IIP-162: Season 2 Budget

IIP: 162

Title: Season 2 - Network Budget Approvals

Status: Queued for Snapshot

Author(s): @ElliottWatts and Index Council (@catjam @anthonyb.eth @DevOnDeFi @edwardk @afromac)

Created on: 21st July 2022

Budget Overview

This IIP is to approve the budgeting for Season 2 (July 1st to December 31st) operations of the Index Coop. You will notice we are moving to 6 month seasons, we see little to no point in running 5 month seasons with an ‘off-season month’.

The Index Coop has been through a significant restructure with long standing members of the community departing, we are adopting a leaner organizational structure whilst we navigate through challenging bear market conditions, hoping to come out the other side a stronger more successful business. Given the gravity of the proposal, we feel it appropriate to take this through IIP, cementing the leaner organizational changes implemented by the Index Council. The budget has been prepared by Finance Nest taking into account the views of the Index Council, Investors and Contributors. We feel this has made significant strides to address the concerns raised in the open letter.


  • Annualized S2 budget is $4.12m
  • Complete reduction in flexible rewards. We are now budgeting for $77.7k total for the season across all networks. Representing a reduction of 88% from S1 actuals.
  • Total budgeted for S2 is down 32.86% from S1 actuals on an annual basis
  • New focus on Growth and Product with Service Network being reduced significantly for S2
  • Monthly Opex excluding flexible contributor rewards totals $15k down from $49.6k.

Operations Account: ‘0xFafd604d1CC8b6B3B6CC859cF80Fd902972371C1

Investment Account: ‘0x462A63D4405A6462b157341A78Fd1baBfD3F8065

Treasury Account: ‘0x9467cfADC9DE245010dF95Ec6a585A506A8ad5FC


The Season 2 budget being requested is $2,059,960 for a 6 month period. This is equivalent to $343,326.67 per month. The funding will be provided from the investment account to the Operations Account once the Investment positions have been unwound to an appropriate level as determined by ICC and Investors. Note we have not requested INDEX from the treasury since all opex costs will be funded from stablecoin assets. The assets will be distributed/managed by Finance Nest.

The detailed budget spreadsheet can be found here.

Do note that DSM costs are not included as part of this budget. They were approved via a separate IIP and form part of the equity package for contributors.

Build Network Overview

The goal of the Build Network for S2 is to deliver the core products that we see direct demand for in the market, while also continuing to innovate and experiment in a leaner and more efficient manner. In parallel we will continue to develop and work with new tools, infrastructure, infrastructure providers and partners that will enable us to solve the challenges around product rebalancing and protocol owned liquidity (POL) that have obstructed us from launching composite products.

The main change from S1 is that the product roadmap will be co-owned by Build & Growth, and will be tailored to meet the specific needs of high value market segments that we identify and interview.

Growth Network Overview

Growth Network will mainly work to co-underwrite the Product Roadmap with Build nest, seek to maintain and grow TVL in a Bear Market, while cautiously testing a few new product-growth or growth strategies.

The main changes from S1 are reduced flexible contributor costs, a smaller more focused team, and leaning into our Marketing and Partnerships nests, supported by Community. We aim to learn about the traction of new products with our onchain audience, while also scaling the distribution of our products via offchain distribution partners - primarily intermediaries.

The main challenges we foresee are macroeconomic, crypto sector sentiment, and potential for a prolonged Bear Market - the last major Bear Market lasted over two years.

Service Network Overview

The Service networks mission is to provide support to Build and Product networks whilst also providing transparency of operations for Investors and stakeholders in the organisation. This will be accomplished by providing financial and operational support to the organisation ensuring Build and Growth teams can focus on building a robust business for years to come. We will be responsible for the sustainability of the organisation, financial transparency and treasury management.


Approve budget for S2

Reject budget - we need further discussion.


gm @ElliottWatts

Could you please update us on Metagov? If I recall correctly it was supposed to be a pod of Partnership Nest.

gm @ELI5ofTLDR. There will be a post this week/early next week regarding Metagov by the growth team. Watch this space.

