MIP39c2-SP27: Adding Strategic Finance Core Unit

MIP39c2-SP27: Adding Strategic Finance Core Unit (SF-001)

Preamble

MIP39c2-SP#: 27
Author(s): @Aes
Contributors: @SebVentures
Tags: core-unit, cu-sf-001, mandate, active
Status: Accepted
Date Applied: 2021-12-01
Date Ratified: 2022-01-24
Ratification Poll URL: https://vote.makerdao.com/polling/QmZn66qt?network=mainnet#poll-detail

Sentence Summary

MIP39c2-SP27 adds Core Unit SF-001: Strategic Finance Core Unit.

Paragraph Summary

MIP39c2-SP27 adds Core Unit SF-001: Strategic Finance Core Unit. Its mission is to provide financial reporting and analysis to assist the DAO in evaluating the financial health of the protocol to enable strategic decision making and allocate capital more effectively.

Specification

Motivation

I joined the DAO almost exactly a year ago, initially as an investor to learn more about the project and direction of the DAO. I was particularly interested in the RWF CU and after discussing my background with @amyjung, she recommended I connect with @SebVentures. As I continued to get more and more involved in the community and working with Seb, I saw tremendous opportunity to add value through building out the financial foundation Seb laid down.

The intellectual curiosity, openness, and desire of the DAO to create and grow a more robust, transparent, and secure financial system is deeply motivating. Adding in the mandate to fight the most challenging problem humanity has faced - climate change - and I could not be more excited to do everything I can to support the DAO and its mission.

Core Unit ID

SF-001

Core Unit Name

Strategic Finance

Core Unit Facilitator

Mark Phillips (@Aes)

Core Unit Mandate

Mission

Provide financial reporting and analysis to assist the DAO in evaluating the financial health of the protocol to enable strategic decision making and allocate capital more effectively.

Vision

Our vision is to provide the most accurate and clear financial reporting across the entire crypto industry, leveraging the transparency and immutability of the public blockchain to ultimately provide financials data that exceeds the requirements of IFRS (International Financial Reporting Standards). Additionally, we seek to provide the DAO and MakerDAO stakeholders with relevant financial information to help assess the health of the protocol. We will accomplish this by:

  • Providing clear, easily digestible financial information to the DAO that enables stakeholders to make informed decisions for the protocol
  • Building financial dashboards and tools that provide real-time financial data directly from the blockchain so stakeholders can understand the health of the protocol
  • Partnering with SES to implement standardized and automated expense reporting vs budgets
  • Collaborating with Growth and Risk Core Units to provide financial analysis of prospective deals
  • Working with the Protocol Engineering and Oracle Core Units to model growth opportunities and risks
  • Asset-liability management and innovation through investing protocol assets to generate yield (real-world assets, DeFi, etc.)
  • Facilitating recurring strategic reviews to set a strategic action plan and
  • Accounting, solvency, liquidity, and potential regulatory reporting

Strategy & Current Work

SF encompasses the traditional finance functions, including financial reporting, planning, analysis, and accounting, as well as an advisory component that helps facilitate consensus around the DAO’s strategic priorities. This work, as detailed below and in the ‘RWF Efforts’ section, will be continued with the approval of the SF Core Unit. This work includes but is not limited to:

  • Publishing Monthly Financial Statements
  • Posting Monthly Financial Reports
  • Reporting Actual Monthly Expenses & Forecasting by Core Unit
  • Partnering with GRO-001 Facilitator @Nadia and RISK-001 Facilitator @Primoz to negotiate terms for the Nexo Institutional Vault as well as another 600M+ undisclosed prospective IV customer
  • Maintenance of the Real-Time Financial Dashboard
  • Forecasting Revenue and Profitability
  • Analyzing Profitability by Vault
  • Building new SQL queries to support the Strategic Focus Areas for the Recurring Strategy Reviews and KPIs

Our approach to working with the DAO is focused on collaboration. We believe partnering with the other Core Units and MKR holders, with each bringing our strengths and expertise to the table will yield multiplicative benefits compared to working purely in silos. This does not mean the Core Unit is dependent on other Core Units to execute the current work and envisioned scope; only that results will be maximized through collaboration. This collaboration is already happening today and will only get better moving forward.

