I have two beliefs about this:
1. The current 40% (DFP) / 60% (Index Coop) fee split is fair and reasonable to the Index Cooperative.
2. The incentives for Methodologists and their products need to be redesigned to include shared costs and be more reflective of profits.
Different products have different types of costs for both the Methodologist and Index Cooperative. For instance, you’ve noted that maintenance costs (rebalancing, Leverage Indices pod compensation, and Set Engineering resources) for leverage indices are significantly higher than for simple indices. On the other hand, simple indices have been far more expensive to the Index Coop in terms of liquidity costs; DPI and MVI have both had massive liquidity mining (LM) incentives whereas ETH2x-FLI and BTC2x-LI have not received any LM incentives.
The principle of the proposed Methodologist Accelerator Program is to only compensate Methodologists for generating Unincentivized Revenue. In the case of FLI, the incentives it is receiving from the Index Coop are in the form of rebalancing costs as opposed to liquidity mining costs.
Deducting rebalancing costs before calculating the Fee Split would be a good solution that is both fair and reasonable to both Index Cooperative and DFP.
Using the numbers in the image below, making this change for ETH2x-FLI would result in ~$100k for DeFi Pulse and ~$123.7k to Index Coop after deducting FLI Pod Rewards. This results in ~44% of the product net income going to DFP as opposed to ~73% in the image below, which I believe is far closer to the spirit of the fee split arrangement.
On the other hand, BTC2x-FLI has considerable losses so I would not expect DFP to earn any fees from this product until it reaches profitability.
Given that BTC2x-FLI and ETH2x-FLI share roughly the same product methodology, it makes sense to combine their revenues and profits into a single Income Statement (i.e. Profit and Loss Statement). If this additional change was made, DFP would have earned ~$97k in fees across the two products, and the Index Coop would have generated $119k in net income after deducting FLI pod rewards (they appear to be double-counted in the image above).
After making these two changes, DFP would retain ~45% of the profits generated from their FLI product suite which is very close to the spirit of the fee split arrangement.
It is also worth noting that it should be easier to have these conversations once the Methodologist Smart Contract Permissioning is implemented and Methodologists know that the Index Cooperative cannot unilaterally change Fee Split agreements without their consent.