1 Like

This has been queued for snapshot to go live 1900 UTC today.

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.

  1. 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).
  2. 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.
  3. 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.
  4. 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:

  1. summary
  2. proposed change
  3. problem statement/motivation
  4. specification/detail of changes
  5. rational (why this approach was selected)
  6. 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.)


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. :owl:


Thanks mel. Not only for this post but also for all the good work. :pray:

A lot of good questions has been raised. Some of them are also in my mind for some time.

I hope these concerns are addressed here appropriately.


Thanks for your message. I will address the facts here regarding the numbers referenced.

cc: @DevOnDeFi @catjam @anthonyb.eth @edwardk @afromac

The above statement is incorrect. The current makeup of the treasury is as follows. As at the end of June (Stablecoin holdings have not moved materially since then) the total holding is $7.8M

The below table shows stablecoin and stablecoin equivalents

Account USD Value Account
Balancer Boosted Aave USD pool $4.1m IA
DAI $315k OA
USDC $588k OA
Total ~$7.8M

This therefore provides a runway of ~1.89 Years.

As you are well aware the Index Coop provides transparent financial reporting monthly. Here is our latest Quarterly Financial report for your perusal.

This is incorrect. As detailed above the Index Coop does not have $500k of stablecoins remaining from the $10m raise it infact has $7.8m.

This statement is not backed by any factual information or comparatives and is incorrect, so I will provide figures.

The DAO’s expenses over the last 6 month’s pre restructure (January to June 2022) totalled $3.8m, annualised is $7.6m. The DAO during that time had ~ 28 FTE (Core hire plus total hours listed on June rewards sheets/50) this represents a FTE cost of $271,428.

This budget implements a reduction of 18.3% per FTE not an increase as you suggest.

It should also be noted that included within this budget is the cost of hiring 2 Solidity Developers!
Given this and the fact the developers are not included in the FTE headcount of 19, the cost reduction has been significant.

The budget as presented enables the core team to build a successful organization, one that already has the buy-in from major investors. The restructure process was implemented with investor blessing and consideration.


Gm @ElliottWatts -

My letter was penned in haste and This Owl let a cursory examination of the accounts absent the Balancer position play doorman to my frustration with a founder that never understood the power of what a community created and the potential it had. I believe that by holding on too tightly it was crushed. If real ownership were allowed we’d have built an empire in all directions, instead, a business unit nearly for free along with the only real (albeit non-performing for the vault builders) asset of value Set has: the products we created and put in their vaults. Afaik INDEX tokens might be the most valuable exit liquidity Set has without perhaps launching another token.

It’s a pretty rough tokenomic picture when the community treasury also sits full of our own supply (really just also Set’s supply as long as they hold the keys and all the tokens), especially while all other DeFi protocols are taking their necessary licks on generally ~3 year distribution schedules and working out how their brand of distributed governance actually works (and if people are willing to pay for it if it’s genuine). The Owls that collectively built The Coop will collectively get pennies on @setoshi’s dollar having done by far the lion’s share.

I’m embarrassed at my tone above, and I apologize to you and the DAO for nitpicking the error. Protecting decentralization and fair reward at The Coop affected me deeply. Knowing that there’s no way the above proposal can pass without the express permissioning of the founder has nothing to do with the performance of an entire DAO, which was admirable and you deserve the right to determine your own collective fate; nonetheless it feels like the greatest expression of failure given the opportunity we had with this thing and how hard we worked for it. A personal goal of mine had been to leave a DAO that could hit quorum on its own, and not by renting it. I do want the VCs to take action, but I got the message wrong, and I apologize for that too; I genuinely think you’re all doing your best.

It was an honor to fly with every single Owl. It felt amazing and everyone was just incredibly special; I hope to build with some of you again. All love.

P.S. - I’ll not address your posts again @ElliottWatts without addressing you at the header and I genuinely appreciate the instructive response. :owl: