Issues with our governance process and delegate compensation

Before we get into the thread, I’d like to clarify that based on what we’ve seen so far, delegation is a big win for MakerDAO as a whole. It is also clear to me that the time the delegates spend and the possible legal risks they are accepting makes it important that we compensate them adequately. Finally, the current number of delegates is insufficient - we need more people to prevent centralization of MKR voting power. I think the community is largely united on all the above points.

In this thread, I’d like to raise some issues with the governance process being followed for the delegate compensation. There are two parts to this - the first is the trial compensation period signal request here and the second is MIP61. @LongForWisdom and I briefly discussed this privately but we both agree that it is better if more people engage on this issue to chart our way forward. I also believe that this is not the first time we will run into these issues with our current process so I’d rather they be fixed sooner than later.

Timeline

The first informal poll here on 07-Sep had options compensating delegates up to 120k DAI per year excluding SourceCred. The highest option that got a non-zero number of votes was 96k DAI per year and the winning option was 48k DAI per year. MIP61 was created with 48k DAI being set as compensation.

Next came the signal request on 13-Oct for trialing delegate compensation with this iteration of MIP61 in mind. This poll is still live but seems like it will almost certainly pass.

@LongForWisdom then detailed his new thinking around higher delegate compensation here on 16-Oct where he suggested a three fold increase in compensation to 144k DAI per year in MIP61. This was incorporated into MIP61 and since it changed, the signal request asking to trial MIP61’s compensation for three months also changed today, 19-Oct.

Problems

I think there are several issues with how we’re following governance process

  1. While I understand the logic behind proposing higher compensation, I do feel that this did not get sufficiently discussed in the forum. There were no polls or signal requests on this matter after the first one.
  2. Most people who voted on the signal request for trial compensation did so with the 48k DAI compensation figure in mind i.e. MIP61 v1. After a change that significant, it doesn’t seem acceptable to claim that the signal request passed. If governance was ever evil, this would be a sort of bait-and-switch tactic.
  3. Usually, 1. and 2. would be okay because the only risk at that point would be that the on-chain polls would fail. However, in this case, delegates are voting to raise their own compensation and are capable of swinging that vote. If they act in their own self interest, this would be a problem.

Let me put it another way: @LongForWisdom could have suggested an arbitrarily large amount and if the delegates vote in their own self-interest, both the trial compensation and MIP61 would still pass.

To make it absolutely clear, I am not suggesting that either governance facilitators or delegates are trying anything shady here. The intentions of all parties, as far as I can see, are good. But the lack of checks and balances in how we’ve gone about this has exposed vulnerabilities in our governance process and that is the for me, is problem enough that it’s worth bringing up.

Next steps

I think that MIP61, in its v1 version, which most of the signal request voters voted for should be what is polled on-chain. In parallel, a signal request with higher amounts can indeed be made and should go on chain only if it succeeds.

The other tricky issue is delegates voting for their own compensation on-chain. I really appreciated @PaperImperium’s decision to abstain on his supplemental (non-delegate work) compensation poll because it was the right thing to do. @ElProgreso also reflected on conflicts of interest in this post. Personally, I think that is the way forward. There are is enough undelegated MKR in the voting contract and enough shadow delegates who will vote on the on-chain poll. This sets the correct precedent for this issue, as well as for future issues where delegates may have conflicts of interest.

Long term solutions

I admit that I don’t have a great one to fix everything here but I will say some things.

  1. I know there are concerns about the speed of the process. Governance is unfortunately slow because consensus takes time. This is true in most countries and it should be true in a DAO as well. I think there is an element of trying to rush it that is happening now. This can be dangerous and to be very honest, I don’t think delaying decisions like this one by a month or two should ever be seen as a negative.

  2. Our delegate recruitment rate isn’t great. On this, I think the issue is that delegates are discouraged (although not forbidden) from having roles in a CU due to possible conflicts of interest. I would encourage the community to think about this more deeply. I can imagine a system where such conflicts of interests can be raised and the corresponding delegate abstains from voting. It might not be perfect but our best people are already part of one CU or another. Many of them would make excellent delegates, if such an arrangement was not discouraged.

Happy to hear everybody’s thoughts! Particularly from the @Recognised-Delegates.

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IMO LFW has done a nice job of trying to figure it out. At this point, we need to move forward and get this puppy to scale. If you want to solve it differently, and quickly – Ask for the Facilitators and Teammates, of ALL CUs to vote for what has been suggested. If Approved send it straight to an Executive. Otherwise, IMO --keep the process in tact.

