A link to the live vote can be found here.
For disclosure, I have divested of all INDEX positions and have not contributed to Index Coop since June '22, but given I was one of the most high-context and trusted contributors over the 15-months prior (founder of DAO newsletter, Governance Nest Lead, elected to the inaugural Index Council) I’ll port some personal context and opinions here upon seeing the S2 budget request above.
Size of Overall Budget
The overall budget appears to deplete the remainder USDC and non-INDEX holdings in less than 1-year (absent revenue projections, which at present are unreliable). INDEX holdings are effectively useless given extremely low liquidity as described well here.
| Account | USD Equivalent (excluding INDEX) |
|---|---|
| Investment | $3,167k |
| Operations | $496k |
| Treasury | $3k |
| Total | $3.67MM |
Annualized Budget Requested: $4.12MM
Runway at current current burn rate: 0.89 years (3.67MM/4.12MM)
Investors should request that the DAO expand on how this is considered prudent management of the community treasury (investors by far comprise the largest tokenholder segment of the community) and demand something that at least looks like a financial statement or business plan. Given the raise from VCs was $10MM and only/approximately 0.5MM USDC remains (~$500,000) after 15-months, coupled with the extremely limited runway and ability to raise new funds for labor, how can investors be confident that the current leadership team at the DAO are best suited to be fiscally responsible going forward?
FTE (Full Time Equivalent) Expenses
With a core equivalent of 19-employees (and no Senior Solidity Developer) at $221,706/FTE, and the changed DAO composition, would it not be prudent to discuss the capabilities of the existing staff in this proposal? Having contributed for 15 continuous months I’m at a loss as to how a number north of $200k in stables (plus The DSM, a massive incentive program in INDEX tokens not discussed here) is justified. Perhaps an independent audit of capabilities and expenses would make sense, as self-reflection over the past 9-months has gotten the DAO down from nearly 120 contributors to 19 FTE without a commensurate savings (e.g. the cost/FTE appears to have ballooned while the network-effects of non-FT contribution have been lost). The request investors should be making: provide CVs or some support that would give confidence that the right team is in place given that past performance doesn’t indicate competency and an extremely high cost/FTE is being requested in what appears to be preparation for an extended bear market.
Use of Funds
Given there is little in the way of expansion on the top-level numbers, planned activities, mission or vision, some explanation on the use of funds would be prudent.
- The smart-contracts utilized are deployed by Set Labs/Set Protocol; why is such a large engineering team needed when the DAO was initially conceived as a growth and marketing DAO? What is the division of labor between IC and Set on critical infra and integrations that benefit both? This question partially goes to incentive-alignment as both firms are inclined to push those costs to the other but Set has all the hard power in terms of multisig control but is at odds with VCs in this regard (*VCs that are not invested in both Set and IC as some are).
- To date, virality via twitter has been the main distribution channel for adoption, information and awareness; would a shift to more ‘traditional’ channels make more sense (CT is basically an echo-chamber)? This question was spurred by seeing impression mining still on the budget which is simply paying people for tweet-views as I understand it.
- Are rebalance costs (cost to rebalance sectoral indices with allocation-creep) included in this budget, and if not what are they and why, as they are significant? A summary of rebalance costs to date be provided along with frequency and projections in the coming term for which budget should requested by investors. The three accounts referenced above comprise the total amount of funds available to IC, and these costs would further significantly reduce the stated runway if not accounted for.
- The repayment of 100,000 INDEX tokens or a $5MM USDC injection is due from Wintermute in the coming budget term. Math dictates that repayment is not likely to be in the form of stables ($300k in INDEX vs. $5MM in USDC) and IC may be losing the support of Wintermute in this regard; can the leadership team speak to the plans for market making capabilities given that the option provided to Wintermute is set to expire well short of expectations?
Past Performance
One would expect to see a summary of how Season 1 went either discussed or referenced in the proposal. Standard IIP template structure is:
- summary
- proposed change
- problem statement/motivation
- specification/detail of changes
- rational (why this approach was selected)
- comparables/test-cases (in this case, other DAO structures, costs, etc.)
I believe some self-reflection and more specificity would serve the DAO well.
Of note, Governance Nest was the only team to publish a Season 1 Retrospective and the entire Nest was fired two days later with no explanation given other than market conditions.)
Summary
As a business the Index Cooperative is failing, and as a protocol it lacks a tokenomic model that inspires either network growth or value accrual to INDEX token holders; hence my first statement in this post. I would prefer to see The Index Cooperative either operate squarely like a protocol (and accrue value to tokenholders), or operate like a DAO/Business (and make a case that there is a profitable future), but as it stands Index Coop is unsustainable on both fronts with no blue sky in sight.
The recent and full deprecation of all growth and operational maintenance of governance capabilities, when metagovernance is (and always has been) the only utility of the INDEX token (besides budget allocations and parameter changes), has left many in the industry confounded, including myself. The only demonstrated use-case to date has been two Aave listings, and that has not generated any revenue (conclusion: INDEX currently has no tokenomic model besides as a shareholder vote in the DAO).
I would recommend that investors with governance power take control of the treasury and stand up a group of multisig signers, a governance structure, a tokenomic model, and a leadership team that can effectively grow and manage the product suite (and effectively leverage the metagovernance capabilities of accrued governance tokens sustainably rather than via centralized control) via something more akin to the MakerDAO model with on-chain (trustable execution) parameter changes, a small core responsible for accountability, and easily interchangeable and more effective spoked business units (accountable subDAOs).
While certainly an unpopular opinion among current contributors at IC: repurposing the community treasury, investment, and operations account to a grants program administered by a balanced (uncaptured) core of multisig signers (Methodologists, DAO, Set, Investors) would cost significantly less (increasing runway) and likely inspire much greater impact with $3.67MM in non-INDEX assets and 18.84% of INDEX token supply currently sitting underutilized. A shift to focus on more discrete performance metrics and monitoring/accountability seems the optimal path as scale appears to have weakened the overall ability of the DAO to self reflect and restructure itself in ways that make good fiscal sense, and thusly suffers from outsized influence from the technology company that founded it.
As it stands Set Labs wields wholistic governance power and has been generally extractive of the DAO in my opinion, but must yield to investors/voters or risk further making INDEX a security through failure to adequately decentralize (might be too late on this, 2-years is a long time to retain absolute power over a community lead, community governed endeavor). I believe Set knows this as they have gone to great length to maintain the appearance of propriety while exerting wholistic influence over the DAO both publicly and privately while retaining full power over both token-votes and the ability to access the community treasury (DAO contributors hold less than 2% of the token-supply and require a massive delegation from the founder to pass proposals after two years of community-lead building, launching, and maintenance of dozens of products; the DAO remains captured and at the mercy of @setoshi, who has consistently appeared bluntly uninterested in relinquishing control to the community that actually filled Set Protocol’s vaults in favor of calling for INDEX token price increases and a “CEO DAO”). The term for this activity is Decentralization Theater (1, 2) - best exemplified by here.
This is all just one ex-contributor’s opinion presented for consideration; of course always do your own research before making any governance or investment decisions. My time at the The Coop was a continuous push for more decentralization, automation, and community-lead organization, but I was regularly met with vehement opposition from within and without and told that IC needs to be “run like a business” (to me that just looked increasingly like securities risk and I communicated this openly); nonetheless, I’m on to other things but I wish everyone still involved the best of luck in this and all other endeavors. 