MIP40c3-SP6: MakerDAO Shop Budget, MDS-001

MIP40c3-SP6: MakerDAO Shop Budget, MDS-001

Preamble

MIP40c3-SP#: 6
Author(s): Coulter Mulligan & Mike Porcaro
Contributors:
Status: Request For Comment (RFC)
Date Applied: 2021-03-03
Date Ratified:

Specification

Motivation

Remuneration for the MakerDAO Shop

Core Unit Name

MakerDAO Shop Core Unit

List of Budget Implementations

None.

However, there will be a 50/50 split in MakerDAO Shop profits, meaning that the Protocol will be paid from the MakerDAO Shop Core Unit.

Budget Breakdown / Items

Team costs

  • $0.00 budget required from the DAO.
  • 50/50 split of profits from the MakerDAO Shop. This appropriately compensates the MakerDAO Shop team for their work while creating a solid revenue stream for MakerDAO.

Operations

  • MakerDAO shop to cover the following expenses, to be recouped before profit share:
    • Product designers
    • Possible vendor fees
    • Advertising/demand generation costs

Grants

  • No ongoing grants requested
  • Potential for additional fees based on one-off community asks and special orders (ex. Community wants custom Gucci robes with Dai logo)

Funding Process

As there is no budget required, there is no funding process needed.
However, with regards to profits, the MakerDAO Shop Core unit proposes quarterly payouts.

Open question: Who is our counterpart in the Community that would receive the profit share from the store? Where is this money being sent?

Budget Breakdown

  • N/A
10 Likes

Well of course I want it now!

6 Likes

Cool idea! I hadn’t considered Core Units being setup on a profit share basis.

If you can get the DAO’s share into DAI, you can send it directly to the protocol. There is some minor fiddling involved given we don’t have a treasury yet, but it’s theoretically possible to add it directly to the surplus buffer.

In the meantime there is the Interim multisig, which could hold the funds and either use them for miscellaneous Maker things, or get it back into the surplus buffer.

Does there need to be a legal entity to whom you send it?

2 Likes

When can I get the cool hat that @NikKunkel has?

1 Like

This is pretty cool. Definitely watching this one.

That’s from some of the swag we created for the Maker Foundation & Events!
It will 100% be part of the store.

1 Like

Will Dai-branded cowboy hats be part of the merchandise?

5 Likes

Formally submitting this MIP set to April Gov Cycle

3 Likes

After listening to the call today, I have quite a few concerns (most of which can be addressed).

Control of Branding

The way it was explained to me, the Maker logo is not something we can grant an exclusive license to, much less enforce. Which I took to mean that anyone with an Etsy shop or Amazon storefront can make and use the logo and brand as long as it’s not defamatory. That means this proposed CU would not have control of branding and messaging beyond being able to call itself the “official” merchandise outlet.

I feel this strongly diminishes the usefulness to the DAO in this relationship, as financially this seems unlikely to move the needle. This proposed CU would not give us significant control over how the brand is depicted in online retail.

Cost to Monitor

As someone else pointed out, profit or even revenue splits demand access to books and an ongoing amount of person-hours monitoring this relationship. I agree that seems unwieldy for the financial payoff, and would much rather see fixed terms – not even per-item but just a flat fee to be the DAO’s “official” merchandiser.

Lack of Guidance

I understand that this is with no upfront cost to the DAO, but surely if you’re going to start a business to operate like this, even part-time, you must have some small notion of how much you can sell and at what margins. Because I would prefer to move to a fixed-fee relationship, this seems less important, but if it’s going to be some kind of revenue share, I would like some ballpark numbers.

Who Is The Customer?

It sounds like this proposed CU is counting on the DAO’s CUs to be major customers for things like convention swag. That’s not inappropriate, but it sounds kind of like we are the customer, and not the hopeful hordes of crypto enthusiasts out in the world. How would that even work with a revenue-share? The DAO gets 50% of proceeds from one of its CU buying swag to give away? This sounds like it could easily shade into the appearance of self-dealing. This can be overcome, but we don’t want the appearance of simply shuffling assets around to look like profits for any part of the DAO or its CUs. That will scare off serious investors and business partners if enough things like that pile up. Reputation is important!