At the moment there’s nothing attractive to onboard, or motivate new Delegates. I even had a well-known DeFi thought leader at a Liscon event (shall remain nameless) last night, tell me that recruiting outsiders, students, non-profits, etc., etc., to be MKR delegates would be the silliest thing a serious DAO like Maker could do. Let’s get this right and follow the lead of folks like LFW who have put a lot of work into this super sloooooooooow process.

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Let me put it this way: I’ve had offers to manage bags of other protocol governance tokens. Range from $80k to $150k+equity+bonuses. And that’s not pay that starts at best in December or January, pending a vote by people who are likely not super engaged (if you don’t want delegates to vote and several VCs gave me a pat on the back about how they watched my comp go down but didn’t get involved).

Just posting that here so folks have an anchor for what the market rate is. LFW’s number seems smack in the middle of the offers I’ve gotten to literally do delegate work for large holders at other protocols.

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As detailed in Long’s post, the legal/regulatory uncertainty is the main issue and the elephant in the room that hasn’t really been addressed in detail in any of the delegate compensation posts.

I would think that based on legal advice, one’s decision to be a delegate or not would be somewhat binary and thus increasing the compensation would not have an impact nor address the root of the problem. Would like to hear the existing delegates thoughts on the matter.

Looking across the blockchain space, if this was a serious legal issue no project would be able to operate. I also find it difficult to believe there is significant legal risk given that Harvard Law’s blockchain club is a delegate themselves in a protocol that’s currently under civil investigation.

Why would recruiting outsiders to be delegates be a bad thing? Where would new delegates come from if not the outside w/ the higher comp?

Much of the work you have done was above and beyond that of a delegate and therefore such rates are not applicable to most delegates.

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Because the are currently no Delegate incentives Sir. You have Blockchain DAO’s like Harmony searching for people to join (no-experience necessary in blockchains) at an average rate of $75 per hour ($156,000/yr).

Lets add a few things to color salary/compensation.

Legal already costing me more than I ‘earned’ from Maker in my whole time here, SC, grants, BT compensation. I had to ditch a first attorney because in the end I felt he could not represent me properly and look for another.

Second point. Any earnings basically have to pay SSI, taxes etc. As @PaperImperium points out anyone I (as a MKR holder) would want for this job is probably going to be valued by competition at ~75-100hr (at least). Why? Because to manage something like Maker you have to know far more than any single CU to do it effectively. And you have to deal with the politics as well, then heap on legal concerns just for the shitty icing on what delegates have to deal with.

I have one CU that wants to pay me to do a proposal for them agreed to my 100/hr rate and asked me to get approval from GovAlpha to do this work. BTW: I get paid that now for my current employ because I have decades of experience, great attention to detail, and basically not easy to replace. I have much younger collegues doing same work for 2-4x my current rate in various fortune 500 companies. I happen to be in a cheaper location, pretty much nearing retirement, I have a very good relationship with my current direct supervisor (who values my time such that I get basically free reign to manage myself as long as I get the job he needs done - far more valuable working <80hr/week for 2-4x the pay).

I am still trying to figure out how to manage all of this as I near retirment. The legal part of this is the biggest cost and hassle btw eating significant chunks of capital and time. I have been right on the fence because of this one single issue.

In the end with a sum total of 61 MKR delegated to me (<10 from myself) I look at all of this and wonder if someone else is probably a better delegate.

I really don’t have any answers here. I do agree with @AstronautThis pointing out the real issues with how this was handled in governance and have been told repeatedly not just by GovAlpha but other CUs that once something mustered forum discussion polling that it was a done deal in a governance sense.

I feel strongly conflict of interest here so have tried to sideline any real depth discussion on this. More and more though I think delegates should have to muster past a poll with at least 10-20K MKR supporting them to be added to delegate roles. This is basically to weed out people who may never actually capture any MKR delegation vote early rather than late.

I do really want to know how Maker is going to handle delegates working with/for CUs btw as I see this kind of partnership as a good thing, but it does have some hazards particularly with a delegate that can pass their own greenlight polls with their own delegated MKR.

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The root of the problem is that it’s not clear what a delegate is. Is it a board member (what I think) or an operational DAO employee (co-CEO). We started by formulating the former and ended up with the latter. I discussed that early September.

I would personally be happy to be a delegate with $48k/year.

