IIP-86 MVI Fee Split Proposal

Title: MVI Fee Split Proposal

Status: Proposed [2021-09-21]

Author(s): @BigSky7 @Mringz

Discussions-to: Moving MVI in-line With the Fee Split Model

Created: 9-13-21

Simple Summary

‌As outlined in the recent forum post on the subject, “Moving MVI in-line With the Fee Split Model”, we believe this change is mutually beneficial and the timing is right. This IIP proposes a 70% Index Coop / 30% Methodologists fee split arrangement for MVI + Methodologist Bounty to move this transition forward.

Abstract

Once implemented, verto and DFC will cease their FT compensation packages and, instead, will be compensated for their work on MVI via fee split + methodologist bounty.

Verto and DFC will also cease their involvement in high-level Coop initiatives and DFC will step down from the Funding Council and the autonomy group.

It’s worth noting that in case the IIP does not pass, verto and DFC will retain FT compensation packages and will focus entirely on MVI.

Motivation

Verto and DFC outlined the motivation to transition MVI to a fee split structure here. To sum up:

“It became clear over recent months that our contributions are stretched too thin. We have been doing many things sub-optimally rather than one thing really well. This has been tough, and at this point is reducing our enthusiasm to tackle the challenges with the kind of commitment that came easily before. We also see others rising through the community and being capable of taking on greater challenges. We want to create space for these community members to step up and lead the next phase of Coop evolution. This kind of offboarding is fairly new to DAOs, but we believe needs to be a part of the culture for the project to grow (A finite game is played for the purpose of winning, an infinite game 1 for the purpose of continuing the play).”

‌For the Coop, “we believe this change would better align incentives and make sure our compensation is directly tied to the success of the product, also removing the financial burden of our FT packages from the Coop.”

Specification

Proposed Fee split:

  1. Streaming Fees (including mint and redeem fees)

70% Index Coop / 30% Methodologists

  1. Participation in Methodologist Bounty Program

The proposed split is based on the precedent for simple indices (DPI, DATA) and the expected distribution of work to support and grow the product.

The fee split and methodologist bounty may be revised at some point, as part of the Index Cooperative’s larger effort to reconsider its relationships with methodologies.

  1. @DarkForestCapital and @verto0912 will forfeit the remainder of their unvested tokens on the date of the switch, the tokens will be returned to the Coop treasury.

As a product IIP, it should have the quorum requirements of a DG2 vote. Namely:

  • 10% of circulating INDEX tokens must participate
  • 60% or more must vote FOR.

Vote

  • For: Approve 70% Index Coop / 30% Methodologists fee split arrangement for MVI
  • Against: Do not approve 70% Index Coop / 30% Methodologists fee split arrangement for MVI

0 voters

Copyright

Copyright and related rights waived via CC0.

6 Likes

Strongly opposed to this fee split proposal as designed.

A few questions:

  • Was the existing amount spent on MVI (LM, Marketing etc) considered?
  • Was the timing surrounding the contributors vesting package considered? (despite these issues being known and communicated)
  • Was the potential precedent for future “internal products” considered?
  • (EDIT adding): Was the performance / economics of the product over the past X months considered?

While I have full respect and faith in DFC and Verto in managing this product going forward, to see this product be spun out after the Coop has spent significant resources (in LM, personal etc) directly after a large run-up in price and unit supply without discount from the “standard deal” does not seem in the best interest of the IndexCoop.

5 Likes

Though I think it is a great idea that Methodologists care deeply about their products and want to focus on them and tie their compensation to their success. With that said, fee splits should imo come with a capped upside. The Coop is ultimately the entity paid for liquidity, the development of the index, marketing etc, and should capture most of that upside. I would be in favor of a proposal where there is a fee split but with capped max compensation. Would also be good with some numbers about how much the different options are compensating, I mean is this a short term pay cut, if so how much as that impacts where the cap should reasonably be put.

3 Likes

Noting that I’m abstaining pending clarification because I don’t feel like I have the context to make an informed decision here. I also doubt that stakeholders going into snapshot will as well and with the high quorum and ‘for’ requirements giving some additional info would be really useful.

Effectively:

  • How much have the methodologists been paid to date for their efforts related to MVI and how does that square with the fee-split they would have been paid? If pay to date has been less there’s not much to discuss, but if it has been more there may be a case to back it out of future fee revenue.
  • If FT vesting contracts have been deployed will they be:
    • deprecated with all funds returning to IC;
    • stopped with only un-vested funds returning to IC; or,
    • remain in full effect?

