MIP42: Proposed Compensation Addendum for MakerDAO Contributors

MIP42: Proposed Compensation Addendum for MakerDAO Contributors

Preamble

MIP#: 42
Title: Proposed Compensation Addendum for MakerDAO Contributors
Author(s): @aburban90, @kevinwildenradt 
Contributors: n/a
Type: Process
Status: RFC
Date Proposed: <2021-01-20>
Date Ratified: <yyyy-mm-dd>
Dependencies: n/a
Replaces: n/a

Sentence Summary

MIP42: Proposes to pay contributors partially in time-locked MKR to increase value returned to contributors and directly align their interests with those of MakerDAO.

Paragraph Summary

MIP42 attempts to ensure the incentives of contributors align with the interests of the MakerDAO protocol and further decentralize the DAO. It seeks to do this by allowing contributors to receive compensation for their work in part with time-locked MKR. The escrow period provides time for a contributor’s efforts to manifest and generate value. Contributors will have every incentive to continue to invest in the success of the MakerDAO Protocol throughout their vesting schedule.

Component Summary

MIP42c1: Current Pay Situation

MIP42c2: Proposed Solution

MIP42c3: Issues

MIP42c4: Alternative Implementation

MIP42c5: Value Add

MIP42c6: Final Thoughts

Motivation

Not everyone in DeFi is a whale and contributing to projects purely out of passion. Many contributors rely on their DAI income for their everyday bills and living expenses. In particular, as the pioneer and industry leader in experimenting with decentralized employment, MakerDAO focuses on bringing new people into the DeFI space. One way is through gainful employment, offering pay and benefits analogous to those offered in the traditional world.

Many contributors that join MakerDAO also believe in the project and its future, but they cannot afford to have a vested share in its prosperity. They cannot afford to buy MKR on the market and vote. They cannot afford to have a portion of their pay distributed as MKR, which they may find they need to sell on the market to supplement their income. Nevertheless, their voice is still important, and they should have a vested share in Maker’s future.

Specification

MIP42c1: Current Pay Situation

Contributors, in particular, Comm-Dev contributors, are currently paid based on pre-determined salaries and project budgets. They receive DAI upon submitting an invoice.

MIP42c2: Proposed Solution

In addition to their standard compensation, contributors should also be paid MKR to incentivize participation and reward them for their contributions. We suggest a tentative but flexible 10% bonus to their invoice, to be paid as veMKR.

  • Note: The bonus need not be a fixed value. It may be best to determine it on an individual basis based on a given contributor’s personal preferences and the value their work proposes to bring.

Simply minting and distributing new MKR creates the potential for sell pressure on MKR in the market. It also does not necessarily incentivize contributor participation.

veMKR would be time-locked MKR, vested over a given timeframe. There should be an open discussion to determine how to best maximize value.

Like veCRV, veMKR would be claimable as MKR at the end of its time-lock.

Holders of locked veMKR will be able to participate in both Governance Polls and Executive Votes. Their veMKR would not be transferrable until the time-lock expires.

veMKR should not be minted by the MakerDAO protocol. Instead, domain teams will adjust their budgets to account for a 10% (or whichever agreed upon value) allowance for these veMKR distributions.

At the time an invoice or payment is settled, the protocol will buy MKR using the domain team’s budget on the open market with DAI, convert the MKR to veMKR, and distribute it to the contributor in addition to their standard pay.

MIP42c3: Issues

Understandably, to carefully and securely develop veMKR as a new token, provide functionality, and add a distribution process, is a high overhead task. It will require time, energy, and audits to an already overloaded developer team.

MIP42c4: Alternative Implementation

A simpler implementation to avoid developing something complicated, like veMKR, would be to purchase the MKR at the time an invoice or payment is settled. The MKR would be held on the contributor’s behalf by the protocol and distributed to them at a later date. Voting permissions could potentially be delegated to the contributor’s address of choice via proxy.

MIP42c5: Value Add

In the short term, these distributions will apply constant buy pressure for MKR on the market, but this is buy pressure that is borrowed from the MKR that would have been burned by the protocol when the system surplus is exceeded. In the long term, when veMKR unlocks, the sell pressure may return. On net, this means less MKR is bought and burned.

The value of incentivizing contributors and their work exceeds the cost of not burning those MKR tokens. The escrow period allows time for the contributors’ efforts to manifest and generate value. Ideally, this value will be realized long before their veMKR unlocks. Only later, the contributor will potentially reap the benefits of their work through selling unlocked MKR, if they choose to. This gives them every incentive to continue to ensure the success of the Maker Profocol throughout their vesting schedule.

  • Example: The contributor can propose relative proportions of veMKR and DAI, as well as the escrow period or vesting schedule to reflect the risk the protocol takes in funding the work. For example, tasks with more speculative value add could be paid largely in veMKR, and with longer escrow periods.

