MIP40c3-SP14: Modify Collateral Engineering Services Core Unit Budget

MIP40c3-SP14: Modify Core Unit Budget - Collateral Engineering Services (CES-001)


MIP40c3-SP#: 14
Author(s): @monkey.irish
Tags: core-unit, cu-ces-001, budget, dai-budget, mkr-budget
Status: Request for Comments
Date Applied: 2021-05-12
Date Ratified: <yyyy-mm-dd>

Sentence Summary

MIP40c3-SP14 adds the budget for Core Unit CES-001: Collateral Engineering Services.

For more information about the history of this MIP, please see:



Building upon the theme of sustainability of the Collateral Engineering Services Core Unit (CES), the budget reflects support of the Mandates and business continuity in MIP39.

Any elements of this budget reflecting a likeness to other Core Units is a principle of building on the shoulders of giants. Much appreciation is given to all the trailblazers.

Core Unit ID

Collateral Engineering Services Core Unit

Budget Implementation

The CES budget is designed with the following in mind:

  • Paying for the operational costs to run the Core Unit
  • Building a reserve for sustainability

Therefore, a vote to ratify this MIP means MKR holders make a commitment to:

  • An initial six month budget for CES
  • A continuous funding model that operates on a semi-annual basis based upon achieving CES milestones
  • A MKR vesting schedule for CES based upon the SES MKR Incentive Plan

Budget Responsibilities

  • Auditor’s multi-sig Wallet to honor and uphold MKR holders preference for the CES Budget Breakdowns
  • Operational multi-sig Wallet to run the operations of CES
  • CES commitment to the transparency and accounting of funds during all budget cycles

List of Budget Breakdowns

Team Structure

The team will consist of seven full and part time Core Unit contributors.

Team Summary for 2021-2022

Team Members
Full Time
Core Unit Facilitator 1
Technical Product Owner 1
Smart Contract Engineers 3
Part Time
Advisors 2
Team Total 7

Total Budget Cap for the Cycle

The Total Budget Cap is $1,223,552, spanning a six month Cycle. The annual budget is projected at $2,375,469.

6 Months 12 Months
Budget $1,223,552 $2,375,469

Budget Detail

Summary Q4 Q1 Q2 Q3 12 Months
Salary $250,000 $343,750 $343,750 $343,750 $1,281,250
Benefits + Taxes $75,000 $103,125 $103,125 $103,125 $384,375
Travel $15,000 $15,000 $15,000 $15,000 $60,000
Hardware $17,500 $0 $0 $0 $17,500
IT & Subscriptions $25,000 $8,333 $8,333 $8,333 $50,000
Referral & Sign-on Expense $100,000 $0 $0 $0 $100,000
Audits $0 $0 $0 $0 $0
Bug Bounty $0 $0 $0 $0 $0
Gas Costs $5,625 $5,625 $5,625 $5,625 $22,500
SC Verification & QA $0 $0 $0 $0 $0
Professional Services $75,000 $25,000 $25,000 $25,000 $150,000
Contingency Buffer $84,469 $75,125 $75,125 $75,125 $309,844
Total $647,594 $575,958 $575,958 $575,958 $2,375,469

A few notes about the Budget Detail:

  • The Budget Detail in the first Formal Submission of this MIP was $3,133,211. This has been lowered to $2,375,469. The decrease is primarily due to removing three headcounts two of which were temporary. We feel this more accurately represents the budget. Also note this budget includes a Benefits + Tax provision for $384,375.

  • Any business functions (HR, Legal, Operations, DevOps, etc.) not listed here will be contracted on an hourly basis as Professional Services.

  • The budget represents a fully populated team based upon a hiring schedule. The actual amount might be lower due to the availability of smart contract engineers.

Illustrating these details as a percentage of the total budget request for overall comparison (12 months):

Budget Details:

Providing additional detail with regards to the above line items:

Salary: The initial team has three full-time Smart Contract Engineers, one full-time Technical Product Owner, one Facilitator/Team Leader, and two part-time Advisors (for a total of seven permanent members).

Benefits + Taxes: The total cost of an employee includes salary, all benefits (including healthcare), and taxes. This has been calculated by scaling salaries by 30%. This premium is likely an overestimation, and the realized cost is expected to be lower. That being said, paying salaries to a global remote team in a multitude of jurisdictions can be quite expensive.

Travel: The team may travel to present at industry events or participate in a team offsite. The budgeted amount is $1000 per person per month.

Hardware: An allocation of $3,500 per new team member.

IT & Subscriptions: We anticipate a variety of costs relating to software subscriptions, cloud services, and contract service providers.

Referral & Sign-on Expenses: Provided at the discretion of the Facilitator to attract top talent to the team.

Audits: Initially, this work will be coordinated with the Protocol Engineering Core Unit. Budget modifications will be submitted when appropriate.

Bug Bounty: Initially, this work will be coordinated with the Protocol Engineering Core Unit. Budget modifications will be submitted when appropriate.

Gas Costs: Initially, this work will be coordinated with the Protocol Engineering Core Unit. A nominal amount has been allocated for administration. Budget modifications will be submitted when appropriate.

