Methodologist Fee Menu

Product
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Title: Methodologist Fee Menu
Status: Proposed
Author: @verto0912 / @Matthew_Graham
Review & Feedback: @MrMadila

Overview

The Methodologist Fee Menu presents a simple, choice-based framework for determining how the streaming fee is to be distributed between the Index Coop and the Methodologist. The subjectivity of deciding how much of the streaming fee each partner receives is solved with a simple assessment of value-add contributions.

Firstly, let’s define the role of the methodologist. The community handbook describes methodologists as “data providers which publish research and data on compelling Index strategies”, and goes on to further define the methodologists contributions as shown below.

  • 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.

These contributions are considered the “Base Level” requirements that each methodologist shall meet. In addition to the Base Level requirements, there are several value-accretive categories where the methodologist can add value to the product. These value accretive activities are shown below:

  1. 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.)

  2. 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.)

  3. 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.

The methodologist is free to choose their level of commitment to any or all of the activities mentioned above, depending on their preferences and areas of expertise.

A preliminary assessment of the market size and what is required to successfully launch the product should occur before Decision Gate 1. At the very least sufficient background work shall be undertaken to facilitate a discussion around the topics mentioned above, and come to a high-level agreement of what Index Coop and the Methodologist can do to enhance the success of the product. We are working on a liquidity mining framework that will aid the Methodologist in estimating the quantum of financial contributions for items 1 and 2 above.

Introducing the Scoring System

Based on the above value accretive activities and the methodologists level of involvement, we can derive a progressive scoring system. Initially, we consider a Base Score and then consider the various add-ons that each methodologist can elect to contribute.

If a methodologist commits to Base Level requirements only, they are assigned either of the following scores:

  • No Methodology (BED) - Receive a base score of 0.00
  • Simple Methodology (DEFI5 & CC10) - Receive a base score of 0.50
  • Comprehensive Methodology (CGI & DPI) - Receive a base score of 1.00

In addition to the base score, the methodologist can earn additional points for each value accretive add-on described in the Overview section.

Capital to seed initial liquidity is provided by:

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Liquidity mining incentives bootstrapping the product are provided by:

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BD & sales efforts, as described above, are done by:

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The Methodologist Fee Menu

The minimum score available to a methodologist is 0.5 and a maximum scope is 4. Each 0.25 increase in the score corresponds to a 2.5% change in the fee arrangement.

  • Score 0.50 - fee split 75% Index Coop & 25% methodologist
  • Score 1.00 - fee split 70% Index Coop & 30% methodologist
  • Score 2.00 - fee split 60% Index Coop & 40% methodologist
  • Score 3.00 - fee split 50% Index Coop & 50% methodologist
  • Score 4.00 - fee split 40% Index Coop & 60% methodologist

Introducing Methodologist Levels

Methodologist levels allow us to easily segment methodologists based on the quantum of their contributions. This roughly aligns with how we classify contributors, with Gold, Silver and Bronze Owls.

Platinum Methodologist - Score above 3
Gold Methodologist - Score above 2
Silver Methodologist - Score above 1
Bronze Methodologist - Score of 1 and below

Example 1:

A methodologist that has a comprehensive methodology (Base Score 1.00), that seeds 100% of the initial liquidity (1.00), provides all liquidity mining incentives (1.00) and is actively involved in Sales & BD initiatives (1.00) receives 3.0 additional points to the base score for a total overall score of 4. This methodologist can be referred to as a Platinum Methodologist and receive 60% of the streaming fee.

Example 2:

A methodologist that has a simple methodology (Base Scope 0.5), that seeds 50% of the liquidity pool (0.50), Index Coop provides 100% liquidity mining incentives (0.00) and Sales & BD efforts are shared 50/50 (0.50) received 1 additional point to the base score for a total of 1.5. This methodologist can be referred to as a Silver Methodologist and receive 35% of the streaming fee.

Example 3:

A methodologist that has no meaningful methodology beyond the initial idea (Base Score 0.0), that seeds 0% of the liquidity pool (0.00), Index Coop provides 100% liquidity mining incentives (0.00) and Sales & BD efforts are shared (0.50) received 0.5 additional points to the base score for a total of 0.5. This methodologist can be referred to as a Bronze Methodologist and receive 25% of the streaming fee.

