MIP40c3-SP44: Adding Sidestream Auction Services Core Unit MKR Budget - SAS-001

MIP40c3-SP44: Adding Sidestream Auction Services Core Unit MKR Budget - SAS-001

Preamble

MIP40c3-SP#: 44
Author(s): @danik
Contributors: @BracketJohn, @lukass, @builderman, @wouter, @juan, @Petru_Catana, @lollike, @Njoku_Emmanuel
Tags: core-unit, cu-sas-001, budget, mkr-budget
Status: Accepted
Date Applied: 2021-10-06
Date Ratified: 2021-11-22

Sentence Summary

MIP40c3-SP44 adds the MKR Incentive Plan budget for SAS-001: Sidestream Auction Services Core Unit.

Paragraph Summary

MIP40c3-SP44 adds the MKR Incentive Plan budget for SAS-001: Sidestream Auction Services Core Unit. It contains:

  • Total MKR Expenditure Cap
  • Estimated MKR Expenditure (based on the current team)
  • Escrow Wallet mechanism

The Sidestream Auction Services Core Unit supports the Sustainable Ecosystem Scaling Core Unit (SES-001) and Oracles Core Unit (ORA-001) proposal for MKR Vesting.

MKR incentives have been determined based on the Program discussed here. This is a 3-year vesting plan with 1-year cliff vest.

Specification

Commitment Date

The SAS Core Unit has been working under the incubation program of the SES since 21st June of 2021. The members of this core unit will take that as the start date for the vesting schedule.

Total MKR Expenditure Cap

The total MKR Expenditure will not exceed 731.3859 MKR.

This covers the entire 3 years plan for 3.5 FTEs.

Estimated MKR Expenditure

The Estimated MKR Expenditure is our best guess of how much MKR will be used with the current team configuration.

Reasons why the Actual MKR Expenditure could rise closer to the MKR Expenditure Cap:

  • A raise for a member of the team
  • New hires
  • Repricing (and resetting) the program, in the case of bear market

Price floor: -30%. If any Contributor chose to reprice their program, they could do it at a maximum of -30% from the set MKR price.

Permanent Team Forecast

For the permanent team, assuming the team configuration remains the same as today, this would result in the vesting schedule below.

Date Amount
December 21, 2021 0
June 21, 2022 243.7953
December 21, 2022 121.89765
June 21, 2023 121.89765
December 21 121.89765
June 21, 2024 121.89765
Total 731.3859

This covers the total vesting schedule of 3 years for the current 3.5 FTEs.

On average, this yields 69.6558 MKR per FTE per year.

Any changes to these amounts will be reported and reviewed by our budget auditors.

Parameters

Parameter Value
MKR/USD lock-in Price MKR = $2604.72
MKR Price Floor -30%
Vesting Period 3 years
Cliff Vest 12 months
Vesting Schedule After cliff has expired, biannual MKR amount
Vesting Interval 6 months
Manual Repricing yes
Auto-Renewal yes

Payment Implementation

This payment implementation is based on the SES MKR budget proposal

  • The Monthly Budget Statement contains the MKR vesting schedule. This schedule specifies when in the future MKR is vesting, and how much.
  • To keep the risk acceptable for Maker governance as well as for the team, the MKR is moved from the protocol to the contributors in stages:
    • Following the MKR vesting schedule, any MKR that is vesting in 6 months or less, will be included in the top-up transaction which is added to the executive vote. This will move the MKR from the protocol to the Auditors Wallet, which then acts as an escrow wallet.
    • Following the MKR vesting schedule, after review and approval by the auditors, any MKR that is vesting in 3 months or less, will be included in the monthly top-up transaction that moves funds from the Auditors Wallet to the CU’s Permanent Team Operational Wallet.
    • When the MKR has vested, it is paid out to the contributor, either directly or through an intermediate payment processor.
  • Any excess MKR in the Auditors Wallet or the CU’s Permanent Team Operational Wallet will be returned to the protocol, following the monthly payment transactions.

This payment implementation makes no assumptions about the origin of the MKR. It can either be moved from the protocol’s treasury, newly minted, or obtained from another source.

The MKR that’s held by the Auditors Wallet and the CU’s Permanent Team Operational Wallet will not be used for voting or any other type of governance participation. It will remain in the wallets untouched until it moves to the next step in the process.

The CU may consider alternative payment flows compliant with DssVest if the standardized flow is compatible with the vesting schedule and that the risk is deemed acceptable by the team.

Related Documents

2 Likes

Forgive me for the timing here but, shouldn’t your vesting begin when you start working for the protocol and not the incubation program?

1 Like

I agree, core units should only start earning vested MKR once they have been voted in by the community. I think applying rewards retroactively creates a horrible precedent.

Thanks for brining up these questions. MKR compensation remains one of the most tricky topics, not least of all because there is no consensus in the DAO on how to deal with them. In cases like the incubation program, the waters get even murkier and, honestly, it’s everyone’s guess what is supposed to be reasonable or not.

I want to clarify the way we’re thinking about it at SES. And I want to confirm that the Sidestream Auction Services team has followed these recommendations without changes. The ultimate decision is up to Maker governance, but I want to make sure we’re considering the full picture here.