While I think there’s a need for greater clarity here I’m for this proposal in spirit as I think the fee-split is a more motivating reward structure and the methodologists have signaled that they would prefer that arrangement; keeping status quo is arguably less ideal than a bit of a double-dip but we should know if that’s what’s happening and to what extent. The crafting of the proposal is also flawed in that it indicates that an AGAINST vote would still result in the subject methodologists stepping back from FT responsibilities but retaining the compensation - ideally AGAINST would always result in no net change to IC, not a less-than-ideal outcome - I find myself wanting to vote FOR even though I’m unclear; AGAINST leaves us funding two FT packages and no incremental reward for increased performance of the product. So really have two different FOR options and no AGAINST option.

I would also note that there needs to be some definitive guidance here following the vote. While I have full confidence that @DarkForestCapital and @verto0912 are acting in the community’s best interest, allowing methodologists to renegotiate fee structures after launch may become onerous for The Coop as precedent.

5 Likes

I’d also be curious to get some additional information and clarification, and I’d echo parts of the conversation set forth so far and add my two cents…

@oneski22 makes a great point about ongoing performance of the product and in my mind really points to the AUM and how the Coop is seeing continued benefit and at what level.

@robdog talks about fee splits having a cap to their upside which I believe makes a ton of sense. This allows for increased incentive without creating a precedent for uncapped compensation.

The current compensation structure looks like there is a FT compensation package that also ties additional bonus compensation to AUM of the product, and shifting to the fee split would see them compensated in a much more significant manner (which by all means, I’m in no position to say that they don’t deserve). While on one hand, the current compensation model has a cap, and certainly lends itself to a lack of long-term incentive and an adjustment is necessary in order to compensate for that, the other hand sees a shift to a fee split model without a cap and seems to be an overreaction of sorts from the outside looking in.

Little guy in a large pond over here, I’m aware of that; clearly there’s a need for an update to how the methodologists are compensated, and I’m all for a fee split, but 70/30 split on a ~1% annual stream when you’re coming from the current model seems to be a very large jump. It makes sense so long as the trajectory of the product continues to prove its worth to the Coop, but perhaps a smaller split (80/20 for the sake of argument) that can be revisited at a later date while the product continues to deliver a track record of X performance over X months is an easier pill to swallow for some, or as @robdog suggested, perhaps a cap on that 70/30 split.

Hey Mel, appreciate the reasoned response. Will answer your questions backwards as the numbers from Q2 feed back into Q1.

The vesting contracts were deployed on the 28th August, the same day as our 6 month cliff occurred. We envisaged the unvested funds being returned at the point we switched to the fee-split (if we said 28th Sept that would make it 7 months of vested tokens we could claim, remaining 17 months would be returned).

Which leads to question 1 which I think is useful to illustrate for everyone.

First, MVI to date has returned $47k in revenue if we go by the value in the treasury (obvs fluctuates based on MVI price), or $34k if we take JD’s cumulative revenue from Dune (not accurate as we don’t claim in this manner). Probably fair to say $40k and split the difference. By approximate calcs it’s also returned 3770 Index to the Coop via recycling the methodologist bounty.

So since launch on 7th April, we would’ve earned roughly $12k and 3770 INDEX total. Instead, during these four months we have been paid $70k ($5k salary x4 months x2 contributors + $30k bonus) and 5000 INDEX (625 x 4 months x2 contributors) total. It’s up to you guys to judge if we contributed enough to the Coop outside of MVI to justify effectively $8.5k + 153 Index/month each (the difference between the two totals).

The way we looked at it, it seems the more pertinent question for the Coop is to assess whether paying 2x FT packages for another 18 months is better ROI than sacrificing 30% of the fee split and the remainder of the methodologist bounty (which isn’t treated as an expense by Treasury, salaries and vesting are).

This part comes from here:

We are saying that the contributions to the Coop are too much, are detrimental to our work on MVI, not to mention enthusiasm for the Coop and personally, mental health. If the status quo persists and the vote doesn’t go through, we will not be contributing at the levels we have been.

Disclaimer: it’s late here, I’m sure AG will check any of my dodgy math in the morning

11 Likes

@DarkForestCapital thank you for the clarification. In terms of the numbers, it is imo a bit missleading to look at the historical values because this was not proposed (at least to my knowledge) when MVI was a fresh product, but is proposed post it becoming successful. To me it is a bit like if a person working sales would ask for a higher comission rate at the expense of a fixed rate, once they already have big deals secured.

So though I appreciate the numbers and increased clarity, and for the record, am very much in favor of this type of arrangement (given some limits), I think it would be very helpful to project the differences forward in time, especially factoring in some conservative growth (we are after all spending a lot of money to incentivize liquidity so growth is expected).