Roadmap

The SF CU will initially focus on continuing to build a solid financial reporting foundation and continue its work on the RWF FP&A roadmap, prioritizing work based on community feedback.

The current roadmap includes:

  • Create a Strategic Action Plan (STRAP) to develop plans to achieve DAO-wide long-term goals by facilitating:
    • Determining the protocol’s strategic position
    • Prioritization of Objectives
    • Developing & formalizing the strategic plan
    • The assessment of executing the plan
    • The review and revision of the plan as necessary
  • Facilitate recurring Strategy reviews to:
    • Assess how CUs are executing the mission and agreed-upon strategy
    • Understand issues and obstacles the DAO needs to address
    • Discuss new opportunities that have arisen that the DAO may want to pursue
    • Decide if adjustments to the plan are needed
    • Facilitate optimal capital allocation
  • Partnering with SES to standardize and automate expense reporting across the DAO
    • Increase transparency and reporting standards to provide more accountability to CU spend
  • Build out ‘Governance Relations’ by partnering with CU leadership to frame and communicate MakerDAO’s strategy, operations & financial results to the community
  • Asset-Liability Management:
    • Reporting of the current and future balance sheet structure in terms of interest rate, duration, maturity and profitability
    • Researching and proposing ways to optimize the balance sheet allocation
    • Providing insights into borrower risks and analyzing customer capital flows
  • Financial Reporting & Planning
    • Monthly Financial Reports
    • Monthly Expense Reports
    • Monthly Revenue & Expense Forecasts
    • Budgeting support through building Budget Templates and providing expense analysis to CUs
  • KPI dashboard
    • Building real-time dashboards leveraging on-chain data to measure DAO-approved Strategic Focus Areas and Key Performance Indicators
  • Real-time Vault Profitability Analysis

Community Involvement

  • Educate community members in understanding the protocol, its economics, and risk aspects
  • Develop models for community members
  • Review community proposals
  • Provide feedback on business decisions

Team Structure

The full team and current budget will be composed of 4 permanent members:

  • 1 Finance & Strategy Facilitator - @Aes
  • 1 Title TBD - @SebVentures
  • 1 Senior Finance Manager
  • 1 Senior Data Analyst

Long-term, we will expand the team to 7 permanent members to include:

  • 1 Senior Financial Analyst
  • 1 Accounting Manager
  • 1 DAO Auditor

RWF Efforts

As part of the RWF CU, the team has already delivered a number of reports, models, and financial analyses, including:

Domain Evolution

The Strategic Finance Core Unit aims to build a solid financial foundation for the DAO that enables the creation and growth of other specialized financial Core Units with expertise in diverse areas of finance. Some examples include Corp Dev (M&A), Asset-Liability Management, Treasury, Accounting, Audit, and Governance Relations.

Related Documents

SF Budget Proposal
SF MKR Budget Proposal
SF Facilitator Proposal

16 Likes

If this CU is approved, will @SubVentures voluntarily step down as Real World Finance CU facilitator? Refer to Rune’s Facilitator offboarding

Quick question here–doesn’t this overlap with the project Real-World Sandbox and the proposed RWF Portfolio Core Units, and RWF Compliance Core Unit? And how well do you think these 3 will play in the RWA sandbox?

2 Likes

Hey, Mark. I’m removing our names from the proposal as contributors.

It was a pleasant surprise, and it honours us, but I’m not sure that we have contributed enough to warrant our names fully endorsing this proposal (in its current state).

