MIP40c3-SP35: Deco Fixed Rate Core Unit Budget

MIP40c3-SP35: Deco Fixed Rate Core Unit Budget

Preamble

MIP40c3-SP#: 35
Author(s): Vamsi Alluri @Vamsi
Contributors: @juanjuan, @Wouter, @NikKunkel
Tags: core-unit, cu-deco-001, budget, dai-budget
Status: RFC
Date proposed: 2021-09-08
Date Ratified: <yyyy-mm-dd>

Sentence Summary

The Deco Fixed Rate Core Unit is requesting a Budget for the fixed period of November 1, 2021, through November 1, 2024, (36 Months), with a fixed budget floor of 1,712,500 Dai annually, paid monthly, secured in advance quarterly.

Specification

Motivation

Deco will bring fixed rate vaults to Maker, under the control of Maker governance. Deco has already independently covered the cost of the design, architecture, and coding of the protocol as well as the proposed Maker integration. Deco is not requesting, nor has it included any upfront reimbursement cost for past work in the integration and maintenance budget. This approach has de-risked Maker’s exposure to the design and development of the product, and has effectively reduced Maker’s exposure with regard to the cost of integration and maintenance. Deco has created and validated the actual tokenized stability fee product. The budget is a floor for the maintenance operating level of the staffed core unit: Maker will only cover the fixed floor integration and maintenance budget. The objective is to build a Maker revenue generating unit and to have Deco participate in a modest revenue share (15%) based upon fixed-rate CLAIM-FEE token sales. Deco will receive 15% of the fee generated by the transaction using Deco. This percentage is intentionally projected below the initial anticipated operating costs and functions as a performance incentive after the integration is live and used at a significant scale. The 15% revenue share on fixed-rate CLAIM-FEE token sales is only applicable on the excess of the floor maintenance fee budget, which is to be accounted for monthly, and if necessary, disbursed from the Auditor wallet.

Core Unit ID

DECO-001

Budget Implementation

The Deco Core unit budget is designed to operate a fully staffed core unit to support MakerDAO in this new lending segment. The core unit is modeled after other core units with standard compensation and comparable to the budgets outlined by SES. The fixed rate business operates on terms which are subject to markets and external dependencies, including Maker policy and monetary changes. Consequently, the monthly paid fixed floor budget assures uninterrupted maintenance and operation for the benefit of MakerDAO. This model allows the Core Unit to continue operations in support of MakerDAO, providing for ongoing services and future issuances, even when no CLAIM-FEE tokens are issued in a month by MakerDAO. Conversely, when the aggregate 15% income exceeds the drawn Dai budget, MakerDAO shall receive a credit toward the floor operating budget.

The Deco budget is structured as a Fixed Compensation Budget. This means that the Core Unit will deliver the required services under the direction and management of the Deco entity over the specified period utilizing the allocated funds. No contingency funds have been included as a margin in the budget. Any overages will be absorbed by Deco.

Budget Implementation Considerations

Fixed-Rate Premium

Deco helps MakerDAO discover and collect the Fixed-Rate Premium in crypto lending markets. For Deco on Maker, this premium is the cost a vault owner would be willing to pay MakerDAO in addition to the current stability fee rate. The rate premium price, above the current floating stability fee in the open market, is the additional cost paid to provide a risk hedge against rate volatility (in either direction). The rate premium allows a user to receive the guarantee of a fixed rate for a certain duration in exchange for the premium payment.

In Deco on Maker, the fixed-rate premium is the difference between the current variable floating rate (the stability fee the DAO is currently collecting from all vault holders of a collateral type), and the implied fixed-rate based on the sale price and validity duration of the CLAIM-FEE token. Deco proposes that MakerDAO will set the premium over its current stability fee rate, as per normal market conditions.

Fee Proposal

MakerDAO will set the premium over its current stability fee rate and Deco shall receive 15% as a revenue share of the fixed-rate CLAIM-FEE token sales. The objective of the revenue share is twofold: first, to set a floor to cover the Core Unit operating costs, and second, to incentivize growth and improvement of the protocol by increasing fixed-rate revenue for Maker. Maker would receive a credit for the annual budget costs.

Please refer to our supporting documentation, Appendix A, for a detailed description of the calculation and methodology.

Maker Buyout Option

The fee structure described above is favorable to MakerDAO and Maker holders, which retain most of the revenue and profits that are discovered with the fixed-rate premium. In exchange for the product feature, only when the feature is used, Maker pays the fixed rate transaction support fee. This feature is designed for and controlled exclusively by MakerDAO Governance. Deco simply receives a portion of the revenue stream generated by its contracts and features. In the expectation of a successful integration, and amidst the uncertainty attendant to a novel protocol, we propose to encode a buy-out clause up front to give Maker the option to purchase the transaction support fee mechanism for CLAIM-FEE token sales. This option would be available for activation at the three-year mark after initiation of the Deco Core Unit, November 1, 2024. The payment for the buyout would be a lump sum payment, and in the absence of agreement, determined by three mutually agreed upon independent appraisers from internationally recognized accounting and valuation organization. Until the option is exercised, the Deco Dai budget would renew on the same budget terms quarterly.

