IIP-165: Contributor Ownership Plan

IIP: Draft
Title: Contributor Ownership Plan
Status: Proposed
Author(s): @anthonyb.eth @edwardk @DevOnDeFi @afromac (On behalf of the Index Coop Council)
Reviewed by: @ElliottWatts @Hammad1412
Created: 11 October, 2022


Summary

This proposal intends to increase INDEX token compensation for core contributors of Index Coop, in turn improving the community ownership of the DAO.

  • The new ownership plan will deprecate the Dynamic Staking Model (DSM).
  • It ring-fences 2,000,000 INDEX (20% of total supply) to a “Contributor Ownership Pool” which will be distributed to core contributors over the next several years.
  • It creates a new mechanism for employee token compensation
    • The token grant is subject to a three year linear vesting schedule commencing 1st October 2022 and concluding 30th September 2025.
    • The token grant is subject to a 12-month cliff from the first day of the first month of paid contribution. That is, if a contributor began working at Index Coop before October 2021, there would be no cliff. If the contributor began working in April 2022, they would be eligible to claim their first rewards in April 2023.
    • The contributor will be able to vote with the entirety of their grant, including unvested tokens.
  • This plan authorizes the Index Council to issue grant letters to full-time contributors of Index Coop to adjust their token compensation with 533,333 INDEX (5.33% of total supply) granted to current contributors in each of years 1,2, and 3.

Motivation

After sharing the plan below with a number of highly-involved and experienced INDEX investors and partners, we’ve reached an informal consensus that this proposal provides a strong long term incentive structure for contributors to continue to build a prosperous organization. The Index Council aimed to create a plan that would stand the test of time, although it might not be perfect, our partners broadly agree that the proposal in its current form addresses the issues of incentivizing and rewarding talent, whilst increasing community ownership of the DAO.

This proposal aligns the incentives of Index Coop with the incentives of its full-time contributors by compensating them partially in INDEX. Current core contributors deserve to receive upside from the success of Index Coop and voting rights of the governance tokens which decide the future of the DAO.

This proposal deprecates the DSM which rewards holding the INDEX token. Contributors should not be incentivized to hold a freely tradable governance token if they would prefer to sell it on the open market.

Finally, this proposal will help to align compensation for individuals in-line with their market value. It gives the Index Council V2, the power to appropriately decide and negotiate with individuals in order for the DAO to retain critical talent.

Specification

Deprecation of the DSM

As of September 2022, all contributors will stop accruing INDEX via the DSM. All rewards that have already been accrued will be distributed via LiquiFi and the Finance team according to the practices already in place.
As of October 1, 2022, all contributors will receive compensation based on their new “Core Contributor Compensation Agreement.”

Creation & Funding of Contributor Ownership Pool

The “Contributor Ownership Pool” will be a distinct multi-signature Safe which will hold INDEX specifically to be used for contributor compensation. It may not be used for any other purpose. Upon passing of the proposal, this Safe will be created with a 3 of 5 structure including at least three council members and two additional full-time contributors as signers.

Upon the passing of this proposal, 2,000,000 INDEX will be sent from the Index Coop Treasury (eth:0x9467cfADC9DE245010dF95Ec6a585A506A8ad5FC) to the newly formed Index Coop Contributor Ownership Pool.

Mechanism for Employee Token Compensation

Contributors will receive INDEX via a simple three year linear vesting structure with a 12 month backward-looking cliff from the month of their first payment from Index Coop. Since most contributors have been contributing at Index Coop for a significant amount of time, there will be no cliff for those individuals.

Upon accepting the “Core Contributor Grant” each contributor will receive the full governance rights for the tokens they will accrue over the following three year period, however, the INDEX will vest to them linearly over 3 years - they will only be able to sell their tokens as it vests if they so choose.

Authorization of Index Council to Determine Token Compensation

The current contributors will be offered 533,333 INDEX per year for the next three years. This will leave 400,000, at a minimum, for future hires. In addition, when a contributor leaves of their own accord or is off-boarded, all unvested INDEX will be returned to the Contributor Ownership Pool.

Grant letters will be sent out to each contributor on October 14, 2022 and are to be accepted or declined by October 21, 2022. If accepted, the new compensation will go into effect as of October 1, 2022.