SC Verification & QA: Initially, this work will be coordinated with the Protocol Engineering Core Unit. Budget modifications will be submitted when appropriate.

Professional Services: Coverage for managing general operational overhead and services, legal costs including entity creation, legal officer/company insurance, as well as monthly and annual financial reporting.

Contingency Buffer: Approximately 15% of budgeted costs to be held in reserves for business continuity. The CES entity will be a business in the United States and corporate tax rates may apply to these reserves.

MKR Vesting and Incentive Structure

The MKR vesting schedule for CES based upon the SES MKR Incentive Plan.

MKR Vesting Details

Property Value
MKR/USD lock-in Price (Post Ratification) Trailing 6 month average
MKR/USD lock-in Price (OG) MKR = $1,956 (11/12/20 - 05/12/21)
MKR Price Floor (Post Ratification) -30% (Trailing 6 month average hire price)
MKR Price Floor (OG) -30% ($1,369)
Vesting Period 3 years
Cliff Vest 12 months
Vesting Schedule After cliff has expired, the Biannual MKR amount vests every 6 months
Manual Repricing yes
Auto-Renewal yes

MKR Forecast

Assuming a fully populated team today and based upon the OG Price, this would result in the vesting transfer schedule below.

Vesting Date Vesting Transfer Date MKR Amount
30 Sep 2022 01 Oct 2022 1052.63 MKR
31 Mar 2022 01 Apr 2023 526.315 MKR
30 Sep 2022 01 Oct 2023 526.315 MKR
31 Mar 2022 01 Apr 2024 526.315 MKR
30 Sep 2022 01 Oct 2024 526.315 MKR
Total 3,157.89 MKR

A few notes about the MKR vesting schedule:

  • The MKR Forecast assumes the CES Core Unit will onboard a full team and the MKR Incentives will be based upon the OG Price. If the team is not fully populated at ratification, the MKR total also covers a Manual Repricing situation at 30% below the current six month average. Either way, we feel there is sufficient maximum buffer built into this model.

  • The Vesting Transfer Date is one day after that period’s Vesting Date. For example, a Sep 30 Vesting Date would have a Vesting Transfer Date of Oct 1.

Budget Implementation


The CES budget implementation is architected to build and sustain a stable Core Unit in relation to the volatility in our industry.

  • Funding for the initial six months of the Core Unit with a contingency reserve
  • Thereafter, a continuous funding model operating on a semi-annual basis
  • MKR incentives with a Vesting Period of three years, a 12 month cliff, and six month vesting after the cliff
  • Provide full transparency and accounting of funds during all budget periods

CES Cycle Alignment

Total Budget Cap for the Cycle

The Total Six Month Budget Cap, as specified in the Budget Breakdown, will be transferred to the Auditor’s Wallet after ratification. This wallet will keep the funds and transfer them as requested by CES, per the below.

The Auditors Wallet balance will never exceed the upper limit voted by Governance. If this limit needs to be raised, or we’re no longer expecting to ever need it, an additional subproposal MIP will be submitted to adjust it.

CES Budgeting Cycle

Core Unit Ratification

When the CES Core Unit is ratified:

  1. Core Unit begins
  2. Six month budget is transferred to Auditor’s multi-sig Wallet
  3. Initial requested budget is transferred into the CES Operational multi-sig Wallet

Core Unit Monthly Budgeting Cycle

Within the first 5 days of each month, CES will submit a Monthly Budget Statement to the signers of the Auditor’s Wallet with the following sections:

  1. For each month, provide an accounting of funds spent in the prior month
  2. Provide an updated budget for the remaining cycle
  3. Provide a MKR vesting overview, by month
  4. Auditor verification of accounting
  5. Requested additional budget allocation & MKR incentives transferred into the CES Auditor & Operational multi-sig Wallet

The Monthly Budget Statements will be added to the MakerDAO forum. The originals can be found in this git repository on Github.

Core Unit Summary Cycle

  1. Reconciliation of budget, actual vs. spent
  2. Review results & achievements
  3. Present new budget, MKR vesting, & goals
  4. Entire committed budget transferred to Auditor’s multi-sig Wallet
  5. Initial budget transferred into the CES Operational multi-sig Wallet

MKR Incentive Vesting Implementation

MKR will be transferred from the Auditor’s multi-sig Wallet into the CES Operational multi-sig Wallet no later than Core Unit Monthly Budgeting Cycle before the month the MKR actually vests. For example, if a Vesting Transfer Date is 01 Oct 2022, the MKR will be transferred into the Operational Wallet no later than August 2022 Core Unit Monthly Budgeting Cycle. Once DssVest is ratified and implemented, CES will investigate the use of automated MKR incentive vesting.


The following wallets are involved:

  1. The Auditor’s Wallet – A 3-out-of-4 multi-sig, controlled by trusted Maker DAO members. This multi-sig will hold the Total Budget Cap in DAI. All funds pass through this wallet before any are sent to the CES operational wallet. One of the signers is the Facilitator of the CES Core Unit.