1 Like

I’m strongly in FAVOUR of this fee split and think some of the comments here don’t appreciate two things and some of the DAOs history (that’s ok, not everyone has been around since before MVI was proposed:

  1. When @DarkForestCapital and @verto0912 were proposing this index there was, in my mind, a lot of penny wise but not smart thinking in the DAO about methodologists - and a real logjam. I privately modeled out some scenarios at the time, thinking we should offer long-term, uncapped incentives to the proposers of MVI. As such, to cut through the confusion and goop the methodologists opted to launch the product as internal methodologists - via which they have directed quite a bit of INDEX back to the Treasury. In my mind they exhibited long-term thinking, and did us all a solid, to get our second sector index to market. I’m glad they did - it’s not just brought INDEX back to the treasury but notably added value to our brand and platform value. Simply put, they made a lot of compromises and trade offs which showed goodwill towards the DAO - instead of not doing the product or taking it elsewhere.

  2. DFC and Verto, as much as any contributor to the DAO, have over the months contributed unbelievable value. This often involved going WAY beyond what people would think reasonable for their $/INDEX at the time. And way beyond their FT job descriptions too. They have put so much time and skin into this game - and I respect their wish to move to this new role.

Given these points - and seeing the same fee split offered to DATA (whose methodologists I respect (and who’s product I’m excited to buy) but I don’t believe have contributed as much to the DAO, who are launching later (when the Coop has more of a platform and less risk) and who also don’t yet have a major distribution capability) - I believe we should deal on this fee split for MVI. I also believe the LM investment in this product by the DAO is offset by the early stage they launched the product with us (more risk and recent failure at the time of CGI. Having another failed product at this time would have been really bad - MVI’s success really helped our momentum and perception).

I’m open to a longer-term conversation on the role of methodologists and how we engage and align, but that’s a theoretical forward facing issue - this has a lot of past issues to consider within it. I’m also open to lower fee splits for methodologists of sector basket index products in time too - as our platform scales, the fly wheel effect increases, and their success is more assured by launching with us.

15 Likes

I am in favor of the proposed fee split.

The Metaverse Index is still in the early innings, and the money spent to launch the product and build a strong foundation can be recouped by reaching a critical mass of units / market cap. Without that growth, the money is still spent plus we won’t recoup what we’ve spent. In my opinion, setting DFC and Verto free to focus their attention on this product increases the odds of success. In other words, 70% of a very large pie is better than >70% of a small pie. I don’t think they would do this, but an alternative scenario is that they do just enough to earn out the rest of their unvested INDEX while MVI languishes creating a worse outcome for all.

Reviewing pay for prior months work I think is a distraction. DFC and Verto have proven to be SMEs on multiple fronts for the Coop during the rapid growth phase and provided enormous value while also creating and launching a successful product. I am sure they have earned their keep, and I respect their decision to pursue MVI while forgoing the remainder of their unvested INDEX. If anything we should be saddened by the loss of their expertise and institutional knowledge.

The fact that they are willing to pursue MVI full-time gives me confidence in the long-term prospects of the product and I think it’s rational to believe that they and the Coop can do very well with it or they wouldn’t make this trade.

I’m celebrating their decision, and hope they reach a $1B+ product (maybe even spin-off products) and enormous personal success. If not, I hope they come back to the Coop. I’m reminded of Felix Dennis (h/t to another Owl who recommended it) on paradoxically celebrating his employees leaving to start their own companies:

Three reasons. Firstly, I’m proud of them. Proud that those who work for me are brave enough, motivated enough and trained sufficiently well to go for it on their own. […]

Secondly, it’s win-win. If they fail, they may well return to our company, especially if they remember that my senior colleagues and I sincerely wished them success in their new venture. Thus, if they fail, the company will be enhanced by their return. While if they should succeed - then we will be all richer for having an old alumnus as a friendly rival in the industry, rather than having created a enemy who wishes us anything but well.

Lastly, it’s because I fear them. I fear they may have spotted something we have missed, some gap in the market. I fear we may have failed to listen to them. I fear that their new venture will grow at our expense while it poaches our personnel and our market share. And the only way to deal with fear is to cosy up to it. To look it in the eye and pump its hand. […]

What the hell. Go for it!

9 Likes

I am also strongly in favor of this proposal.

@DarkForestCapital & @verto0912 have contributed massively to the success of the Coop today. Their leadership, thoughtfulness and creativity is immeasurable in INDEX terms, and a simple account of LM and marketing expenses is not an adequate metric to compare this to.

