The first community index proposal just reached DG2. It is now important to clarify the structure around how the product will be managed and the managers compensated. This is tied to Full-Time Contributor Retention, please read this post first if you haven’t yet had the chance.
This proposal introduces a trial framework to compensate 2 Coop community members to manage the MVI full time, should it pass DG2. It is intended to set a precedent for community-managed index products going forward, but is experimental and we expect to learn and iterate as we progress beyond launch.
With major initiatives like the liquidity mining framework and the methodologist fee menu under discussion, there is potential confusion around how members of the community might straddle multiple roles and subsequently what that means for their relationship with Index Coop. In this case, it’s necessary to find a solution that protects Index Coop and the individuals involved while providing clarity to the community.
With that in mind, we set out to list the most important business goals for the Coop at an organisational level, relating specifically to this situation:
- Launch products that solve big, recurring, and growing customer needs.
- Market and distribute our products better than any of our competitors.
- Work with the best brands to increase our product’s leverage and our reputation.
- Retain talent within the Coop.
- Continue to incentivise sound methodologies from within the community.
- Allow contributors to produce outstanding products without having to force them out of the Coop.
- Set the template for future community methodologists.
The worst-case scenario would be that every time a product methodology is launched, the Coop has to draw a line under the relationship with the community members involved and treat them as external methodologists. Equally, it might not be the optimal solution for individuals to spin up a separate business just to manage the methodology. A compromise is required.
Why is the Community Methodologist the right solution?
There’s inherently a different relationship between Index Coop and community members and Index Coop and external methodologists. Having a community-managed product blurs these lines, so it’s essential to clarify how a Community Methodologist role might fit within our community and set expectations for both parties.
By creating a Community Methodologist role, we retain talent that can continue contributing to the Coop more widely (albeit at a reduced level). At the same time, contributors get to pursue and grow their idea, leveraging the strong links they have within the community to make the product a success. Furthermore, by getting the compensation and incentives right, we ensure great products continue to come from the community in future.
What are they responsible for?
Taken from the community handbook, the base level of requirements are listed as follows:
- Propose a product that is well differentiated from existing Index Coop products;
- Target a sufficiently large market to be meaningful to the Index Coop;
- Do an on-chain liquidity analysis for underlying collateral assets;
- Have a complete methodology;
- Keep all documentation related to the index up to date, tracking performance and sending out updates monthly/quarterly/yearly as appropriate;
- Stay visible to index holders and Coop members to answer questions and act as a single source of the truth in relation to the specific index;
- Respond to questions on the forum and discord relating to your index.
In addition to the Base Level requirements, there are several value-accretive categories where the methodologist can add value to the product. It is not expected that Community Methodologists will commit to categories 1 or 2, instead excelling in category 3 where they can use their network and relationship within the Coop to drive the product forward.
- Provide capital to bootstrap liquidity (Note: Optimal initial liquidity will vary by product and will be discussed before a product goes up for Decision Gate 2 voting.)
- Partner with Index Coop to offer liquidity mining incentives bootstrapping the product (Note: The scale of Liquidity Mining incentives will vary by product and will be a function of the size of the liquidity pool necessary to accommodate the target customer.)
- Unite together to combine sales & BD efforts, including marketing, distribution, promotion and product development. This would include things like ecosystem integrations, DeFi partnerships, CEX listings, etc.
Outside of product focused workstreams, it’s likely that Community Methodologists would continue to provide input in other areas of the Coop, although this would not be a requirement of the Community Methodologist role.
How is compensation for the role determined?
When thinking about compensation, we considered the amount of time and effort required to manage the product while also working back from how external methodologists would typically be rewarded (assuming a conservative 20% fee split to methodologists). We concluded that community methodologists should be compensated through the treasury and not from the fee split, allowing the Index Coop to retain 100% of product fee and methodologist bounty. Without the fee acting as incentive to grow AUM the following is being proposed:
Community Methodologists are taking on a full-time role as portfolio managers. As such, they would expect to receive a salary and vested tokens in line with the amount proposed for other full-time contributors here.
Put another way, the community methodologist role can be treated as similar to a Portfolio Manager and compensated in line with similar responsibility levels at the Coop. For reference, the team at Yearn collated this doc to track compensation levels across various DeFi projects.
Addressing business goals 1&5 above, we want to encourage community members to create and pursue ideas until they become successful products. With the fee (and methodologist bounty) both being retained 100% by the Index Coop, two bonus rewards are proposed instead:
$10k per methodologist at launch* - this is to ensure future ideas continue to be put forward by the community and those involved commit to getting the fundamentals in place to launch (estimated 3-4 months work required to get a product to launch readiness, varies with complexity)
$25k per methodologist at $100m AUM - to align long-term incentives towards growth and adoption. (context - 1% fee to Coop at $100m is $1m/year in fees)
It’s important to note that the figures above are specific to MVI and that different products may settle on different values depending on the level of complexity and involvement required, in some cases it may not even be necessary to have a full time position be created. The compensation conversation is just that, and will require a discussion between the community members proposing an index and the Coop to come to an agreement. What will remain the same is the framework, where the Coop will receive all fees (and any INDEX bounty) and community methodologists are paid from the treasury.
*For full transparency DFC and Verto both had a line item for MVI in the Feb rewards document meaning part of the work involved with progressing MVI counted towards their total. With the passing of this proposal, it will no longer be the case that the treasury committee takes account of community index proposals, instead rewarding at launch with the bonus. In this case given the work during Dec/Jan that was not compensated, plus the effort involved with paving the way for this structure to exist, it is proposed that they receive the bonus upon successful launch of the Metaverse Index.
If this proposal is approved by the community, Snapshot voting will be held to confirm the hires. The vote should meet standard quorum requirements to pass.
The Treasury Committee will then implement the parameters outlined above.
- For: Implement Verto and DFC as community methodologists with the expectations and compensation as described
- Against: Do not implement the role as described