MIP40c3-SP14: Modify Collateral Engineering Services Core Unit Budget

Going to be honest here - while I support the mandate and goals of the proposed CU I’m finding it quite difficult to support it in it’s current form. The CUs that have been passed have generally been existing teams coming over from the Foundation or teams that have grown organically within the DAO. Those that have followed the latter path have started with smaller budgets and team sizes and scaled up as they have established credibility with the community.

It concerns me that you’ve requested a $1.5M budget up front for a team that consists of solely an advisor and yourself. I would expect that you’ve built a network of experienced software engineers from your time at the Foundation and prior and would prefer to see a more measured approach in building the a base and scaling this CU given the lack of commitments at this stage.

I believe it is premature to be requesting MKR compensation, especially over a four year vesting period when the only person on the proposed 10 person team we know is yourself and the CU is unknown to the DAO. This is not comparable to the PE team at all given their high engagement and visibility working with the DAO and an existing fully functioning team. I would request any MKR compensation be postponed until after the CU DAI budget has been approved by Governance and be kept in a separate thread similar to SES and Growth’s recent proposals.

Regarding the proposal, couple questions:

CES is a business venture that becomes a profitable entity.

Could you explain what you mean by this quote?

I’d also like to make sure I am very clear on one point. This Core Unit is a highly-collaborative effort and it’s a partnership, not competition, with the key stakeholders in the DAO. CES will continuously work with Protocol Engineering, Oracles, Risk, Real World Finance, and other critical stakeholders to:

Could you also discuss how you have and are currently collaborating with these CUs? If not currently, how do you envision each CUs role, specifically, in working with CES?

Contingency Buffer: Approximately 15% of budgeted costs to be held in reserves for business continuity. The CES entity will be a business and this will represent a profit by tax standards. Therefore, the actual amount in reserves will be lower due to corporate tax rates in the United States.

Could you also explain how CES will be a profitable entity by tax standards?

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FYI, you can have MakerDAO still “own” the wallet and only withdraw (and realize income) when needed. Or at least, that’s my understanding. @prose11 can probably either correct me or cite the appropriate setup.

That is the idea behind MIP47: MakerDAO Multisignature Wallet Management. Basically the wallet can be considered protocol owned as it will be officially recognized in addition to the DAO having the ability to pull the DAI via the Pause Proxy at any time. I suggest you consult your own tax advisors for how this factors in to the corporate liability, however.

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Thanks for the questions!

I’ve been with the Foundation for almost two years and have deep domain knowledge of Maker and how we’ve got to this point in our evolution. While I am new to many in the community, I’ve worked very closely with the core unit facilitators and contributors I’ll be interacting with and understand the issues, concerns, and roadblocks of collateral management.

Overall, the budget only gets spent when people are hired into roles that we’re trying to fill. I’d love to have a team to start but Nik and Derek cornered the market.:wink:

Right now in our industry, we’re not sitting with an abundance of smart contract engineers waiting to be hired so we need to create the opportunities. The CES core unit is an opportunity creator. Everyone we’re targeting are gainfully employed elsewhere. Sure, we can wait and try to grow organically. It’s my opinion that route isn’t what the protocol needs right now and it will prevent us from scaling the supply side in the short term.

MKR compensation is formulaic based upon the salary we’re offering. Engineers will have the competency and aptitude to deliver or they will not. It’s not just me watching this but the PE and Oracles core units as well as the community. If someone isn’t making the grade (including me), they will not be around for long and therefore the grant will not vest. I believe there are the safe guards in place to prevent the “friends and family” effect.

Switching gears… My belief is that businesses need to be profitable. Building an entity or company based upon a cost only model is a recipe for failure especially in an industry like ours due to the wild swings in crypto market caps. Initially, I’m proposing a cost plus model since we’re not mature enough to implement anything else. Over time, I’d like to explore other models and incentives that is more aligned with pay for performance. It’s just too early for that at the moment.

One aspect of profitability is to allow a business to decide how to invest in operating the business when there are challenging times. Let’s look at how companies survived the economic crisis last year. Generally speaking, most of them did that based upon cash reserves. Imagine all core units going back to governance when crypto markets get tough and asking for money to operate their core units. I’m not sure how that would work.

Is a 15% too much/little for a business to make? I’d say it’s quite low based upon looking comparable consulting firms providing like services. In the past, I would not choose to be involved with such an enterprise. In this case, I believe there are other viable business models, based upon performance, that will make it a win-win for the DAO and core units…not just CES.