What About the Community Methodologists?

Community methodologists follow the same criteria, but Index Coop receives an additional 10% across all levels. A 70% Index Coop and 30% methodologist split becomes 80% and 20% split with a community methodologist. For example, Metaverse with a score of 1 has a fee split 80% Index Coop & 20% methodologist as the methodologists are community members.

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Very good to get some clarity here!
I’m wondering what happens in case a methodologist for some reason can’t meet the criterion for their respective level as time progresses? Will their level decrease with the chance of later redeeming themselves to get back to the original level? This wouldn’t apply to seed capital and providing initial liquidity unless they withdrew the liquidity prematurely.
It would also be good to decide on a process for transferring the methodologist hat in case a methodologist needs to quit completely.

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Hey guys, thanks for this.

This seems like a value judgement rather than anything concrete. Why is Defi5 a methodology but BED isn’t?

Why are methodology, liquidity commitment, and bd/sales considered, but not top of funnel additive value? Should methodologists with no marketing pull be similarly docked (e.g. Increase the scale and award 0)?

Is there a conflict of interest here as you are a methodologist?

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Hey @LemonadeAlpha, thanks for the comments.

A couple of things first:

  • This is not MY framework. Several people worked on this so I’m not sure there is a conflict of interest here.

  • It seems like your comments are targeted to a specific use case (BED) and don’t necessarily consider the framework itself.

Specifically on your comments:

It is a value judgement indeed and we discussed this extensively while working on the framework. Our view was that BED is a static product, that doesn’t have any specific methodology or process behind it. It also doesn’t involve additional work to maintain the methodology, no work for rebalances, etc. For things like DEFI5 or CC10 (and maybe those are not the best examples), but we took the view that like a top 5 index or a top 10 ERC-20 index still has some methodology behind it and the allocations will evolve over time, new assets might get added, there’s some work for rebalancing, etc.

Perhaps we didn’t make it particularly clear. But I see top if funnel as part of the BD/sales per the below. A methodologies with no marketing pull, will in fact, be docked according to this framework as they will get a score of 0 on the BD/sales value add.

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Got it re: framework ownership, just commenting that for measure because the proposal/post is coming from you and this methodology is potentially going to be applied to your product.

I put BED through the framework to highlight where I see some inbalances. I don’t want to speak for Bankless but my understanding is BED is malleable and may even border on actively managed. Anyways, I also think the distinction of top 5 DeFi index and top 3 cryptoasset index is splitting hairs.

It doesn’t seem like any products would really fit the 0 criteria for methodology.

Perhaps we didn’t make it particularly clear. But I see top if funnel as part of the BD/sales per the below. A methodologies with no marketing pull, will in fact, be docked according to this framework as they will get a score of 0 on the BD/sales value add.

Thanks for clarifying, how do we evaluate these?

Also curious about temperature check around 15%+ of streaming fee guaranteed to community methodologists (Are we sure MVI isn’t a 0.5 if the highest point total is reserved for complexity - e.g. FLI/CGI? Sector indices are rated as simple/easy on the product evaluation). That seems quite hefty. In my view, (most) methodologies themselves are a commodity; methodologist brands being the scarce and valuable resource.

To that point, should we be aiming to put complexity of methodology and distribution power on the same level and scoring scale? It seems one is exceedingly more important.

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While I’m sure there are considerations to iron out, the level of thinking and detail here is super super dope!!! Blown away by your guys’ work.

For some context, here is a fee menu I put together some time ago: https://docs.google.com/document/d/1tRwtVmE_BypVDew3srGlLko_MrxIVvTaY6FqYiafVZ8/edit#

List of value-add services by the Coop: Index Coop Value Add Services - Google Docs

This version didn’t quite work because the methodologist would always pick the lower fee split, thinking they will end up getting the same level of service as the higher fee split. Furthermore, they were confused as to what the actual specifics of the level of offerings worked out to be.

As I understand, from your proposal above, some of these same pain points won’t stand. For example, in your proposal, the community is making an offer to the methodologist rather than the methodologist picking. I like that!