As it is in RFC, here are some of the things that could be improved (in no particular order):

  • Changing or removing “Partnering with X Core Unit or Collaborating with Y Core Unit” or similar because:
    • a partnership cannot be mandated or forced by MKR holders
    • a Core Unit should be able to work standalone (providing helpful tools and leading by example will lead to partnerships and collaboration)
  • Starting the roadmap with a DAO-wide long-term goal, while sharp, might lead to undesirable results (see the previous point).
  • Improving the roadmap so that it has a little more substance to it. This was the main criticism that the Maker Labs proposal received.
  • Some minor typos. :wink:

To be clear: we do support @Aes (we even offered him a spot in the SES Incubation Program). We believe that he has been doing a lot of great work that goes in the right direction (including the hundred frameworks he produced and the Transparency Reporting).

5 Likes

Thanks for the feedback Juan.

The partnership and collaboration comment has appeared in multiple MIP39c2s prior to this one - from CES for example so it seemed reasonable to include in the FS proposal.

Understand that the DAO cannot mandate good working relationships, but similar to @monkey.irish, I strongly believe in collaboration and believe that it has happened naturally since I started working in RWF and even as an independent community member - volunteering to collaborate with LongForWisdom, Derek, and Planet_X on the MKR compensation guidelines for example.

I strongly believe any organization, centralized or not, needs to have a unified vision to be successful long-term. @rune has provided that vision and now that the DAO has signaled it’s support for it, it’s up to us (the DAO) to execute it. The FS Core Unit’s goal is to aide in and help the DAO understand if we’re on the right path by providing quantifiable KPIs that the DAO aligns on.

More is coming next week when I return from my trip :wink: . As most are likely not aware - I will be out of the country for the next week and given the RFC deadline of December 8th, did not want to risk having these MIPs not get into the January Governance cycle.

This is how we plan to start - with 2 FTE and a plan to ramp up to 4 FTE in the next year. With how much work there is to be done from a financial perspective, this is a very lean team. Frankly, the DAO is already at a size where we should have a dedicated accountant and auditor but I have left those out for the near term so the CU can focus on building out a solid foundation (building out quality data and reporting is the highest priority today).

Just to be clear, I have no plans and do not intend to incubate any new Finance Core Units. Once the team reaches it’s envisioned maximum size (7) we will work with the DAO to determine if more resources are needed. If they are, I would envision that new Core Unit(s) are formed to tackle specific areas, going through the SES incubation program.

With that said, the FS CU may be the first ‘connection’ people with a Finance/Accounting background make within the DAO, because that will be the work they’ll likely be drawn to and have an understanding of (compared to PE or Oracles for example). If someone comes to our team and is interested in forming a new Core Unit, I would send them directly to SES.

3 Likes

@psychonaut I’m targeting to have 0 to 1 job. Not 2.

@ElProgreso I’m not aware that RWF Portfolio Core Units and RWF Compliance Core Unit will do ALM. Moreover, those CUs don’t exist yet. The last RWF budget was alluding to ALM for 2022. The Financial Strategy CU is a spin-off from RWF to split finance and RWA matters. The next facilitator of RWF is obviously free to do ALM as well. @Allan_Pedersen also put an ALM CU separately in his model.

ALM is seen here as the art and science of optimizing the balance sheet to fit the risk appetite and profitability expectation of MKR holders.

Nevertheless, it should be clear that the role here is to analyze, monitor, suggest, not to decide nor to execute. Financial institutions have an Asset-Liability Committee (ALCO) for decision-making. This should be an MKR committee or a PPG where, in the end, MKR holders are voting anyway. Execution should be done by passive smart contract like it is customary for MakerDAO. One of the outputs of my work will be to provide an ALM Report which will be one of the inputs of such an ALCO (and inform all MKR holders on the MakerDAO ALM situation).

Another output would be linked to the Strategic Action Plan. An ALM view is necessary. I’ve touched on that point on the MKR valuation framework showing you can’t have exponential growth, burn all profits as MKR and keep @Primoz happy. We need a model of the current balance sheet risks & profitability but a way to forecast it and compare it with the objectives expected by MKR holders. Merged with the work of the rest of the Financial Strategy CU, this would provide a finance view on the impact of the proposals (like Institutional Vault).

