IIP-XX: MVI Revised Fee Split

,

IIP : [to be assigned]
Status: Draft
Author(s): @DarkForestCapital , @verto0912
Reviewer: @afromac
Discussions-to:
Created: 30-05-2022
Quorum: [5% of Votable Supply]

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. This is a modified version of IIP-138, and comes after discussing the changes with Index Council members, namely Cormac and Dev.

Abstract

TL;DR on the proposed changes:

  • Revenue is split between Index Coop and MetaPortal 60/40 after gas costs are paid for rebalancing. A vote in favour would see this new agreement come into effect after the July rebalance.
  • MetaPortal is aware the IC is looking to homogenise not just rebalancing schedules, but also streaming fees. We will be part of the discussion and adjust MVI’s fee (or not) based on the outcome of that conversation.

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. Moving to a post-gas fee split means we are incentivised to work together and reduce cost (something we have been doing already, the outcome of which is reflected in the product profitability chart) but this IIP solidifies the arrangement.

Specification

Current Agreement

The current economic agreement is detailed in IIP-86, posted on Sept 13th, 2021. Its key terms:

Streaming Fee: 95 bps

Split: 70% Index Coop / 30% MetaPortal

INDEX tokens as part of the methodologist bounty.

Proposed Agreement - changes in bold

  • Revenue split 60% Index Coop, 40% to MetaPortal, after gas costs.
  • Streaming fee stays at 95bps. MetaPortal will take part in the wider discussion around fees for IC products, and update where relevant.
  • MetaPortal will receive INDEX tokens as an active participant in the Methodologist Incentive program.
  • Any amendments to the economic arrangement mentioned above are to be mutually agreed and implemented via each respective community’s governance processes.
  • If the vote passes in favour, changes will take effect after the July rebalance (first week of July).

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.

4 Likes

GM @DarkForestCapital -

Could you help me understand the Motivation statement? While a post-gas split does mean higher proportional cost and less net fee (to both parties), how does it justify a higher relative fee going to MetaPortal? In relation to the gas-cost issue directly, Index Coop have made great strides to reduce the cost of rebalance; without further context I can’t understand the greater value being brought by the methodologist in this instance. Any clarity here much appreciated. Thanks. cc: @verto0912

2 Likes

Hi Mel, the higher relative split comes from the precedent set by other products on a post-gas split, we simply want to move in-line with those, hence not being mentioned explicitly as part of the motivation section.

The primary motivation for making this change is the benefit to both parties of further reduction in cost (we also certainly fed into the ‘Index Coop making great strides to reduce cost of rebalance’ alongside the usual suspects like @overanalyser). Have your feelings towards the deal changed since the last two votes?

1 Like

GM @DarkForestCapital -

Appreciate the clarity, and the work on rebalance. Precedent I can understand and respect.

Separately, I’d support IIPs that blanket multiple/all-sectoral splits. If there’s a waterfall effect I’d suggest this approach to reduce the need for multiple IIPs when fees require adjustment.

2 Likes

Thanks to @DarkForestCapital and @verto0912 for this post.

The Index Council reviewed these changes and we will be voting FOR because it better aligns incentives between MetaPortal and Index Coop.

This framework incentivizes MetaPortal to work with Index Coop’s Product Pod to reduce rebalancing gas costs. MetaPortal has already acted in good faith to do this by moving to quarterly rebalancing and is actively working with the Product Pod to further reduce rebalancing costs.

In addition, we have reviewed how these changes would impact the net split between Index Coop and MetaPortal.

Revenue Costs MP Share IC Share IC Share Change
April 2022 $15,520 $5,350 $4,656 $5,514 $588
March 2022 $20,182 $3,898 $6,055 $10,230 -$459
February 2022 $21,213 $4,960 $6,364 $9,889 -$137
January 2022 $27,868 $20,485 $8,361 -$977 $5,407
December 2021 $39,773 $14,460 $11,932 $13,381 $1,807
November 2021 $41,433 $26,103 $12,430 $2,900 $6,298

Revenue: Accrual Basis Top Line Revenue

Costs: Accrual Basis Rebalancing Costs

MP Share: 30% * Revenue

IC Share: (70% * Revenue) - Costs

IC Share Change: 60% * (Revenue - Costs)

Backtesting these changes we find that Index Coop would have generated approximately $13,504 in gross profit over the last six months if these changes were made in a vacuum. Over the period between February 2022 - May 2022, implementing this change would have been immaterial to the bottom line of both organizations.

However, we believe that Index Coop may have made significantly more money if MetaPortal had been incentivized properly to reduce gas fees. It also helps Index Coop maintain less volatile revenue.

3 Likes