Is This a CU?

Given that this CU cannot deliver firm messaging and branding control – since the IP for the logo and name is apparently not restricted and we aren’t here to license it – this sounds like a tee-shirt/mug/swag vendor approaching us to use our URL and be the “official” shop. That’s fine, but sounds more like a transactional relationship. The official [insert product] of your favorite sports team or band isn’t owned by that team or band. Why not just rent the URL and the “official” designation? Simple, a little revenue for the DAO, no more thinking about it. Because if we can’t control messaging and branding with this relationship, we’re really just dealing with a vendor who needs to differentiate themselves in a market with no barriers to entry. I personally don’t feel the size of the proposal is what matters on whether this is a CU, but rather this sounds more like a landlord-lessee arrangement than a quasi-subsidiary.

Most of these concerns are, I feel, easy to understand and also easy to answer. I’m not against the idea of an official swag shop, but would like to see more attention to the details. I’m sure this isn’t the case, but I feel that avoiding some of these basic concerns would also give the appearance/set a precedent of the DAO being a place to go for deals that are valuable in only one direction. We want to make sure we avoid even the mere appearance of giving out assets to favored parties, even if we know that’s not the case. Reputation again! People will be doing due diligence on us, and it’s always a death by a thousand cuts that I’ve seen reputations deteriorate.

Just because it won’t be material financially to the DAO doesn’t mean we should just give away an asset like a desirable URL or “official” designation without some firm way for that to deliver clear value to the DAO.

To be clear, I’m not trying to bust chops. It’s just that this feels like a first draft, and even a relationship with no upfront monetary cost can still expose us to reputational and other risks. I am fully supportive of the idea, but would feel far more comfortable with more details – which makes sense! Many eyes make for better due diligence.

9 Likes

Thank you for the call and all the great feedback. It’s wonderful to get some constructive thoughts on how to improve the proposal.

We especially appreciate the discussion around the value of making the MakerDAO Shop a CU vs some kind of transactional relationship where the shop rents the URL from whichever CU manages the website. It’s an important topic to explore and we’re flexible to work with the Community using its preferred model.

If the Community deems a transactional relationship to make the most sense, we’d appreciate a nudge in the right direction as to who to chase for that info. Will the Growth CU control the content on MakerDAO.com? Is it the marketing CU? Any guidance will be very much appreciated.

To answer a few of the questions posted above:

Control of branding:

As a CU, we’d be able to work with the Facilitators to understand the most up to date messaging/branding and could create, implement and promote items that are aligned with objectives and goals of the project… across CUs. For example, if there is a big push to recruit devs, we could create (or use) their specific branding and messaging to target that audience.

If it is determined that we should have a more transactional relationship, I’d expect we’d take guidance/feedback from the specific CU with which we are transacting. Regardless, we will always use officially supported logos and imagery, to ensure we’re driving value to the brand and customers.

Cost to monitor:

Part of what we were hoping to achieve from the discussion was a better understanding of the terms and conditions (including reporting) set by the project. It was very clear from today’s call that the simplicity of offering the protocol a set URL rental fee or funds per item sold is much preferred to a percentage of profit or revenue. If this means amending the original proposal, happy to do so.

Lack of Guidance:

To be honest, we have no idea what to expect by way of demand as we have not had a chance to fully launch and promote the store. Based on anecdotal evidence, we anticipate a lot of enthusiasm from the community of Maker and DeFi fans.

The preferred model would be to test our way into the information, which is partially behind the initial offer of a 50% split in profits. As for pricing, we would test our way into the “sweet spot” there as well, using competitive project shops and sales numbers to fine tune the final price.

Our understanding is that all CUs are temporary and flexible, so we anticipated a bit more of an appetite to partner and test to find the perfect price.

Who is the customer?

Anybody who wants to support the Maker project or Dai by proudly wearing branded items. That can take the form or individual consumers, groups, other CUs, partners, investors, event attendees etc.

Simply put, if people want to wear our merch, we want to make it drop-dead simple for them to receive well-designed, great quality items.