Apologies for the wall of text, but I want to provide all the relevant context. Our reasoning is as follows:

A. What we probably agree on:

  • Without the incubation program, it’s near impossible for an external team without prior Maker experience to create a core unit from nothing. They need to commit at least 3 months between the point where they form the team and decide to go for it (at least one month), post the MIPs RFC (another month), and await the final executive vote (one more month.)

  • This is highly problematic because it means that the growth of MakerDAO’s foremost moat, its human capital, is severely handicapped and will no doubt lose out to other more competitive DAOs in the long term. Moreover, core units that minimize the time invested in preparatory work have a higher chance of failure, or often don’t follow best practices.

  • As such, we created the incubation program as a more attractive route for entirely new teams, for example Sidestream, as a powerful mechanism for entire teams to join the DAO and be set up for success in the long run.

B. What SES recommends to incubation teams:

What is the deal we recommend teams pursue with the DAO?

We want it to be a good deal for the DAO in that (1) it requires a clear commitment from the team so that we grow our moat of loyal DAO participants and (2) it delivers quality and results in a core unit that delivers real value and follows best practices.

At the same time it needs to be balanced, that’s the point of the program. It should not be so risky that talented teams turn down the offer. In other words, it has to be reasonably close to other engagements that the team does not pursue, that is to compensate the opportunity cost.

So we structure it as follows:

  1. During the incubation program, the team will receive guidance and feedback from SES to help them identify a core unit scope (mission, vision, strategy, roadmap) that makes sense for MakerDAO, and we’ll support them only as long as they meet our quality criteria (following best practices.)

  2. The team shows commitment by adhering to our standards and by working (for months on end) for a discounted rate (compared to other engagements) throughout the incubation program.

  3. SES of course cannot guarantee that the core unit will be accepted by governance, so clearly there is a substantial risk that the core unit will never graduate from the program.

  4. If the core unit fails either the SES filter, or the governance filter, that is the end of it, and this is a risk that the team should be willing to take if they want to join MakerDAO.

  5. If the core unit graduates, this is seen as delivering a first milestone. It means they followed through on their commitment and worked through the entire program, hoping that they’ll get accepted in the end.

Now, because the MKR retention program is all about commitment, the vesting date is defined as the moment that the team committed to join Maker (while the DAO from its side only commits months later during the ratification polls.) This is no special rule for incubation teams, the same criterion is used for everyone (according to our model.)

For the reasons mentioned above, we think that it indeed shows commitment to join a program for months while working on a relatively risky project for a discounted rate, while foregoing other opportunities.

As such, it seems reasonable that the teams vesting date starts when they first joined the incubation program. This definitely makes the program a lot more attractive. But we want it to be attractive in order to stay ahead in the war for talent.

C. Is this a good deal for the DAO?

SES believes this is a reasonable deal and wants to defend it, because we highly value the capability of the DAO to onboard talent into the ecosystem. Once again, as long as the teams provide real value, this will grow MakerDAO’s moats and keeps us competitive in the long run.

Think about it this way: how many talented teams do we want to risk foregoing the incubation program to join a DAO with a much lower barrier to entry, for the profit of saving a few months MKR vesting? Our assessment has been that it’s better to err on the side of onboarding more teams, definitely at the time when Sidestream joined. (I do however recognize that this equation may change over time.)

Of course, this fits within a certain strategy and it may well be possible that MKR voters or delegates disagree with the strategy, or even just slightly want to tip the balance towards requiring more commitment for the same value.

The next question then becomes whether it’s the right move to block this particular proposal, or if it’s better to change recommendations for future core units? If the DAO wants to avoid adding unnecessary risk for new joiners (by turning one down that followed recommendations), the latter may be the better approach.

D. Closing points

  • One more thing to keep in mind is that the Sidestream Auction Services core unit has already produced real tangible value. They demoed this on the G&R call last week. This is one of the expectations that we have for core units that join the program: they need to hit the ground running, as we put it.

  • It’s also useful to take the changing landscape of the DAO into consideration. Today we have multiple core units up and running. New teams who are at the beginning of their journey at least see that many have preceded them. Back when Sidestream joined the incubation program, things were a lot more uncertain. This is one argument for tightening the rules in the future rather than turning down CUs that already went through the program.

  • Lastly, a clarification to address the (slightly unrelated) point that PaperImperium has been making elsewhere: the MKR retention bonus is very explicitly tied to the commitments of individuals, not teams. If one Sidestream team member leaves the core unit and another joins, the MKR vesting resets for the new member. We’re very explicitly renting long-term brain space here because it’s the experienced Maker contributors that deliver the greatest value. It’s most definitely not a team performance bonus.

8 Likes

@wouter First off, thank you for writing such a detailed response. You have actually changed my opinion. I look forward to seeing this proposal go through the formal governance process.

1 Like

Thanks for your thoughtful and detailed response Wouter, as always.

FWIW, this is the crux for me. Avoiding precedence that there is any favoring. Also, I didn’t intend to block, was just running down the budget and got curious to see why. sorry @danik if I added any stress!

Maybe we can suggest that the vesting is bumped upon acceptance into working for the protocol? Sort of a bonus multiple?

So an aggressive first year or shorter cliff when folks are hitting the ground running through incubation might work. That might also lead to more strong candidates entering the program as well which helps SES source new teams.

2 Likes