Inputs of the ALM will come from other CUs, like the Capital at Risk from Risk, “contractual” terms and expectations from Growth regarding Institutional Vaults, capital cost and “contractual”/behavioral maturities coming from RWA CUs, off-balance-sheet interest rate risks from DECO, …

It is not something new to me as I was leading a 5-year Strategic planning project for a multi-national insurance company, part of which was to create a model to forecast the balance sheet in the future based on inputs.

We have started to work on ALM with @monet-supply and @Primoz. Others can join the effort. I’ve worked on the balance sheet and liquidity (peg keeping) concerns of MakerDAO for more than a year. ALM components are present in the monthly financial reports, but it is time to update them. My “Where is DAI” reports are far from enough to understand the dynamics of DAI demand and liquidity risks.

1 Like

planning to offboard volutary then? or you are planning to wait for the vote?

this attitutde doesn’t provide external shareholders with clarity about the future and hurts makerdao and the business

2 Likes

A community member has moved to offboard him. Until there’s a successful vote of the community to offboard, what is there to do voluntarily other than continue his present post?

if he steps down as pointed by governance alpha the process is much faster and no vote needed

@LongForWisdom is that correct seb needs to wait and can’t step down?

unless seb wants to keep that position but then why create another psotion the question by @psychonaut is yet not answered

1 Like

No, he can voluntarily step-down if he wants to. We can’t really force people to work for the DAO…

2 Likes

I’m going to just go ahead and hide the political examples, it feels like a can of worms that we should just avoid. I appreciate that it was meant as an analogy to aid understanding… But yeah. Highway to the dangerzone, etc.

1 Like

Apologies. Deleted.

2 Likes

Thank you for providing a response and more clarity. Personally, I do not consider MakerDAO a “Financial Institution”, it is perhaps why I was surprised of the “ALM” title. From a traditional finance point of view, in the Real World–I think we can agree that an ALM is responsible for the following but not limited to:

  • Interest rate risk management
  • Liquidity risk
  • Risk management of financial derivatives
  • Managing credit quality
  • Forward-looking projections and datasets
  • Datasets in quantifiable mathematical measures

And last but not least, as you know–ALM teams oversee the entire balance sheet of an organization–which includes coordinating with a lot of teams/departments (time-consuming)–and this view is also outlined here:

All in all I’m trying to understand how “ALM” style duties between so many different CU team members will mesh together, and not overlap one another. It feels a bit overcrowded.

1 Like

The scope of the Core Unit is well within the traditional Corporate Finance competencies and I am happy to discuss my business background in more detail than what’s listed in the Facilitator Onboarding MIP if you would like. In my experience the scope of a CFO greatly exceeds what you reference - a Finance organization is deeply involved with strategy and there are specific Finance business functions that explicitly support it (Corp Dev, M&A, Strategy). There’s a reason why the #1 company CEOs have worked at is McKinsey and why so many CEOs also have a finance background.

Regardless, the primary focus of this Core Unit as listed in the Strategy & Current Work section (newly added) is traditional FP&A. It seems there is some confusion around the mandate of the Core Unit given it’s name, perhaps I will change it.

What you’ve seen from RWF through now has been mostly the result of Seb and myself working part time for the DAO (as Seb was focused on the leading RWF onboarding and risk assessments and I was still working full-time as a Sr Finance Manager). On Day 1, the Core Unit will already be significantly increasing the output of what we’ve published so far (see RWF efforts). Once we have a couple more resources onboarded, we will have the bandwidth required to accomplish the scope.

As stated in my response to Juan, this Core unit does not set the vision - that was already done by Rune and the DAO has signaled it’s support for it, nor does it execute the vision. What it does do is facilitate the consensus seeking of the Strategic Focus Areas and KPIs the DAO will use to measure our success in executing Rune’s vision, and transparently reports it leveraging real time dashboards and the immutability of the blockchain. This Core Unit does not unilaterally decide these metrics - the original set of approved SFAs were essentially taken from Rune’s clean money initiative post. The drafted KPIs were a collaboration between RWF, Growth, Risk, some large MKR holders, and a few delegates.