Sharing some of our work and feedback to build a shared level of understanding here.

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I would think this is one of the reasons we work with organisations to launch indices. I don’t think there’s room to adjust fees once the product is launched, but perhaps there’s an emergency mechanism that we can think about. Would be interested in thoughts from @puniaviision or someone else at Set on how you approached or assessed longevity in the fee conversations so far?

This is probably more relevant for the community methodologists. I think a community methodology can be transferred within Index Coop, along with the fees.

I think some there are some things we can quantify, like a methodologist’s contribution to seed liquidity or LM incentives. But other are subjective in nature and will require a judgement. With the BD/sales category, we initially thought about having 0.25 point increments, but it would incredibly hard to assess what constitutes 25% of BD/sales contributions. Therefore, it made more sense to limit this to 0, 0.5 and 1. In my mind, we have to assess the ability of a methodologist to add value in this category and have a degree of certainty, or faith, that they will deliver on their commitments.

If you have a framework to quantify BD/sales, we’d love to hear it.

I would expect that to be discussed between DG1 and DG2, before the final vote. MVI methodology involves several data screens, has a liquidity-weighting component (not just market cap), has a fundamental analysis overlay, and requires a lot of maintenance work as new tokens constantly enter the universe. If the community or the business team sees this as a 0.5 (Simple) methodology then that’s what it is.

I would refer to the community handbook here. Specifically:

The community handbook doesn’t really reference distribution power as a requirement for a methodologist. This is the main reason we went with having the methodology as the base level requirement that sets a baseline for fees.

Requested access, thanks Punia. Will take all this info into consideration. Do you guys take engineering resources into account when discussing fees with methodologists? Is that something we should look to incorporate?

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The community handbook doesn’t really reference distribution power as a requirement for a methodologist. This is the main reason we went with having the methodology as the base level requirement that sets a baseline for fees.

I’m not sure the purpose of this handbook passage is to advise on fee splits. Forgive my scrutiny as this is an extremely important topic given implications on our revenue.

While I don’t have a proposal for quantifying methodologists ability to impact adoption (happy to take a crack), a pretty fundamental question I have is: what are we optimizing for here?

It seems unclear from this framework.

Why do we value complexity of methodology at all? If anything, doesn’t increased complexity increase the engineering burden on the Coop.

To me, the measure to optimize for would be the ability to impact the north star goals and key KPIs of the coop: # of holders, Supply units under mgmt, revenue. Would it make more sense to try and optimize fee splits against how we assess the partners can uniquely contribute to those?

While I think the the questions about liquidity stand up, the questions about methodology complexity and BD/Sales should instead be trying to measure to what extent the partner has the ability to uniquely impact those metrics, and I think those should have more weight.

I must also reiterate that the range for community methodologist fee splits being 15% at the floor and 50% at the high seems…extreme.

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Let me explain this at length in what we were trying to achieve here. We collectively re-wrote this section many times, a lot ideas were discussed and we settled on the logic above. The Base Score is 1 of 4 main pillars to assessing how to determine the streaming fee structure. Lets explore the logic at depth:

No Methodology - This is something static which does not change over time. The composition of the product periodically resets. The litmus paper test is, what is the composition of the Index rebalanced to this month and say 12 months from now. If the answer is the same, the methodologist has zero ongoing upkeep. There is zero ongoing qualitative or quantitive input from the methodologist.

Simple Methodology - This is a basic product where there is either/or some level of quantitative ongoing up keep. A top 5 index for example, the 5 tokens included can change over time, the amount each token makes up of the index changes over time. This are measurable features which differ the no methodology, yet the logic is simple and very easy to understand.

Complex methodology - This category captures products that exhibit more complexity than Simple methodologies. Take DPI for instance, DPI has a qualitative component that is not simple, a lot of research and ongoing work is needed to asses the qualitative inclusion criteria. FLI & CGI both have a mathematically derived rebalancing mechanism that is a lot more involved that checking CoinGecko’s circulating supply rankings. Simply put, periodic rebalancing require significantly more input from the methodologist that both other alternatives. Sometimes this can be automated, other times it is research based.