That being said, it is more important to move. We will not die because we pay delegates too much but because no one is delegating. Until we get at least 5 delegates with more than 10k MKR from many backers, the whole delegation experience is a failure anyway.

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I just wanted to say - this is not about how much we are paying our delegates. That’s missing the point of the thread and is probably suited to the thread where MIP61 is being discussed.

This is more about governance processes being suboptimal and conflicts of interests exacerbating those issues in any on-chain poll that will occur.

Exactly.

It’s 100% OK to pay salaries to people doing some specific jobs, like for CUs. But what are the “required tasks/job” a delegator need to do? Is this intended to be a full time job? If so, could you outline the milestones, plan, etc? Like for CU?

Me too. Perhaps we could also increase/modify SourceCred.

This is definitely an amount that will attract quite a bit interest in the long run (if not from US, elsewhere, this is a decent salary in most of Europe, especially for a part-time job)

If there are no delegates today, this is mostly due to the fact that as a community we are not attracting a lot of attention (little onchain participance, growing but still little forum activity etc).

You have mentioned this several times.
Always in a opaque (imho) way:

  1. who offered you this? Is it a DAO? If so, is there a reason to keep it secret?
  2. why didn’t you accept?

And that’s not pay that starts at best in December or January, pending a vote by people who are likely not super engaged

  1. again, is this a DAO? Maybe we can learn from them if we have more info.
  2. You also mentioned elsewhere that a CU offered you a salary (for what? I am not sure). Which CU? Why haven’t accepted? What would be wrong with that?
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To the point of this thread:

I agree.

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  • Create and maintain a public profile.
  • Show up for a ‘Meet your delegate meeting’
  • Vote on polls and executive proposals.
  • Communicate the reasoning for voting for those polls and executive proposals.

That’s it.

The problem is that we have had no volunteers at that price point, and two of the delegates are no longer going to continue, and one is also seeking employment elsewhere.

We need delegates to ensure effective governance. We aren’t going to attract and retain delegates at the 48k max expenditure.

Yes, we will probably propose something like this too.


To be clear, I share many of your concerns. In our judgement we can’t guarantee safe and effective governance without delegates. There is just not enough of an incentive for MKR Holders (large or small) to vote regularly and consistently.

We need to attract more delegates. Offering higher incentives is the easiest and likely the most long-term effective way of attracting delegates.

This is more or less how we’re seeing it. There is currently not a great choice for MKR Holders if they want to delegate, and this will cause significant centralization issues as soon as more MKR Holders start delegating.


With respect to the process. I made it clear in the trial signal thread that the point was to “adjust the system over the three months as necessary to attract and compensate delegates.”

However, we’re not going to start paying out anything until the end of November in any case. So I can put up another signal if people feel that it’s warranted. Given that we haven’t started yet, I was hoping to save everyone some time by wrapping it up into the first one.

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Totally—apologies on my end Astronaut. I want to confirm that Flip Flop Flap Delegate has had no communication with LFW over the recent suggested Delegate compensation. Flip Flop Flap Delegate has no intentions of colluding with GovAlpha. In fact Flip Flop Flap Delegate is willing to Abstain from any Delegate Compensation Poll and allow MKR token owners like @iammeeoh @SebVentures and the shadow delegates—decide if such compensation guidelines should move forward to an Executive. However, if approved for an Executive vote, Flip Flop Flap Delegate will not abstain.

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Additional Signal here: [Signal Request] Should we increase Maximum Delegate Compensation as described in MIP61 to 144k DAI for the initial 3 month delegate compensation trial?

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Thanks @LongForWisdom for your further comments.

I just dislike to idea of investing a significant amount of money on non-specialised work with minimal commitments (as above).

In my view, the lack of delegates is a symptom of other general problems, that we know well, that give sub-optimal participation on all levels. Those should be fixed by different means (e.g., Sagittarium proposal of @rune etc) than just shooting up salaries (imho).

Also @rune mentioned at some point that he wanted to make some comments/suggestions on the establishment of “professional delegates”, so this might be a good time/place to do so.

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Because I’m still going through all the offers. Thus far, I have had two offers of a kind of “governance manager” similar to delegate, one for a news outlet, one for a lobbying group, several from major DeFi protocols.

I’ll have a decision by the end of the weekend, but have promised at least one call as far away as Friday to hear the offer.

So nothing nefarious or trying to hold it over Maker. I started having meetings last Friday and it’s just taking a while to get to all of them.