From our time at the Foundation, we know that Team/Functional leads loved the simplicity of having the Marketing team manage the process related to getting merch (design, production, shipping, etc). We expect the same to hold for the Community, but there is no expectation for CUs or their teams to use the MakerDAO Shop to get their promotional gear.

Per our note above on testing, we’d pivot our promotional activities based on where we’re seeing demand.

How does this add value? (we added this question)

From a net revenue perspective, it’s hard to see how even the most successful merchandise store will beat other income streams for the protocol, but don’t feel that is the only measure that matters. As a way to drive awareness, drive engagement, and drive goodwill among myriad groups of people (fans, investors, partners, etc) a shop like the one proposed is a proven tactic.

At the end of the day, our proposal for the MakerDAO Shop is intended to create a great experience for people looking to rep Maker and Dai via high-quality branded items. Full stop.

To the question of if this needs to be a CU or not, we’d love to work with the Community to find the perfect model. Based on the information available to us and the feedback we got through the MIP process, we figured this was the best path forward. If that’s not the case, let’s work together to figure out how to move forward. If that means simply “renting the URL” and not being a CU then let’s figure out what that looks like. And who knows? Perhaps the debate and discussion around “to CU or not CU” the MakerDAO Shop will result in more clarity and direction for future teams looking to work with the project.

There’s a lot of momentum for a store like this considering the size and enthusiasm of the Maker Community and the pent-up demand for a shop like this. We (Coulter and Mike) have the skillset and experience to capitalize on it for the Maker project. We’d love to do our part!

Given the significant number of unknown items, we recommend testing our way into the perfect product mix and price points.

If the community feels otherwise, then please provide other guidance for us to do so.

TLDR: The idea of a flat rate to rent the URL is probably the easiest and most straightforward. The shop pays the DAO to use shop.makerdao.com with a 3-month runway to shut down (if voted by MKR holders in the future). So we’d ask the community to provide what that rental number is, and how we need to amend the proposal (if necessary).

8 Likes

@Coulter,

your proposal is interesting but there is the unresolved question about Maker bandwidth to deal with this.

  1. If profit is split 50:50 then we have to check your accounting, including revenue and expenses, determine profit and observe that this is split properly.
  2. If we take a share of revenue we have to check your books for revenue.
  3. If we take a markup on items sold we need to check how many items are sold.

(1) and (2) requires a person with at least a nominal knowledge of accounting. These guys cost money. (3) can possibly be done via the shop website, but again someone needs to be responsible on the Maker side to check and verify this. Maybe not what the majority of us are here for.

How about this counter proposal:
Rent for the URL shop.makerdao.com starts at 0 DAI in the first month. Month after that it is 100 DAI. Rent increases after that by +20% per month. You pay the first day each month and when you are sick and tired of paying you simply stop paying and the URL returns to Maker. This means you can run the shop in any way you want and there is zero deal maintenance on Maker’s side besides checking one address each month which is quite possibly within the realm of reality.

In theory at least this is a very cheap deal when you are starting up the business, profit is all yours. Profit will however start to slow due to increasing rent after two or three years and eventually you are tired of paying and just migrate the whole business to a new URL.

Feedback appreciated.
EDIT: typos

1 Like

So I agree a good deal at start with an escalator is probably the ideal arrangement to both parties. But we don’t want to drive them out of business if this is easy rent for us.

These are absolutely made up numbers and would need to be discussed, but how about 1000 DAI/month with that 20% increase annually? They need visibility in their own business expenses, so either party can withdraw after 60 days’ notice.

Any of those numbers may be the wrong one, but that’s what I’m thinking. I’m also not certain there’s as much market for this stuff as people expect (at least profitably so), so I’d rather find an easy solution to just fire and forget and wish them luck unless we have another use for the URL

At RWF, we spend a lot of time starring at P&L and balance sheets. In this case, it shouldn’t take more than 10 minutes per quarter.

It’s not like someone else is wanting to do it. So I don’t see the loss here. The profit will be no much anyway.

Having a shop would be cool, even just to follow the sales and see traction of the MakerDAO brand.

Let’s treat it as an experiment an see how that flies.

10 Likes

Agreed, if the overhead is small let’s not spend excessive time on greenlighting this, with the understanding that it is absolutely an experiment.

4 Likes