Due to the complex nature of individual compensation, the Index Council will use a “semi-objective” criteria for the determination of each individual’s allotment of INDEX over the three year period. Leaders throughout Index Coop and individuals filling highly-competitive, technical roles will be offered higher token compensation.

The Index Council weighed factors including:

  • Tenure: The length of time that an individual has been contributing at Index Coop
  • Leverage: The ability of an individual to have an outsize impact for the DAO
  • Compensation: The current compensation level of the individual
  • Time Commitment: The amount of time that the individual dedicates to Index Coop

Each council member independently weighed these factors for each individual and decided on a specific allocation for each person. Then, the median allocation for each individual was taken from the four independent calculations and reweighted to 16%. Although it wasn’t materially different from the average allocation, the median prevented a single council member’s outlier allocation from affecting the outcome for an individual.

It will be the policy of this proposal, that individual score breakdowns will not be provided to individuals.

Implementation

  1. Create a 3-of-5 Safe (“Index Coop Contributor Pool Admin Safe”) consisting of Gaddon Leaze Ltd, Cormac, Defensible, LLC, Anthony, and WFM LTD as signers. Its responsibilities include implementing new token grants and claiming unvested tokens when a contributor leaves Index Coop.
  2. Send 2,000,000 INDEX from eth:0x9467cfADC9DE245010dF95Ec6a585A506A8ad5FC (“Index Coop Treasury”) to the “Index Coop Contributor Pool Admin Safe”.
  3. Grant Letters sent out on October 14, 2022 and to be accepted or declined by October 21, 2022.
  4. The DSM and Fixed Equity system will cease immediately with the last rewards earned in September 2022.
  5. The Finance Team will use LiquiFi to distribute future compensation.

Voting

FOR:

DO Implement the Contributor Ownership Plan

AGAINST

DO NOT Implement the Contributor Ownership Plan


To all those who had a hand in shaping this proposal, thank you for your time, feedback, and consideration.

13 Likes

IIP-165 will be live on Snapshot at 18:00 UTC on October 13, 2022: Vote Here.

2 Likes

This is an interesting mechanism. For clarification, does this mean that as of the point of effective grant date (Oct 1 2022), tokens will be delegated to grantees for which they have the accumulated 3 years worth of unearned tokens for which to vote? Meaning there are an additional ~1.6M (533*3 )tokens available for governance?

I assume that if compensation or “leverage” level changes during that 36 month window the allocation of delegated tokens will change? And if someone leaves prior to total vesting, all non-earned delegated tokens will be removed?

I can see ancillary benefits to encourage participation in governance by contributors, and it will immediately dilute larger token holder influence by ~1.6M tokens. And yes, I still count individual delegations of investor tokens as “influence”.

If this is correct, given the last IIP passed with under 0.5M votes, an additional 1.6M of potentially active INDEX is a big swing in influence. Will be interesting to see what impact this has on voting turnout.

Finally, I may be a little boomer here, but I would typically expect to see incentive grants linked to impact/performance/goal metrics. A kind of “perform and grant” model vs. “grant and hope that drives perform”. But again, it will be interesting to see if this mechanism moves INDEX to outperform the market over the next 6 to 12 months and beyond.

2 Likes

Yes, it means that the contributor base has effectively captured governance and the treasury and locked in themselves getting paid in perpetuity (or runway ends) despite showing no ability to generate traction.

Consider a proposal that would end the current contributor model - would it have any chance at passing now that 1.6m in voting power is controlled by this cabal, where the biggest votes before have had 600k total participation?

No, because the contributor base upon passing this is effectively only accountable to themselves. Something, something moral hazard.

Shouldn’t the contributors be governed by tokenholders and not vice-versa?

2 Likes

Each contributor will be able to vote with the full amount of their unvested tokens which is standard practice in traditional startups. After speaking with our largest token holders for many months and having in-depth conversations, we came to an informal consensus that giving the highest-context contributors voting power would be in the best interest of all token-holders.

The end result is that contributors will control an additional 1.6M INDEX voting power which is a large shift, but one that is supported by many INDEX holders.

The allocation of the token grant is not expected to be dynamic, in that contributors wouldn’t renegotiate their token grant. The DAO can still terminate the vesting contract and clawback unvested tokens, though if a contributor were to be off-boarded.