Budget Breakdown

Dai Expenditure

The quarterly budget is 428,125.00 Dai (3 months). Ratifying this MIP commits to funding the initial quarterly budget for the Deco fixed rate core unit (DECO-001), as well as a continuous funding model at the same quarterly budget, from November 1, 2021, through November 1, 2024, (36 Months).

Core Unit Composition

The composition of the core unit will for 5 FTE and include:

  • 1 FTE – Principal Smart Contract Engineer
  • 1 FTE – Product Manager, Governance Facilitator
  • 1 FTE – Data Analyst
  • 1 FTE – Front End Engineer
  • 1 FTE – DevOps Engineer
  • Outside Support, including but not limited to legal, accounting, UI/graphics design, operations, documentation support, et cetera

Total Engineering Compensation

The total annual cost of annual engineering:

  • Principal Smart Contract Engineer @ 1 FTE: Spells, Issuance, New Deployment, Integration and Support. $275K Base
  • Governance Facilitator, Product Manager @ 1 FTE. $150K Base.
  • Data Analyst @ 1 FTE: Analytics, Analytics Dashboards, Rate Data Reports. $150K Base.
  • Front-End Engineer @ 1 FTE: Maintain UI for CLAIM-FEE Tokens, Admin Dashboards. $175K Base.
  • DevOps Engineer @ 1 FTE: Develop and maintain Keeper Infrastructure for Redemption, Snapshots, Close, Monitoring, et cetera. 175K Base.

Annual Budget

Component Dai Amount
Salary - Engineering (Salary + Benefits + Taxes @ 30%) 1,202,500
Accounting, Operations, UI & Graphics Design 130,000
Audits 80,000
Bug Bounty 20,000
Travel & Meetings 40,000
Legal 80,000
Marketing 60,000
Gas Costs 100,000
Total 1,712,500

The budget will be managed, controlled, and accounted for at the discretion of and by the Deco entity, with appropriate and conforming reporting requirements.

Budget Details

Salary - Engineering

The engineering team compensation package includes salary, all benefits (including healthcare), and taxes. This has been calculated by scaling salaries by 30%.

Accounting, Operations, UI & Graphic Design

Accounting shall be provided Quarterly financial reports. Operations includes the work of managing the enterprise including the costs associated with planning, organizing, and supervising the execution of the integration and its continued management, and maintenance of a central operational hub, as well as outsourcing relevant business-related work. The design of graphics for all aspects of presenting and promoting the fixed rate protocol.

Audits

Audits and verifications involve 2 FTE for a period of two (2) weeks for product security and verification.

Bug Bounty

This involves reward to independent researchers who identify various levels of issues with the protocol.

Travel & Meetings

The Team will be disbursed geographically, and a certain minimal number of in person team meetings will be necessary to improve collaboration and productivity. Also, travel will be necessary to meeting with outside consultants. This budget would cover flights, food and lodging, and incidental expenses.

Legal

Coverage for legal costs including legal consultation and opinions.

Marketing

This involves activities to promote the utilization of the protocol. This activity will involve other relevant Core Units.

Contingency

No contingency fund has been set aside as this is a Fix Compensation Budget and Deco will cover any overage.

Payment Implementation

The payment implementation will have two components: An auditor wallet and an operational wallet. The operational wallet will receive the revenue share directly from the Deco contract. For the months where the revenue share does not reach the monthly operating floor (142,708.33 Dai), the difference will be transferred from the auditor’s wallet. The auditor’s wallet receives the quarterly operational floor (428,125.00 Dai) streamed via dss-vest. This RFC will be updated in more detail in the coming weeks.

Transfers

Seed Transfer
  • What: Initial transfer of the total budget cap for the 3-month runway.
  • When: Upon executive vote approval (spell cast).
  • How: Automatically (spell cast).
  • Amount: 428,125.00 DAI
  • Sender: Maker Protocol Surplus Buffer
  • Recipient: Auditor Wallet: TBD
November 1, 2021 Transfer
  • What: Initial operational wallet transfer of the monthly operating budget floor.
  • When: Immediately upon receipt of 3-month runway seed transfer by Auditor’s Wallet
  • How: Manually by Auditor’s Wallet
  • Amount: 142,708.33 DAI
  • Sender: Auditor Wallet: TBD
  • Recipient: Recipient Wallet: TBD
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