Discussion: Voting Incentives/Changes

Governance
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#1

Hi everyone,

I’d like to hear the communities input on the following ideas:

Adding inflation incentives for MKR in the DSChief contract.

Pros:

  • Rewards voters for safeguarding the system
  • Discourages free riders
  • Creates an opportunity cost for MKR outside the Chief which will create pressure on holders to lock up MKR and actually participate in governance.

Cons:

  • More MKR means more sell pressure (?)
  • Changes the social contract of what MKR “is”

Consideration:

Should MKR need to be actively voting for an executive to be eligible or just locked or staked in the contract?

Adding a timelock to MKR in the DSChief

Pros:

  • In tandem with other features, can be an important part of aligning incentives for voters.

Cons:

  • May introduce unforeseen risks in needing to withdraw MKR quickly

Adding a voting multiplier for MKR locked in the DSChief

Pros:

  • Either in tandem with vote lock or by holding tokens longer, incentivizes MKR participation and lockup.

Cons:

  • Amplifies “whale power” which may or may not be a bad thing.

Hope to hear your opinions and more pros and cons on these subjects. Look forward to more discussion!

9 Likes
#2

I’ve come around to the idea that Maker needs more short-term governance incentives rather than just the long term gradual MKR appreciation that comes with good governance.

I would be against minting additional MKR to fund active governance participation. There is a huge emphasis on narratives in this space. The 21 million BTC hard cap is a large portion of what drives value to bitcoin. The MKR narrative, in my opinion, was one million MKR unless something goes wrong.

I also like the idea of removing MKR from speculators and putting it in the hands of governors. Using the DAI surplus, MKR could be purchased on the open market and distributed to active governors. This would be non-dilutive, put positive pressure on MKR, while taking MKR out of the hands of speculators and putting it in the hands of governors.

11 Likes
#3

Yep agree with your comments, I like the idea if it’s taken from the surplus buffer, this way we leave mkr issuance to non recurrent exceptional circumstances.

1 Like
#4

I like the idea of inflation incentives. Let’s say at the end of a month all MKR that has voted during the month on an at least one executive or polling vote gains an “interest” of 10% MKR.
Hereby we can punish free riders and the governance process itself would not be hindered too much by people just voting once per month.

2 Likes
[Agenda/Discussion] Scientific Governance and Risk #117 - Thursday, November 5 16:00 UTC
#5

Agree on that but not on inflation, better to take them from the flapper % wise (see post from LFW FlapperDistributor: A Way to Distribute System Surplus while Minimizing Governance).

Basically there would not be a fixed “interest” rate, rather the % will depend upon MKR revenue, MKR price, % of the flapper & amount of MKR locked

1 Like
#6

If we implement punishments and not rewards we will have both an incentive and income.

#7

Personally I think this idea of sending some of the MKR bought by the flapper to the governors staking MKR sounds like an interesting idea!

Just playing devils advocate though why not just mint DAI to distribute to the governors? Seems like you could probably decide on some amount per month and give the people who have staked maker withdrawal rights corresponding to the amount of MKR they have staked. Just an idea though.

2 Likes
#8

Because it’s a thin line towards unbacked dai, taking mkr through the flapper aligns incentives and we also cannot “commit” to a fixed interest rate before pre approving one of the following

  • potential of unbacked dai
  • potential of mkr issuance

I’d rather have it as a % from the revenue, it would also operate as a sliding scale mechanism and ensure a minimum amount of mkr locked without increasing costs.

As per the model it’s up for debate, should rewards have a vesting period? should we have a fixed amount of mkr subject to rewards as a top limit? should we have a minimum amount of lockup time required? should we implement quadratic voting and directly pay the rewards through a vesting period using that indicator?

Additionally besides vesting periods and so on we have to factor in if it’s appealing for the investor too, in other words, we can have a vesting period of 4 years but that does not mean investors/governance actors would be keen to the idea.

#9

I’m very much for inflation in the context that it goes to MKR holders protecting the hat. It (a) protects the system, (b) encourages participation, and © creates an opportunity cost to idle holders and those lending their MKR out (which is where our flash loan risk comes from). Sure, this could reduce liquidity on exchanges, but I think there’s a balance to be achieved.

#10

Thanks @Aaron_Bartsch for starting this discussion.

totally agree.

Again, totally agree!
This means:

  1. Less MKR burnt, but still some are burnt (e.g., 50%).
  2. more MKR given to active voters.

Regarding:

I am not sure about this. It might have implications hard to evaluate at the moment. So I abstain for now.