Let’s discuss BED
With BED, my understanding is the three components BTC, ETH & DPI. These three components are fixed and are not subject to change over time, thus the naming convention applied. The allocation between BTC, ETH & DPI is fixed over time. So with respect to the litmus paper check mentioned above, each time this index rebalances it reverts to the exact same composition each time. Index Coop doesn’t need to ask the methodologist what the new composition is. This assessment hinges on the static nature of BED. If BED is not static like I have detailed, then it would be reclassified as it fails to meet to the No Methodology criteria.

This is the criteria that has been proposed to start the conversation as a community, and we can discuss the criteria, and we can improve upon it as we see fit.

Moving On

We did consider a 5th pillar in this discussion, which was engineering. Something that captures upfront engineering and/or ongoing engineering up keep. This is a difficult topic to summaries, in its simplest form it is engineering hours for launch and/or up keep. Take an example where the methodology of an index is incredibly engineering time heavy to launch but has near zero on going input or vice versa. Difficult to quantify and different to isolate independent of the complexity input detailed above.

One thing I feel that is over looked here, is this framework does not say the absolute value of the streaming fee. It only discusses how it is divided up between IC and the methodologist. This is heavily market sensitive.

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Thank you for bringing this up and I really like this thinking. If I understand what Index Coop is trying to achieve, I think we have this already. Let me explain… To be considered eligible for DG1, before even discussing the fee menu the proposed product must be aligned with the below link.

Each product to be considered must fundamental be able to move the dial, have the ability to capture $100M plus and drive Index Coop beyond $1B AUM. To get to the table where the fee discussion takes place, the above must be met in my opinion. I draw inspiration from the above link and I completely agree all products show be consider products that help Index Coop level up. I think @LemonadeAlpha you nailed the type of product we want to bring on board as a precursor to discussing the fee structure.

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Hi guys, great input from all. I will try to be as brief as possible adding mine. This is obviously a relative complex topic so it is great that we are working on a frame work to simplify it not only for ourselves but for our strategic partners and that will hopefully show in our product range.

We concluded 3 options on the methodologist front was optimal as it is simple yet provides enough flexibility to launch the type of products mentioned. The “simple methodology” is more akin to so called “passive investment” strategies seen in TradFi that follow relatively simple market cap weightings etc. The “comprehensive” more akin to “Actively managed” style funds that typically charge users a higher fee.

The decision for a “no methodology” inclusion was to allow for relatively broad, basic portfolio’s such as BED to be considered. This is important as it creates a pathway for large branding or media focused platforms etc such as Bankless to approach the coop and leverage our tools, resources, experience and value add without having to be a more complex organisation in a financial/market or engineering sense. (Such as DFP)

At the same time it offers fair value and reward for said skills and support provided by the community. @LemonadeAlpha BED being malleable etc in the future would then push it into the 2nd option. I believe this is why it is important to have 3 options to clarify the nature of the product and relationship at the start.

@puniaviision thanks for the doc that is really useful. I am hoping that the splitting of the methodologist would naturally filter down into the engineering requirements? Interested to hear your thoughts on whether you think we might need to expand our range (0.5-4) to accommodate anything deemed additional considerations. Or whether they can be subsumed into the above framework?

Would it make more sense to try and optimize fee splits against how we assess the partners can uniquely contribute to those? - @LemonadeAlpha

^Just to have a crack at this too. I believe the menu provides the right balance between the flexibility to assess the partners contribution whilst also providing some objective framework to guide decision making. I hope this make sense?

I must also reiterate that the range for community methodologist fee splits being 15% at the floor and 50% - @LemonadeAlpha

^Just on this one. @verto0912 will correct me if I’m wrong but the community methodologist ADDs an additional 10% so the range becomes 15-70%

Finally, an easy to read graphic (menu) is currently being worked on that will be available very soon and will help illustrate the above hopefully making it a little simpler and easier to digest :crossed_fingers:

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This is incorrect :slight_smile: - see below. So it’s 15% to 50%, but I see most community methodologist being able to contribute the methodology itself and maybe some BD/sales efforts. So that would limit it to 15% to 25%. I feel like if a community methodologist wants to and has ability to seed liquidity and finance LM incentives, then they should be appropriately compensated for it.

