at least the next 12 months given the growth in the space. It also doesn’t leave much room for exclusions. However, while we might want to include more tokens, sometimes market conditions and the underlying liquidity make it rather challenging. A flexible rebalancing frequency will allow us to strike the right balance between a product that can move with and adequately represent the space, while still responding to market conditions and taking the costs into account.

Methodologist Role

Similar to ToD’s commitments in their post, MetaPortal would provide the following to Index Coop under this new agreement:

  • Maintain product methodology / inclusion criteria.
  • Support the creation and upkeep of a product roadmap for MVI.
  • Support on-chain liquidity analysis on the index constituents while PWG continue optimising rebalances.
  • Provide feedback as to why certain tokens are or are not included within MVI upon request.
  • Publish a forum post prior to each rebalancing of MVI on the Index Coop governance forum that details the rebalance weights.
  • Utilise our network to support marketing and distribution efforts.
  • Keep all documentation related to MVI up to date (MetaPortal has a website and Gitbook which the Coop can pull from), monitor performance and update as appropriate.

MetaPortal is not obliged to lead any business development initiative, integration, or technical implementation effort, nor provide any financial capital beyond what has already been made available. Index Coop is responsible and accountable for growing, integrating and supporting technical aspects of the Metaverse Index.

Economic Agreement

Current Agreement

The current economic construct this IIP aims to replace is based on IIP-86, posted on Sept 13th, 2021. Its key terms:

Streaming Fee: 95 bps

70% Index Coop / 30% MetaPortal

INDEX tokens as part of the methodologist bounty.

Note: Because the requisite infrastructure for mint/redeem fees was not in place, MetaPortal agreed to launch with a standard streaming fee, and simply made reference to mint/redeem.

Proposed Agreement - changes in bold

  • Streaming Fee: 150 bps
  • Revenue split 60% Index Coop, 40% to MetaPortal post-gas costs
  • The MVI baseManager contract will be updated from V1 to include the MetaPortal multi-sig for changes to fee split as per IIP-64. Latest from IC EWG is that good progress is being made on this item.
  • MetaPortal will receive INDEX tokens as an active participant in the Methodologist Incentive program.
  • Mint and redeem fees are on the wishlist but we understand the technical challenges with implementation. We would consider adding them if/when it becomes feasible in future.
  • Index Coop will continue to monitor and where possible augment on-chain liquidity for MVI via the Liquidity Pod.
  • Neither party has made any commitment surrounding the implementation of intrinsic productivity. At the time of writing, it is not yet known if intrinsic productivity would be implemented for MVI.
  • Any amendments to the economic arrangement mentioned above are to be mutually agreed and implemented via each respective community’s governance processes.

Mutual Understanding:

Despite the competing/heavily overlapping proposal for a product elsewhere on the forum, we are still committed to making MVI a success in collaboration with the Coop. We think this IIP helps further cement that commitment while also clarifying how MVI can be profitable and sustainable into the future.

Voting

FOR:

Implement the proposed changes to the MVI economic agreement between MetaPortal and Index Coop.

AGAINST:

Do not implement the proposed changes to the MVI economic agreement between MetaPortal and Index Coop.

Copyright

Copyright and related rights waived via CC0.

5 Likes
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Hi All,

Firstly, great to see the product moving to a post gas fee split. I trust the 70/30 split will remain in place whilst Set Labs is covering the rebalancing cost ?

Can there be some context around how the 60/40 split was determined noting the relative comparison to DATA.

MVI’s Liquidity Mining (LM) cost Index Coop $630K plus the associated wages of the methodologist during the initial months before the product moved external. TOD on the other side did not receive a salary whilst progress DATA through the governance process or post launch. DATA did not receive LM rewards.

Is there any chance to expand on this agreement to include GAME or has that boat sailed ?

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Just to set the scene, this proposal isn’t coming onto the forum as a demand, it’s the result of months of working with PWG to reduce costs, and more recently requests from members of the IC to move to a post-gas fee split. The split was chosen based on the only precedent set so far which was the DATA proposal, and reviewed as such, we hadn’t expected to start another negotiation around it tbh.

If the IC wants remain on the current split we can do that, but clearly it’s more profitable for both parties to make the change to 150bps streaming fee sooner rather than later, same for reduced rebalancing which is also part of the proposal.

I think there is definitely something to this, in that the amount of incentives seems to correlate highly with how successful a thematic product is.

Absolutely, to quote our conversation in Discord directly for context:
"We’ve set a date for launch of 2nd March btw which you’ll see in the [MetaPortal] Discord. I don’t think there is a desperate need to come to an agreement before then as the IC is welcome to partner up afterward if there is value to add.

If it flops you guys can launch P2E and see how that goes

if it’s successful perhaps 25/75 will look attractive

I still think you can chat to the council and see what their thoughts are, understand it’s out of process for the Coop so not expecting much to budge, but we are open to talk if you can get close to where we are coming from."