MIP42c6: Final Thoughts

As the foundation dissolves and MakerDAO enters its next chapter of decentralization, we believe this change will further align incentives for all those who contribute to the MakerDAO ecosystem. This proposal would increase the decentralization of MakerDAO by rewarding those who contribute to its growth through the investments of their time and labor.

17 Likes

@kevinwildenradt @amyjung @MakerMan @twblack88 @jordan.jackson @Anna @hexonaut @LongForWisdom @Xenofon @Davidutro @SebVentures

(added after my initial comment)
Suggestions:

  • Don’t formally submit this for another 3 months, minimum. As there are many related MIPs that haven’t been passed and implemented yet. As they do get passed, then there will be a clearer picture of the right way to implement this idea. It might be good to create a Declaration of Intent(MIP13/c3) in the meantime. The DOI can boil down the essential idea, and MKR voters can signal they are in favor of it or something close to it.
  • Remove c1, and add the contents to the motivation section instead.
  • Remove c3, the lack of bandwidth of the SC team implies that the actual implementation might take some time, just like other technical MIPs. c3 doesn’t contribute to the core of what you’re proposing.
  • Remove c5, this can also be moved into the motivation section instead.
  • Remove c6, it’s already covered in the motivation section and is just being repeated.

Components have a specific purpose, as outlined in MIP0c4, and don’t function as talking points per se. Components correspond to process or subproposals usually.


(initial comment)
This is amazing.

+points for decentralization
+points for rewarding those that make Maker happen

I think veMKR also has relevance as a multipurpose tool, for example, this could be relevant for the DSSGovRewards conversation that the community is having. Especially since this MIP implies a desire for veMKR to be used in voting before it’s vested.

This is a great first step towards this idea, curious to see how community feedback during the RFC period will affect it. I also think this MIP is early for what it is since so many things are still in the air and being sorted (Budgets, CoreUnit, the KEG,

6 Likes

This.

Applied to voting rewards this could strongly help on good long term decision making for voters. Loving it!

2 Likes

:raised_hands: I’ll second @Davidutro and say this is a welcome conversation as the DAO grows up and it will definitely be helpful to discuss retaining long-term contributors.

However the community shapes the eventual solution, this proposal is adjacent to a couple of other ideas. Like a module for the flapper distributor, or integrated into planning strategic reserves. There is also DssGovRewards which works to solve the “MKR outside of the chief problem.”

One consideration off the bat: open market operations are pretty tricky, @equivrel pointed this out in the strategic reserves conversation too. Link to research about sandwich attack(s).

1 Like

Good job, @aburban90 and @kevinwildenradt.

Good to see initiatives coming from different sides of the Community.

One observation to push this initiative forward: MIPs (especially process ones) are supposed to be evergreen. This means that “Current Pay Situation”, or “Final Thoughts” should not be there.

Happy to go into the details, if needed.

2 Likes

I’m all in for veMKR, this primitive should be interesting but usually vesting is also dependent on the presence of the employee. Not sure it can be put in a smart contract.

MIP42c1 applies to the Foundation, not the DAO, o it’s not relevant here. I think we should stick with the new budget framework. The core unit facilitator can decide how to spend the money (possibility to buy MKR to rewards the contributor.

Some contributors will have no interest for MKR tokens.

3 Likes

This brings me back to one of the motto’s I keep in my low IQ brain: :slightly_smiling_face:

“You are not going to gain wealth renting out your time. You must own equity, a piece of the business to gain your financial freedom.”

3 Likes

I didn’t realize that there was a MIP for this. I’ve already built a prototype vesting contract. It needs tests and a full review, but you can check the preliminary code out at

12 Likes

@BrianMcMakerDAO

This looks great, man. You had this in the works from before? I think we can definitely apply it here.

If I understand correctly, it looks like this contract will be minting new MKR for vesting.
Imo, we should look to acquire MKR on market, or however we currently acquire MKR for burning, rather than minting new MKR - but that can be put to a community vote.
What functionality will IMKR have? Can it vote? Maybe vested MKR could be automatically deposited into the vestee’s voting contract.

We currently acquire MKR for burning from the market and then we burn it. The system was originally designed to be constantly minting and burning MKR. As long as you’re minting less than you’re burning there’s still a net deflation, and market prices can be considered at the time of vest. Adding a new token to the mix seems to add unnecessary complexity when you’ve already got control of the MKR authority.

This design also allows the recipient to select their own taxable event, and you’d want to avoid any sort of automatic payout for that reason. We also don’t want to make any assumptions about how the MKR will be used, any recipient should be using a fresh address for security purposes, so they may not necessarily be wanting to vote with that.

2 Likes

Also, I’ll suggest that the community resist the urge to manage how contributors use vested compensation.

1 Like

@mrabino1 Please refer to here :slight_smile:

there might be an angle where the “rewards” go to a smart contract that is only redeemable by the owner… but (s)he cannot redeem them without the consent of 1 or X other parties. While I am not tax atty, I get the impression that since this is not accessible (therefore conditioned on something else) there might be an elegant way to defer, but not defer accruing.