The purpose is to give individual contributors a chance to actually influence governance in a way that has never before been possible. @jackiepoo’s work on the outcome of governance votes proved that contributors never really had a true say in outcome of IIPs, but this proposal would make if possible for a contributor to have a reasonable chance to be the deciding vote.

This was definitely considered, however, in the end we opted for simplicity. We evaluated many models and decided after input from partners, token-holders, and contributors that this was the DAO’s best option.

2 Likes

Hey @LemonadeAlpha,

I’m happy to respond to your criticisms below, but respectfully consider disclosing your conflict of interest as the founder of a competing project next time!

The contributor base has not “captured governance”, since the contributor base currently holds a tiny faction of circulating INDEX. This is a proposal rectifies that and puts voting power into the hands of the highest-context contributors. In addition, this proposal was designed in concert with, and is widely-supported, by our largest token-holders for reasons I outline here:

Regarding:

Just because past votes haven’t had large turnout doesn’t mean future ones that have a large impact will not. There are several parties that could easily overcome 1.6M votes, but this is besides the point. Broadly speaking many large token-holders want contributor stability and this IIP will help with that. A proposal that completely eliminates all existing contributors is highly unlikely to be a good decision.

Yes, that is why this vote is being decided by token-holders who are free to vote whichever way they please.

5 Likes

Sure, I have a conflict of interest as a founder of a competing project.

However, I’m writing as someone concerned about the protocol whose success I had a hand in building.

The implication I made is that – should this pass – the contributor base would have captured governance and the treasury with 1.6m new voting tokens vs ~600k in total for the largest vote to date.

It is pretty hand-wavey to suggest that further participation could out-influence the contributor voting block which will soon be incentivized to collude in their interests. Even now, every vote is controlled by delegated blocks to the contributor base.

A much less bush-league proposal would be to grant vested token voting power.

Yes, that is why this vote is being decided by token-holders who are free to vote whichever way they please.

And this is why I am bringing it attention.

2 Likes

@LemonadeAlpha - I think dissenting opinions are exceptionally important. Especially with regards to proposals like this with such a monumental impact. Crypto needs more voices who are willing speak their mind to avoid groupthink and I remind myself to encourage dissent, challenges, and contrarian views. This debate only make us stronger. Thank you, and keep speaking your mind.

This is definitely a risk. But, in my view shareholders driving decisions to maximize gain has been done before. It is the cornerstone of the current business methodology, which is focused on TSR (total shareholder return). From an academic perspective, I find this proposal interesting in that it 1) provides massive & immediate incentivization for contributors to drive TSR and 2) it drastically dilutes currently-voting-tokens influence (whales) and appears to put contributors in charge.

I do agree that there are other models that may be more measured, but Index might be more YOLO, less nuance :slight_smile: . Regardless, I am not selling. It will be interesting to watch the following metrics to validate impact:

  • Change in voter participation (where INDEX >1)
  • Change in votes cast
  • INDEX performance vs. total market
  • Net (Profit/loss)
  • Contributor satisfaction survey (Owl Pulse) < if still done

AB, thanks for the response. I really appreciate the thoughtful dialogue and suggest it illustrates solid conviction, but also solid character. Its easy to attack and discredit, its hard to craft a good response. Well done.
I applaud the focus on improving individual contributor influence, its the right thing to do for DAOs - recall a major driver of DAO voter apathy is “my vote does not matter”. If this effort is paired with an emphasis on encouraging individual contributor governance participation you could have something. But if low turnout (quorum adjustment) is “solved” using a pragmatic (lazy) workarounds like delegation or another metagovernance committee, you go back to “my vote does not matter”. The scenario illustrated below will continue. (just substitute “activist whale” with “delegate whale”.

5 Likes

I like this movement. We must rid of Dynamic Staking Model for reasons. I’m in favour.

2 Likes

This IIP has PASSED

7 Likes

I am longtime contributor since September 2021.

How am i going to know if i am eligible or not and who is going to decide sir.

Action 1

The safe has been created and the address is - 0x236815b32b50cc80F5C6348396b1A9B09Fd3E7f7. This is the transaction to create the multi-sig. Ethereum Transaction Hash (Txhash) Details | Etherscan

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Action 2

This transaction has been processed Ethereum Transaction Hash (Txhash) Details | Etherscan

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