In the US, the challenge is our taxation model. The first dollar of profit is taxable. Any excesses that are held by the core unit are technically considered profit. If a core unit holds the “Contingency Buffer” (as most core units have this allocation) then it’s taxable. Current tax law does not consider things like assets held in a multi-sig wallet as someone has to “own” it. We have to look at alternatives.

We’re breaking new ground here and either I’ll do it as the facilitator of the CES core unit or someone else will. The RWF post is a great example of the considerations for starting and running a core unit. And there are many more.

I’m sharing some of my opinions and beliefs based upon my experience. I believe I’ve identified the key issues and budget to effectively deal with them. You may or may not agree and that’s ok. For me, it’s a matter of when we do this core unit and who is going to lead the work.

Please keep the questions coming!

The CES auditor’s wallet is setup this way.

Hi, RoJo. I believe that if you execute properly on the mandate, this could help unblock a lot of the roadblocks and bottlenecks we’re facing right now.

Some detail from your proposal:

Isn’t this unfair for MKR holders? This means that a bear market “forgets” about the past glories, but a bull market “surfs the wave”.

Thanks in advance for your answer.

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I thought a lot about adding the “market price”. Being through several bear markets, I have no idea where the MKR price is going in the next six months. We could be at this price or lower for some time.

Given the critical hires of the CES core unit in the next three months, what seemed fair to add the market price into setting the incentive. It didn’t make sense to penalize new people with a price that could be artificially high for some time. I’m not trying to debate the future price of MKR. The past is the best predictor of the future right now and that is what I am going by. In a few months, we’ll be past the $6k spike the market price will be less or no impact.

I’ve also built the model around about $2k on the MKR price and I don’t think this will impact the amount of MKR I’m asking for.

I hope that helps explain my thinking. Thanks!

Thanks for the detailed answer, @monkey.irish .

My question is actually simpler. By saying “whichever is lower at time of hire” you’re introducing an asymmetry. Would you be willing to change it for “whichever is higher”? (Probably not, as this would be an asymmetry against your Core Unit instead of the MKR holders).

I personally think that choosing the average (regardless of the current price) is fairer, as you are averaging out all the tops and bottoms. Up to you. : )

Hopefully, it makes my point clearer.

Thanks for the clarification, Juan.

In most cases, I do believe the average price is the fairer calculation. Right now, I felt the best way to address the run up to $6k was to add the lessor of the two prices into the incentive. In the future, it may make sense to add a smoothing function where we drop the outliers beyond a standard deviation or two since I don’t see crypto volatility changing any time soon.

I really am trying to balance the needs of the core unit and MKR holders and I appreciate your feedback.

A bit concerned that a bulk of the discussion is on compensation / budget rather than how this proposal is much better than the existing system. Is there a reason why you can’t just join the existing system?

I just saw your other reply. It seems to answer some of my questions MIP39c2-SP12: Adding Collateral Engineering Services Core Unit - #35 by monkey.irish

@Doo_Nam, let me know if you have specific questions and I’ll be happy to answer them. Removing bottlenecks, increasing focus, and scaling onboarding collateral are at the heart of this core unit.

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@blimpa Please move this MIP back into RFC. I will be submitting a PR EOD Weds with the changes. Thanks!

Hey there. Just post a new set of subproposals :slight_smile:

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Hey! The history of this core unit is important and when I talked with @prose11, he suggested using the same subproposal numbers. Are we all in agreement with that?

One of the challenges I had was getting people to actually read the content of the MIPs. I mean, that is based upon the feedback and questions that people in the community gave me. I was thinking less places to click helps with readability and consumption.

Whatever it clearer and simpler with these MIPs I’m happy to support. Thanks!

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Hey @monkey.irish,

I touched base with @blimpa and he pointed out that we do actually have some precedent for this situation. When Strategic Marcomms resubmitted, they did utilize a new subproposal.

So I apologize for leading you astray, but I think Pablo makes a good point here. Seeing as MIPs are his purview and there’s history with this being done before I think the edits should be submitted under new numbering. If this presents an issue/extra work on your end we can lend a hand with updating repos.

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Got you. Which subproposal numbers should I use for MIP 39, 40, & 41? Thanks!

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Just submit them as […]-SPXX and I’ll add the numbers :slight_smile:

Thank you.

Sounds great!

Would you revert the changes I made to this post and MIP41c4-SP14: Facilitator Onboarding, Collateral Engineering Services Core Unit? I updated them last night and they do not reflect the final state after the polling.

Thanks @blimpa

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(helping out @blimpa, his account permissions don’t let him do that)

Reverted!

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