I will not be leaving Maker completely no matter what. Maker is amazing, and even if I wasn’t a delegate or moved onto other things completely, that doesn’t mean I wouldn’t still mark my involvement to this point as one of the most interesting and fulfilling chapters of my life.

But whether I can/should continue as a delegate depends upon where I land next. It’s a variety of different roles, and in some, staying on here would be really beneficial to everyone involved, and in others, it’s just not appropriate or I wouldn’t have the time to stay up to speed. :slight_smile:

SE is not a viable near-term solution.

It’s work we need someone to do. Currently not enough people are doing it. The easiest and most reliable lever is compensation. Although it sounds easy, there are significant costs that are not readily apparent, ie:

  • Gas
  • Constant Attention
  • Legal Risk
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I’m honestly a bit baffled why this is even a topic of conversation. We’re discussing whether the costs of a private contract between two firms/individuals should be socialized among everyone. If I don’t delegate my MKR, why should I contribute to the expenses of those that do? I am receiving no direct benefit from this, and in fact may be harmed by a delegate who votes against my wishes. Those delegating MKR have, at least, tens of millions of dollars in assets (the evidence of this literally being the MKR they’ve delegated), are you telling me they can’t pay for their own delegate? Sorry but I think that’s absurd.

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Yes I understand. I just expressed my own sentiment as a small MKR holder.

Frankly paying up to 144k for a job with the (minimal) constraints you specified is not something I’d consider a good way of spending money.

Lame Remark: Let me add, as a MKR holder, that I’d probably not say this if the DAO managed to increase the value of MKR to 100k, but we are actually at the all time low vs ETH and the price action has been declining for years now.

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Direct benefits are:

  • Active engagement of delegates with the community and each other. This is very much not guaranteed if MKR Holders hire their own delegates. Robust discussion and engagement should lead to better decision-making for the protocol.
  • Consistency in defence of the hat. If the protocol is paying, it can require the delegates to vote every week in order to receive their compensation. Bigger hat = more secure protocol. Institutional MKR Holders will vote as infrequently as possible to minimize their own risk.

Other points:

  • MKR Holders paying their own delegates doesn’t happen in practice because it is not in their best interests to do so. It’s in MKR Holders best interests to let someone else (ie the largest MKR Holder) spend their time / resources on governing the system.
  • You can argue the above all you want, but empirically, this has not happened at any point in the history of Maker, despite large MKR Holders existing for that entire time.

I’m not telling you that they can’t, reality is telling you that they won’t. They never have. They never will so long as they have any other option. It is game theoretically not in their best interest to do so with the exception of the largest MKR Holder. Given that it’s obfuscated who the largest MKR Holder is, everyone assumes it’s not them, and no one pays the costs.

The only way to force cooperation is to have the protocol pay for delegates, such that the cost is divided between all MKR Holders. Is this unfair for smaller MKR Holders that actively vote? Yes, absolutely. But smaller MKR Holders that actively vote can’t secure the hat or pass proposals without significant cooperation from other smaller MKR Holders - and again, it’s not in their best interests to do so given their relative vote-weight.

If we had sufficient smaller MKR Holders voting, we wouldn’t be in the situation where we need delegates. But that isn’t the case. Unfortunately you’re an outlier rather than the norm given that you consistently and actively vote @g_dip.

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  1. This is an indirect benefit and in no way guaranteed, at best it’s more likely.

  2. If MKR holders wanted to pay to protect the hat, they can vote on that. This is an odd/roundabout way of doing something that’s already been voted down.

Delegation has been live for a very short period of time, so I don’t think it’s an accurate comparison to say that MKR holders could have done this the entire time. Also, this is a market problem. At the moment delegates are working for free - so of course no one is going to pay them. If they stop bluffing and actually quit, eventually the market will find equilibrium and the MKR holders will be forced to pay for their delegates.

I disagree, see above point. This is only the case for as long as delegates are willing to work for free.

Then MKR holders deserve to be diluted. That’s how the system was designed. If you don’t want to participate, you defer your vote to those that do and deal with the consequences.

Now this isn’t to say that delegators can’t pull this off and get subsidized compensation for their delegates, but I think we should all acknowledge that this is the consequence of the above game theory in action - if you don’t vote, you deserve to subsidize the delegates because you’ve deferred your vote to the people who are actually participating. I think the delegates should stop abstaining and vote for their own comp if other MKR holders are too lazy to come in and override it.

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