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I’m fine with this and feel the Coop got value on its incentives for MVI in larger market cap (relative to DATA), streaming fee potential and brand building too. DATA came out later, when thanks to DPI, ETH2xFLI and then MVI the Coop had a more established (if early stage) brand with a fuller product portfolio.

Obviously $GAME is now live from MetaPortal too and it’s quite small at this time in terms of Market Cap. We should use that as an experience to learn things like:

  • How will an index accumulate units/market cap when launched externally?
  • How might our similar index (P2E) grow if launched internally w/o a methodologist partner?
  • How would incentives in either of these two cases impact growth? We know a pretty good amount about this already and learning the answers to 1 and 2 above is def higher value
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Hey @sixtykeys would you mind assigning an IIP number for this proposal and queueing it for snapshot next Monday 14th March? Cheers

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Hey @DarkForestCapital , @asira will be the facilitator for this IIP. He will attend to your request shortly.

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This IIP will go live today at 6PM UTC
Snapshot here

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Confirming that this IIP has failed to reach quorum, 98K INDEX voted, with 66.14% voting AGAINST.
Snapshot here

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Thanks for the confirmation, can we get a re-run set up for Monday as discussed? At least one major tokenholder missed the deadline but were planning to vote.

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Hi @DarkForestCapital,

I believe it would be better to have further discussion before proceeding to another snapshot vote. We don’t want a vote whipping contest which will most likely lead to some of the larger holders seeking to abstain from voting.

I voted AGAINST the proposal in its current form. I think given the considerable expenses incurred whilst bootstrapping MVI via Liquidity Mining and the salaries paid out to yourself and @verto0912 during this time - 60/40 is not fair. MVI is the lowest ROI product Index Coop has and the methodologist also received a very low risk incubation period as internal contributors at the time when MVI was finding Product Market Fit.

I would support an amended proposal if the fee split was adjusted to 70/30. Having spoken with several long serving members of the coop, I believe Metaportol will find a lot more support from the Index Coop community with a revised 70/30 split.

For the product to be a success, we need the community to rally behind the product and for the community to buy into the new fee split. When trying to attain optimal results for promoting MVI, I really think 70/30 will achieve better results for everyone.

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Agree with Matthew. With that 70/30 post-gas fee split, I would be in favor of otherwise voting FOR the proposal (voted against this last time for the same reason as Matthew).

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Hey @DarkForestCapital , this IIP was rerun as per your request above. The second submission of this IIP is currently live on snapshot here.

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I agree with the points that @Matthew_Graham and @Metfanmike bring up. This would be the second time that the fee split of MVI changes. I worry that this may set a precedent that products may launch with a low split, and methodologists can ramp it up later through governance. I think we need to seriously think about how the process of changing a products fee split post launch should work.

For these reasons, I am voting AGAINST this proposal.

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Would’ve been great to have all this feedback during the original discussion period when it’s supposed to take place, rather than wasting ours and sixtykeys time.

Think that’s a fair point and the first time anyone has made it logically. Have you considered that we worry about the Coop launching a product with 70% overlap with MVI, as it sets a precedent that IC doesn’t care about existing relationships or attacking their own successful products? But hey at least it doesn’t rebalance for 12 months so it won’t cost anything!

I had a longer post putting forward some thoughts but it’s clearly a waste of breath. Luckily the governance process at IC functions really well, so the vote has reached quorum this time.

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@Matthew_Graham @Metfanmike could you please elaborate on why MVI incentives are an argument against treating MVI same as every other product?

Incentives for MVI were voted on by the community. We didn’t propose the incentive program. The first LM program was proposed by overanalyser. Back then, we had a supermajority rule where if a proposal received over 80% of the vote on the forum, it didn’t go to snapshot. MVI liquidity mining program got 100% FOR vote.

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@Matthew_Graham was advocating for increased incentives for MVI in June.

In July, there was again a conversation about incentives and the Snapshot vote that passed with circa 85% support. The proposal was from OA as the one overseeing liquidity for IC’s products. Please read the entire thread, but here are some snippets.

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In August, there was another discussion on MVI incentives. Again, please read it. Here are some comments from the thread. IIP-63 passed with 85% support.

After the incentives ran out, Matthew Graham proposed another 30-day incentive program to incentivise migration of liquidity to Uni v3. This passed with 97% support but was never executed. Please note that none of the liquidity mining incentives proposals came from myself or DFC, and we were not actively advocating one way or the other. On occasions that we did engage in the debate, we did so to provide information and our perspective on market conditions and LP behaviour.

Given the above, I’m not sure why MVI incentives are being used against us.

It’s a fair question but I think it misses the point. When MVI transitioned to fee split, the proposed 70-30 split was in line with every other thematic index at the time, DPI and DATA. Now that we have proposed the transition to the post-gas split, it again is in line with every other thematic index operating on a post-gas arrangement, DATA and GMI. All we did throughout was propose whatever the standard arrangement was for comparable products.

