As our product strategy and roadmap look for progressively more sophisticated products it’s important that we reevaluate the skills and experience required. Establishing compensation that attracts the right talent and incentivizes the right behavior is critical to the success of Index Coop’s product line.
In order to quickly launch profitable products we’ll be focusing on internally developed products. This requires us to bring all necessary skills and experience in house. This will allow us to move swiftly while ultimately reducing cost (external methodologists take 40% of the fee split). By bringing the correct resources in house Product can produce higher quality products, in shorter time frames, for cheaper.
This post does not focus on the cost of partnering with brands. That is still to be negotiated but is expected to be in the range of 10%-20%.
This post is not intended to be voted on. We’re open to feedback from the community but we will ultimately include these fee splits in the snapshot for each product. Fee splits may vary depending on the distribution of value for a given product but they will be communicated in the snapshot.
As our product strategy grows, the complexity of product development increases dramatically. We’re faced with new sectors that require hours of research, complex financial computations to drive enhanced performance and technical requirements that need thorough consideration.
In order to meet the demand of our new product strategy we’ll need:
Technical product designers to research opportunities, become the domain expert, work with the quantitative analyst to develop compositions, and lead the product through the onboarding process
Quantitative analyst to use modeling techniques to develop top-of-the-line compositions that maximize efficiency and profitability
These individuals are rare and highly sought after
Post Launch-Product Manager to ensure the continued success of each product. This includes researching new protocols to integrate with, new yield earning opportunities and other ways to improve performance and marketability.
Go-to-market Manager to manage the launch process. This would be the process from DG2 to launch. This is an extremely process driven role that requires a high degree of organization and project management.
The Pod, a cross functional team that supports the core product team by managing the long-term roadmap, finding the best branding partners, growth hacking each product to maximize exposure, finding product integrations and exchange listings.
Designing sustainable products requires a high degree of industry knowledge and product experience. We originally looked to the external methodologist to be those experts, but that’s left us with less than inefficient products that lack product-market fit. In order to move faster and build better products, we’ve started building these capabilities in house. In the last few months, we’ve noticed that we spend more time training external methodologists on things such as underlying liquidity and profitability.
These methodologists then receive up to 40% of the post-gas streaming fee. We’re essentially training them on how to launch products, and paying them.
This incentivizes the best talent to go outside of the organization and become a methodologist. In order to keep these valuable resources in-house we would like to redesign our compensation structure. Individuals with domain knowledge and a passion for certain segments can work with our product team to launch products and make some extra money on the side.
This compensation package will allow us to:
- Create products more quickly
- Create more efficient products, reducing cost
- Create higher performing products
- Create products our competitors won’t be able to replicate
- Create products that maximize value by aligning personal interest with product performance
This allows us to build a moat around our lead in the on-chain index product market.
We previously paid external methodologists 40% of post-gas streaming fees when most of the product development was happening in house. By moving that fee split in house we can attract the best talent, reduce our time spent training external methodologists, and still become more profitable.
In the new model, the role of Methodologist is being replaced by two roles: Product Designer and Quantitative Analyst. These two individuals will focus on onboarding new products.
Note, existing products will continue to be maintained by the methodologist, unless they decide to pass management over to Product
As our product portfolio expands and we don’t have an external methodologist to provide continued support for products, we will establish a Post Launch-Product Manager.
As we start launching products in greater frequency, we’ll need to optimize the launch process so we’re establishing a new role for Go-To-Market Manager.
The below table outlines the roles, responsibilities and fee split for each contributor that works on product development. A heavy weight is applied for Quantitative Analyst as they provide a specialized, highly desired skill set.
In order to achieve our strategy objectives we’re proposing the below roles and organizational structure.
- Product Lead (1)
- Technical Lead (1)
- Operations Lead (1)
- Product Designer (4)
- Quantitative Portfolio Manager (1)
- Go-To-Market Manager (1)
- Rebalance Manager (1)
- Portfolio Manager (requesting in Season 2)
In order to support pod initiatives, two positions have been created, Technical Lead and Operations Lead. These positions will be involved in Product design but will primarily focus on initiatives required to grow the pod. Responsibilities are listed below.
The roles outlined below will be required for each product. These individuals will have stipends to support the baseline work they’re completing, while the fee split outlined encourages focus on products they’re passionate about and believe will succeed.
As team members leave their fee split will be absorbed into the pod to pay for services required to maintain the products.
It’s important to note that while Product will have these roles in house, any member of the community or external to Index Coop can propose product ideas. If those individuals become domain experts and take on all responsibilities of the Product Designer, they can launch a product and earn supplemental income. An individual can also act in multiple roles if they have the given skill set.
The fee splits are not intended to provide life changing money with a single product, but compounds by launching many successful products.
As the product team continues to develop its skills and knowledge these fee splits may be adjusted to reflect effort and value created across the roles.
In practice, this framework would lead to the following outcomes for an internally produced product. This annualized analysis assumes a gross margin of 80%, a fee split of 60% IC / 40% Methodologist for the existing framework, and a fee split of 90% IC / 10% Product Pod for the new framework.
As you can see, the outcome for the Coop is drastically better at each tier compared to the existing system, and material benefits are only realized by individuals when their products reach significant AUM thresholds. For example, a product with $10m AUM would earn a Product Designer $190 per month.
Total compensation for Product Designers and Quants can be estimated as below. These numbers are rough estimates but provide a general idea of how much these individuals can make based on helping IC meet its long-term objectives.
Given we have four Product Designers, the estimate will be that each designer should achieve $250M in AUM for their products
|Income Type for product designer||Income $ for product designer|
|Stipend for full time product designers||$115,000 annually|
|Streaming fee split||$57,000 annually|
Given we have one quant, the estimate will be that the should achieve $1B in AUM for their products
|Income Type for quant||Income $ for quant|
|Stipend for full time quant||$120,000 annually|
|Streaming fee split||$380,000 annually|
Any products brought to the pod should be thoroughly thought through and tested. The expectation is that the person presenting the idea will own the product and perform all necessary duties to launch the product. This includes, presenting a full methodology to the coop, working with third-parties to draw liquidity, receive incentives from exchanges, perform backtest of the product.
For external or community provided products, this framework would lead to the following outcomes. This analysis assumes a gross margin of 80%, a fee split of 60% IC / 40% Methodologist for the existing framework, and a fee split of 90% IC / 10% Product Pod for the new framework.
As is the case with the internally produced products, the outcome for the Coop is drastically better at each tier compared to the existing system, and material benefits are only realized by individuals when their products reach significant AUM thresholds. For example, a product with $10m AUM would earn the Product Designer / Post-Launch PM $253 per month.