But, the third point:

I totally agree! It seems just a very good idea.
It also prevents attacks using flash-loans and this type of things.

My vision: these ideas, if implemented and put in place, will drive an healthy tokenomics. People who don’t have the time to vote will delegate (in exchange for some money, of course) their MKR to the people who have more time to vote and participate actively.

EDIT: of course delegation is not available now, but is coming with the new governance smart contracts which are being developed as we speak.

1 Like
#11

Isn’t the end state of this either everyone having their MKR staked (through any kind of low fee, trustless service which promises to keep your MKR ‘active’ and will promise a predictable voting pattern, basically delegation), or (if there are places to park your MKR with a better return), no effect at all, with MKR swinging between those places? It just creates a different incentive structure and profit-seeking actors will adapt around that, but since it doesn’t really force active participation in governance those actors won’t optimize for that. They’ll optimize for their immediate returns.

Another way to say that is: you can’t directly reward good participation in governance (which will be gamed), you can only tie reward to governance results. That’s the basic incentive system already in place: MKR holders should want good governance because MKR price reflects what the market thinks of their governance. I’m sorry to say I don’t have a solution for making that system work better – my hope is that with scale the market will more correctly price MKR (not a comment on whether current market valuation is too high or too low, but it doesn’t feel very connected to the internals of what’s going on in MakerDAO). But I don’t think adding reward schemes for perfunctory governance participation will truly help us… except maybe if we create a strong delegation culture among MKR holders. Delegates would not be apathetic and receive a fraction of the voting incentive in exchange for keeping the MKR active?

Sorry, that comment ended up being just rambling.

2 Likes
#12

+1 no monetary incentives for voting, please. It makes the system harder to reason about for participants and increases economic and technical risk. Let’s remove friction by investing in delegation and gasless/low-gas voting mechanisms.

1 Like
#13

Incentivizing MKR holders to vote is an urgent and important issue. The solution (no gas consumption + reward) is the general trend.

1 Like
#14

Perhaps this, at the end imo cash flow is what sustains valuations, it will again imo inevitability move (eventually) towards that direction, specially if you can’t monetize the participation since we do not accept it as collateral & using it as collateral in secondary lending platforms has been proven to be problematic (even though anyone should use it as they see fit). Having a cash return on the investment also decreases the sell pressure and avoids the buy to appreciate and sell scheme. A strong price eventually will be needed to help safeguard the protocol as new collaterals are onboarded and dai outstanding keeps increasing. Perhaps it’s not needed and pure governance decisions will sustain valuations and we will never need to have rewards which is great but I’m kind of skeptic on the idea.

#15

I believe this is quite a complex topic since adding incentives to any system will change it (oftentimes in ways that were not anticipated).

Should we maybe separate:

  • protecting the hat
  • active voting

Aave is giving .56% APY (last time I checked). I think that having a <1% inflation on MKR to reward those who lock MKR in Maker is acceptable. Not sure if that would be enough to nudge enough people. My guess is it is.

This solution would be to protect the hat. Any solution to encourage voting is much more complex, so I’ll refrain from trying to addressing it here.

2 Likes
#16

Provided this MKR comes as some % from surplus I agree. I also would make one suggestion. The payout is calculated via the following formula.

MKRreward = MKRstake_reward x GP where GP is defined as Governance Participation VOTES_CAST/VOTES_POSSIBLE. 0<=GP<=1.

I suggest simply a MKR seasoning period before it can be deposited into either the ES module or DSSChief. This way MKR has to wait the seasoning period before it can even deposit into DSSChief and isn’t locked for withdrawal at all. The time penalty is up front - not via a locking mechanic.

I am mixed on this suggestion. I do believe an important voting metric I would like to see is MKR*YRS voting as well as MKR voting. I would say that if we use a voting multiplier have it be a function that starts at say .1 and rises to and NEVER exceeds 1 over some time period (say 6 months).

1 Like
#17

This doesn’t seem to be a foregone conclusion as best as I can tell. Instead of redirecting MKR destined for the furnace to some governance incentive contract you could just as well redirect dai destined to be sold by the flapper.

It still ends up being taken as a % of revenue and probably is even lower cost bc you avoid slippage incurred in the MKR purchase.

#18

Yes indeed, however we cannot commit to a fixed percentage when we have variable revenue (this does not include fixed opex costs which we must assume for domain teams & others)