Fundamentally, it just comes down to whether you believe MVI should be treated differently from every other product.

I won’t talk about the P2E index too much. But IC decided to launch a product with close to 70% overlap with MVI and didn’t reach out to us even once to discuss. Would you have launched an internal product with 70% overlap with DPI and not talk to DFP at all?

Does that seem fair or aligned with IC’s code of conduct and principles?

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Hi @verto0912,

You have raised some great points and I think we may be coming at this from different places.
In my opinion, which is my own and solely my own, I will do my best to convey my thoughts.

I believe as a community we have learnt a lot about how to launch and grow products whilst we attain product market fits. Some tools are very capital inefficient like Liquidity Mining (LM) and other tools are more efficient like Protocol Owned Liquidity (POL). Index Coop is pro-experimentation, in a prudent manner, as we strive to find the best ways to grow products. The recent listing of Index Coop products on Argent funded from internal cashflows is a far more capital efficient model. Kudos to @MrMadila for the heavy lift in getting this done.

I don’t want to get drawn into a comparison contest, or a debate on an internet chat forum. So I’ll share my opinion and why I voted as I did. It really boils down to a couple factors that I think standout:

  • MVI was an internal product whereby the methodologist received rewards/salaries whilst developing the product all the through until after the product found product market fit. This is essentially a risk free opportunity that shielded the methodologist from downside risk. Worse case is MVI flops and the salaries remain. Bankless and TOD do not have such a favourable risk profile.

  • Index Coop has sunk a lot of capital into MVI, more than other products on the proposed fee split. GMI does have Single Sided Staking which is a testament to Index Coop willingness to experiment. Ultimately, LM + Salaries etc… Independent of how or why they come about, MVI > GMI.

  • Metaportol is no Bankless, GMI is Bankless’s second Index Coop product and Bankless co-incentivises the product as well. This relationship has been great for Index Coop leading to a number of joint initiatives.

More holistically, MVI was an enabler for metaportol which in turn lead to GAME, which didn’t follow in Bankless footsteps by being an Index Coop 2nd product from launch with metaportal and was launched on Tokensets. This appears to have lead to P2P emerging, but I don’t know for sure. However, I do know it is not a great look for either Index Coop or metaportal. The caveat that GAME one-day could be Index Coop, well I think if GAME finds product market fit it will be reflected in a lower fee split to Index Coop. I suspect by metaportal taking on all the risk at launch would be the main reason for not mirroring the MVI fee split.

This will be my last message here on the topic and am happy to discuss this in a more 1:2:1 format. Written communication isn’t always the best for discussing sensitive topics like this. I will reiterate, at 70/30, I think that is fair deal and FWIW, it is the top of my band for where I think fair is.

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Hi everyone,

We at 1kx have elected to vote FOR the MVI Revised Fee Split and Streaming Fee Increase proposal. The reasons for this are as follows:

  1. We believe Index Coop should be working with external methodologists to be successful. Index Coop is at an inflection point in its growth where it must decide if it is a product DAO that develops products internally or if it is a distribution platform for externally developed methodologies. At 1kx we have witnessed that only platforms and networks can reach exponential growth, but we recognize that it is ultimately going to be a community-led decision. Whichever direction the Coop takes, it is important to work with external methodologists in the interim to be successful. Developing highly-overlapping competitive products while simultaneously hindering an external provider’s growth is not a good look for the Coop regardless of future direction.

  2. We believe that this is a fair proposal. We understand MVI went through a different incubation process than other IC products. It was internally created under the experimental community methodologist banner and later spun out once it was recognized that the community methodologist program did not create ideal incentives as discussed here. We view this experiment as a sunk cost and should now recognize Metaportal as a fully-fledged external methodologist no different than DeFi Pulse, Llama, ToD, Bankless, or any other. As such, it is important to treat these partners in a fair manner, with similar terms for similar products. This proposal is in line with the recent renegotiation of ToD for the DATA product, which is also a relatively simple sector-based index, so we do not believe the terms are controversial.

  3. Renegotiation is part of the business. It has been discussed whether we want to have a more robust process for modifying fee splits post-launch. We understand the concern here, but we recognize that at the end of the day the Coop will always be in control of voting in favor or against a proposed renegotiation. If a methodologist and IC launched a product without a clear PMF at first that later catches a strong narrative or becomes widely adopted, we would view this as a change in circumstance that would likely trigger a renegotiation. We aren’t against establishing a more robust framework for the renegotiation process, but we do not have one today and we view this as a standard business practice. Thus, we shouldn’t slow down a renegotiation today because of a process that the Coop hasn’t created yet - that feels too burdensome and bureaucratic to partners.

All-in-all, we want to make sure that the Index Coop succeeds. This will be highly dependent on how we treat external providers in the near-term to make sure they don’t feel discouraged working with the Coop and seek to launch their product elsewhere.

17 Likes