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Hey guys think there’s a misinterpretation that I’m specifically worried about BED.

Verto, you can see the Coop paying a community methodologist upwards of 15% of the streaming fee for a methodology that is ultimately replicable?

A coop communnity member taking on BD/Sales would…just be them operating as a member of the coop and anyway there’s very little way that could justify a 50/50 split unless you were Sassano. We certainly wouldn’t be approving a split like this for an external partner.

2.5-5% seems way closer to right, and I think that even has the potential to get out of hand at scale. The MVI proposal spells out a 95/5 split so this is a far departure.

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This is a sound point. I am going to build on this. I do not foresee a scenario where an Index Coop community member receives a 0.5 or 1 score on the S&BD efforts.

My general view is: If the methodologist is a community contributor already, then it is better Index Coop does the S&BD work and the methodologist gets a donut for the S&BD score. That said if the community member wants to work on S&BD - great, they get paid contributor rewards.

I believe this will be the general consensus. I may point out, although the frame work contains the option, I don’t see Index Coop agreeing with the methodologist who proposes 0.5 or 1 for S&BD. Thus, the framework exists but the probability of a community member getting something other than zero for S&BD work is incredibly low. Even if Sassano was to do it, I am still of the opinion he can get paid in Community Rewards - it just might be a lot. That would be my view.

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I also like the concept of the Coop offering a fee model vs the methodologist choosing (and potentially gaming the system)

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After a lot of good discussion, I understand the appeal of this as a tool for guiding the kind of streaming fee split offer we would make to methodologists.

I would not think that sending this scoring system to the methodologist makes much sense. I think a document spelling out what activities we value and how that informs the split we offer is more valuable. Here’s why:

I was a little bit concerned around one of the final points of discussion: how fee splits work when revenue is generated for the Coop from products within the index. It seemed the nuance here was all but lost.

This is an extremely complex discussion, as is the case with most products. While I believe this can be a good tool to set baselines, it seems pretty clear that it won’t come close to automating this process. Therefore I feel the deliverable that methodologists would consume needs to be a lot less rigid about scoring and more qualitative with the reasoning behind each point.

I don’t think we should be using this as more than a baseline to kick off internal discussions.

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Can you please outline some qualitative value adds a methodologist brings that doesn’t fall into the current methodology?

Keeping in mind all qualitative things need to covert to streaming fee split, so inevitably they become math one way or another. We can expand on this framework and include more things, but first they need to be defined.

I don’t intrinsic productivity should be included in any methodology fee discussions. For Index Coop that is a hypothetical upside yet to understood or close to being realised. We would need to know what AUM cut off to make such things economically feasible and even then, it would be good to have some experience doing it before incorporating this into DG1.

IMHO speculation about what could happen isn’t productive and if we did consider intrinsic productivity, what would happen if the index never reaches an AUM that makes intrinsic productivity worth pursuing? How would we price insurance ? Would we retrospectively amend the streaming fee if the index never generated any intrinsic benefits … I really don’t think we should be considering this before DG1, their simple is no data to make an informed decision.

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I simply mean to say that the consumable that the methodologist receives should not have a scoring system spelled out.

The purpose of this exercise, imo, should be to aid in finding the right business split for the Coop and the methodologist. I support using something like this in our consideration.

In current form, the aim is to output a binding fee split based on this rubric.

I was not speaking about intrinsic productivity, but rather using another coop revenue generating product inside another methodologist’s product and how that impacts the fee split. I think its telling that if you take two products through the framework there are wildly different implications. As we bring new products to the onboarding process, it will continue to require nuanced and new discussions.

As I thought longer on the point about a methodologist’s marketing reach being reflected in AUM, I found it was the wrong way to look at it. AUM is a function of the TAM of a given product and the ability to go to that market. The variable the methodologist is able to impact is the go-to-market, that should absolutely be considered when considering a split.

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Cross pollination of products in inevitable. Especially when Index Coop brings such innovation to the market.