    The signers of the Auditors Wallet are still being confirmed and will be added to the MIP40c3-SP14 forum thread. No funds will be sent to this wallet before the signers’ addresses have been set in the wallet.

  2. The Operational Wallet – A 2-out-of-3 multi-sig, controlled by CES. This multi-sig will be used for Core Unit expenses. One of the signers is the Team Leader of the CES Core Unit.


Core Unit Budget Cycle Transfer

  • What: Initial transfer of the Total Budget for the 6-month Budget Cap Cycle.
  • When: Manually, upon executive vote approval.
  • Amount: 1,223,552 DAI
  • Sender: Maker Protocol Surplus Buffer
  • Recipient: Auditors Wallet: 0x25307aB59Cd5d8b4E2C01218262Ddf6a89Ff86da

October 2021 Budget Transfer

  • What: Operational Wallet for the requested budget.
  • When: Manually, upon executive vote approval.
  • Amount: Determined by the October 2021 Budget Statement
  • Sender: Auditors Wallet: 0x25307aB59Cd5d8b4E2C01218262Ddf6a89Ff86da
  • Recipients: Operational Wallet: 0xD740882B8616B50d0B317fDFf17Ec3f4f853F44f

Related Documents

MIP39c2-SP12 Collateral Engineering Services Core Unit MIP

MIP41c4-SP14: Facilitator Onboarding, Collateral Engineering Services Core Unit

1 Like

Based on all assumptions being met successfully, what would be the (estimated) marginal cost for this CU to onboard a new collateral type?

I love the question and I wish I could answer it directly. :wink:

We’ll always have the fully burdened hard costs of the core unit. An allocation of cost is based upon the fine art of product and feature estimation. In the product development world, that means we are using iterative software development best practices and techniques to come up with our estimates. While we can calculate these costs based upon the development time a feature will take, there is a higher level we really need to take into consideration…opportunity cost. Or put another way, what is the impact to the protocol if we don’t do this collateral or collateral types? I’ll leave that point alone for now since that is an entire discussion in itself. If you want to geek out a little bit on a technique I use, have at it! WSJF - Scaled Agile Framework

To reduce bottlenecks, we’ll also need to use outside auditing firms and there is an additional cost with that.

There are varying levels of overhead with the other core units as well: Risk, Oracles, Protocol Engineering, SES (Integrations), and Growth. The dependencies on their resources will vary over time and based upon the complexity of the collateral and consumption.

Generally speaking, when we have a class or category of collateral where we’ve systematized it, a lot less cost. I think this is quantifiable in the near term. For complex collaterals, it’s unknown what the cost will be at the moment.

Once we start to consolidate the collateral onboarding functions within the core unit, the tools and best practices I use will give us a lot of visibility into estimated costs for onboarding a single piece of collateral or an entire category.

Personally, my opinion is that prioritizing jobs based on economics, which implies cost, is the most important data point. I’m unsure what value, other than budgeting, of what hard costs give us. I’m always open to feedback in this area.

My view is always one of looking at a project such as this as a “product” and providing incremental value each time we ship software. It’s what I’ve done my entire career and it works really well.

Governance doesn’t really appoint auditors in this way. Like, there are no processes to do this. In an ideal world, auditors would be presented as part of this proposal, and could be considered to be approved as this proposal passes. Maybe try to find some in advance (check they are willing!), and add them to the proposal.

This reads like a contradiction? Controlled by trusted members of MakerDAO that are not team members of the collateral onboarding core unit. But also one of the signers is the facilitator of the core unit.

We may not have this if MIP51 passes. Maybe amend to the next weekly executive vote.

1 Like

Hey @LongForWisdom. Not sure why I didn’t see the notification for your comment a while ago.

I revised the the Wallet and Transfers section to be a little clearer. I don’t think it addresses your comment though. I’d like to hear your suggestion on the signers of the wallet. My thought is that I am a trusted member of MakerDAO if I am onboarded as a facilitator and I’d like to be part of the budget process. Maybe it’s in the name “auditor” based upon your first comment. My thought right now it to change that to something like “The DAO Wallet” since CES Budgeting Cycle takes care of the auditing and accountability parts. I was trying to model it after SES budgeting and I’m not sure those labels apply accurately to CES.

MIP51 defines the Monthly Governance Cycle. How would I word the initial transfers of DAI & MKR to the wallets?

How many team members have been hired or have committed to starting assuming the CU is approved by Governance?

At this moment, myself and one advisor. I’m currently interviewing candidates for the product manager and smart contract engineering positions.

The total budget assumes a full permanent team of six, with two temporary smart contract engineers, for a full year. The first year budget will be lower given the ramp in hiring. At the end of the six month cycle, we will reconcile actual vs. spend and make any adjustments necessary.

There are one time expenditures allocated to business formation services and hiring that might appear to inflate the budget in Q1-Q2. These are necessary. The temporary engineers are also $650k of the salary budget which will be implemented only after a plan as been discussed and put in place between the PE, Oracles, & SES core units.

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?

1 Like

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.


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.

1 Like

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.

1 Like

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