While points can be made about the wooly nature of the methodologist role, that responsibility that falls on the Coop to fix and better communicate to prospective methodologists in future. In the here and now, this fee split should be bought in line with DATA.

Also, it is in the best interest of the Coop to incentivize the MVI team to focus on making their product a success. A 70% return on what is clearly a multi-billion AUM product in the future is a good enough deal for me, and will vastly outweigh any expenses to date over time.

7 Likes

Circling back as I realized that the previous emoji of support would likely go unnoticed by all but the most forum-savvy Owls. I will be voting FOR on this. My reasoning is effectively that I believe the incremental spend above what would have been the MVI fee split to date was well spent and deserved by these contributors. It’s bittersweet in that I wish the contributor incentive structure was more enticing for top-talent, but growing MVI AUM is about as aligned with IC goals as things come, so fully in support of providing an incentive structure that is reflective of that. I would like to see the vesting arrangement and claw-back (keep 7/24, return rest) made explicit in the proposal, so flagging @BigSky7 as the author should all parties be amenable. @DarkForestCapital and @verto0912 - thank you for your contributions, happy I got to work with you in this capacity (once an Owl always an Owl in my opinion), and I look forward to having more actively engaged methodologists with an incredible amount of relevant context!

7 Likes
  1. Yes - this was considered. From my perspective there is a certain baseline level of support that partners who launch products with IC receive. All of our products require a significant investment to grow. IC prefers that all this investment comes from the external partner, while the external partner wants all this investment to come from IC. The level of support that MVI has received is in line with our other sector products. Alongside this significant funds have been recycled back into our treasury through the current set-up.

  2. I view the timing of the vesting as immaterial. That is capital they have more than earned from almost a year of constant work on this protocol. Both took on a tremendous amount of risk to join this protocol in the EARLY-days when the success of this project was FAR more uncertain.

  3. From a precedent standpoint - we need to eventually move towards an incubator process for some of our products. I see the process followed by DFC and AG to be the first rough approach to this process. I expect us to continually refine that over the next few years.

  4. In my eyes MVI has been a massive success. This time last year no-one on this forum had ever heard of the Metaverse. Today, everyone thinks of it as one sector. MVI is a big reason for that. We are in the early early growth stage - the core economics we should be worried about is whether or not one of our product completely captures a sector and dominates that sector. With MVI it isn’t even close. MVI is larger than the flagship products of all our competitors - in a sector that is far more nascent than DeFi. This is a HUGE accomplishment.

DFC and AG have worked insanely hard on Index Coop over the past year. I trust both of them deeply and have seen their integrity in action countless times. I strongly support this fee split and am excited to work with them closely as trusted partners and external methodologies.

12 Likes

I will be voting FOR this proposal, assuming the specified revision below.

We can quibble about whether the proposed fee split for MVI fair or not, but I don’t think this is productive.

We should do the following:

  1. Bring MVI in-line with the current fee split for simple index products (DPI, DATA)
  2. Eliminate the distinction between community and external methodologists
  3. Revise the misaligned incentives for all existing and future Index Coop methodologists.

We should assume significant changes to methodologist incentives as they are being redesigned as part of the Index 2.0 efforts. That big, thorny problem will not be solved on this particular forum post discussion.

10 Likes

@sixtykeys @Pepperoni_Joe @mel.eth formally requesting an iip number and a snapshot vote Wednesday.

5 Likes

Can I please get clarity on the proposal. Am
I voting for something that has @Thomas_Hepner comments included or something that does not?

I just want to be sure I know what I’m voting for here.

1 Like

Yes - the comments from @mel.eth @Thomas_Hepner have been included in the proposal.

DFC and Verto will forfeit the remainder of their unvested tokens on the date of the switch, the tokens will be returned to the Coop treasury.

6 Likes

Hey @BigSky7, IIP-86 assigned. Given that the proposed IIP is just finalized now, the 48-hour waiting period would put us at snapshot on Sep 23 at the soonest. Please let me know if you would like this queued for Thursday Sep 23 and and have it run into the weekend or queued for Monday Sep 27 and have it run during the week. Otherwise good to go.

3 Likes

Thanks @mel.eth - can we please send it to snapshot on Monday Sep 27

4 Likes

IIP-86 is set to go live on snapshot today at 1800 UTC and ends on September 30, 2021 at 1800 UTC. Please vote here.

cc: @sixtykeys, @BigSky7, @Mringz

4 Likes

Noting that this IIP has PASSED with 342.54k INDEX (98.2%) voting FOR and 6.29k (1.8%) voting AGAINST. :white_check_mark:
snapshot here

4 Likes