The methodologist choose our product, this is because it is the best product in the market. Index Coop built DPI up over time and with that the methodologist is piggy backing on the success of that product. The benefit of including a market leading product like DPI, is to the benefit of the methodologist. Including DPI in BED, BED gains instant market appeal based on the value DPI brings.

In reality such simple, plain vanilla product like BED, piggy backs on the success of the components within. The only value add the methodologist bring is really the S&BD component due to a social media presence. Makes me think, would BED cannibalise potential clients away from DPI… Would all the work Index Coop does over time keeping BED integrated with the latest theme/protocol of the day, out way a social media/email list that overtime will become saturated. Would this mean the methodologist has a diminishing impact on AUM as a function of time.

The cost of buying BTC & ETH is negligible on a CEX, so anyone who is cost conscious will know they can make BED themselves for minimal costs. Therefore, the streaming fee split would need too low to be competitive or the product risk prices itself out of the market. With that said, we can conclude a low streaming fee is needed for cost conscious consumers. These consumer may be put off by the extra smart contract risk compared to say individually owning the assets. Say hypothetically the streaming fee is low…

35 basis points on $100M is $350K per year - the catch here is $100,000,000 AUM

50/50 split is $175K IC & 175K Bankless
60/40 split is $210K IC & $140K Bankless
75/25 split is $262.5K IC & 87.5 Bankless

Don’t forget the incentive here is the very lucrative Methodologist Incentives which makes the above numbers look like a splash in the ocean. I can’t help but feel we are split hairs.

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I’m not looking to litigate the BED split, I think there’s two issues at play here:

  1. What is the purpose of this model and exercise? To spit out a binding output which we use for fee splits?If so, I think the solution was probably designed on a flawed premise.

Is the problem that we needed a binding (not-subjective is clearly not the case, the subjectivity is simply being anchored into the methodology) algorithm to decide fee splits? I didn’t see it as such.

The problem was the Coop wanted to create a process by which we could offer and justify a business split that makes sense towards both parties achieving their goals. Do I think some kind of rubric like this is useful in determining that, absolutely.

  1. Your evaluation of BED as a product, introducing the biases you have into this formula and I think making my point.

Considering your evaluation of BED, is it a leap to say you’d consider DFP piggy backing on the success of DeFi protocols? I don’t think that’s a fair evaluation.

It seems pretty shortsighted to attempt to use the lack of nuance in this rubric to get a favorable fee split with a partner that potentially damages the negotiations or undersells their value. The goal of the exercise being totally overlooked in that case!

If the scoring system would never account for how the use of other Coop products affects the fees and that it is just a blanket non-consideration, I think it highlights the points I’m making above.

You guys don’t seem to value go-to-market highly, but there are voices in the Coop that do. I think you guys are probably undervaluing the extent to which that impacts our north stars and high-level KPIs. My interpretation is that you guys see the product as the methodology and not the sum of its parts or the job to be done. I think that is the backwards way of looking at it.

And I also think your considerations are making my point that the discussions are too nuanced to apply this scoring system to in a binding manner.

EDIT: My suggestion is to take the spirit of this framework and take a step back. Understand what we consider the breakdown of value to be in the relationship (e.g. in this your distribution is 50% liquidity, 25% BD/Sales, 25% Methodology rigor)–Define why you think those are most valuable, meaning defend the position–and use that general distribution to guide discussions on the kind of offers we make to methodologists.

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This makes a lot of sense. We are revising the split to are more equal weight sort of distribution. I think for me, everything starts with the methodology because without one you don’t have a product to go to market with. The weight of liquidity, especially seed liquidity should be reduced, but I see it contributing to the fee split simply because liquidity mining incentives could be a large upfront capital commitment that might take a while to recoup from fees (especially w/out the methodologies bounty).

The main challenge, for me personally, with BD&Sales is that the streaming fee is ongoing, technically, forever. However, most of the BD&Sales work will be done in the first 12 months. How do we ensure that a partner will continue their BD&Sales efforts for the long-term? And, assuming their only contribution is on the BD&Sales side, if they stop their efforts after a year, does it actually impact the product itself? Do we revise the fee split in this scenario? Is their a better way to compensate pure BD&Sales partners? Would love your thoughts on this one @LemonadeAlpha.