I’m assuming this comment is referring to the individual Core Unit Scorecards in the strategy deck. To be clear - the FS Core Unit is not evaluating the performance of any Core Units. We are here to facilitate that discussion for MKR holders, delegates, and voting committees to make those decisions. Each approved Core Unit already has a mandate and goals in their MIP39c2s. During a Strategic Review, each Core Unit will populate and fill out their own Scorecard, giving themselves their own scores on these goals - then present this scorecard to MKR Holders, Delegates, and stakeholders. Some Core Units are already doing this today.

The benefit of a single recurring review is to have a one-stop-shop for getting an update on how the Core Units are progressing against their mandates. Today, we have 19 Core Units already approved with more being incubated - it is simply not practical or realistic to expect MKR holders to comb through the forums looking for Core Unit updates one by one that do not share any transparency standards.

As @wouter astutely pointed out, there are additional very important metrics for us consider - to copy here:

  • Security / risk
  • Governance effectiveness
  • Community (workforce) health

These are not currently within the scope of the recurring strategy reviews and I believe would be well suited within another recurring review focused on operations. I would be happy to help facilitate consensus building on metrics that support these focus areas but most inputs would come from the subject matter experts (PE, IS, GovAlpha, SES).

2 Likes

some time ago we had project kompass and you are there Project Compass: DAO Vision Setting Working Group - #5 by Aes

after 3 or 4 month the result was well judge for yourselve

can you please give example of the path to go to achieve the first 2?

also can you please give insight to know if seb want to step down and support your cu or this is safety net?

I’m very excited about this proposal - it’s exactly what we need right now given that we still don’t even really know what our budget and budget forecast is now, or what it will look like next year, or whether we are getting our money’s worth for that budget. This Core Unit will be an important step to help change that and enter a phase where we continuously improve, refine and evolve the Core Units to provide better value creation and better work environments.

I want to emphasise, this kind of CU would not play the role of decision maker, but rather would be a professional source of opinions and advice for the actual decision makers (SR and MKR voters) to base their decisions on.

So it’s not a “CFO” Core Unit, it’s an “Advisor to the CFO” Core Unit, which in my opinion is incredibly important and needed at the stage of complexity we are now at. I will soon be posting a document on the “decentralized workforce” that discusses the importance of these kind of supporting Core Units, among other things, that can possibly help create some broader context around how useful this Core Unit can be, but also how it will have very limited power and a lot of checks and balances.

I’m also very happy that this is a good place for Seb to move to following his resignation as Facilitator of the RWF Core Unit. I’ve discussed this with Aes and he has assured me that he only chose to include Seb in the proposal on the basis of Sebs unique background and skillset that is perfectly geared for financial data and balance sheet work in a blockchain setting, which is fundamentally required for Aes’ vision of this Core Unit and the advice, transparency and data it will provide to the community.

So to be clear this is not some kind of political outcome, puppeteering or horse trading situation, and we should fully expect and demand high quality work that is well worth the expense from Seb, Aes and the entire Core Unit.

6 Likes

Out of curiousity — why was this post flagged and blocked?

Not sure what you’re talking about. I was not a part of that working group and simply voiced my opinion as a community member.

The strategic position is where we sit in the market relative, what our strategic advantages/disadvantages are, etc. Maker competes with DeFi lending protocols such as AAVE and Compound as well as CeFi lending alternatives such as Circle and BlockFi. One example of an advantage is the ability to mint Dai, whereas the rates competitors offer in peer-to-peer lending can vary greatly due to user deposited liquidity. One disadvantage we have is that our lending is capital inefficient in that we require a much higher amount of collateral to provide a loan.

Seb has already voluntarily stepped down.

I’m happy to engage on valid points but if you’re going to personally attack my team or myself I simply will no longer engage with you. I’ve been a member of the DAO for nearly a year and have contributed a lot of hours trying to help without any compensation (excluding source cred), as has Seb prior to RWF onboarding. We are staking our personal reputations and going all-in to do everything we can to see this project succeed.

5 Likes

yes the community appreciate the transparency and the comunication very good handover

u have a great member in your team congrats

2 Likes

Please move this MIP to formal submission.

2 Likes