MIP53: The MKR Compensation Guidelines

I know this was not an easy task, and I have a lot of gratitude towards those willing to paint a target on their back by taking this on. That being said, after taking some time to think closely about this, and after some private discussions with a number of stakeholders, I think we need to start over.

I cannot really understand why every single CU would receive MKR. I understand that we want to reward people for their work, but Maker is likely to have the DAI to pay its CUs, who themselves can distribute them amongst their employees/contractors. MKR – particularly future MKR is worth far more than a standard total compensation package for many roles included in CUs. While I find the metrics a bit conservative to what I would value MKR at, I will direct you to the wonderful model that @Aes built just so people can play around with their own assumptions.

Are we really sure that the lowest-paid full-time-equivalent in any CU outside of Shop needs $30,000 in compensation for the next year’s pay on top of any DAI they draw as salary? After some discussions with large MKR holders, and more to come next week, I cannot see the logic in this.

MKR as a currency for compensation should be reserved for those CUs and individual roles that we need strong alignment of incentives. Namely, the points in our workforce that can make/break the protocol in material ways. Protocol Engineering is an obvious one, as is Risk, and Oracles. CUs where they could literally break our business need this kind of minimization of the principal-agent problem. There are also CUs that can materially improve our business – RWF and Growth – that MKR compensation is appropriate, but only if tied to performance.

The guidelines proposed above would dilute current MKR holders to the tune of nearly 1.3% – annually. In today’s prices, that is $46 million in additional expenses. If there is price appreciation – and we all hope there will be – that number will balloon. In a standard financial statement, that would be a line item expense. Just because we would not be paying DAI does not make that expense any less.

That is almost 30% of our estimated profits for this year, and >24% of our revenue. If Maker were a publicly traded company, there would only be three large companies on the NASDAQ or NYSE that pay out a greater share of their revenue in stock – SNAP, UBER, and SNOW. Note that those are all unprofitable or only marginally profitable companies, and they need the currency of their equity to meet compensation expenses. Maker does not at present have these issues.

That kind of wholesale payment of contractors/employees with our governance token is not appropriate for a cash-flow-positive, profitable enterprise. If people need payment – even extremely large payment – it can be done in DAI. MKR should be reserved for incentive alignment, and if we are all being honest, not every person doing the DAO’s business is so mission critical that they need more alignment than a steady paycheck.

I do not have an alternative proposal for exact amounts of MKR to vest with any particular unit, but I will strongly suggest that any CU whose allocation is not zero needs to be thoroughly justified. I am not aware of any large, profitable enterprise where literally everyone gets the equivalent of stock (not even options!)

As this proposal stands now, and after some lengthy discussion with both large MKR holders and stakeholders in several CUs, I will be leading opposition to this level of MKR compensation.

Thank you to everyone who worked on this proposal who probably already had to deal with many contentious discussions – you had a nearly impossible job, and exceeded expectations.

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Sorry Sir, but if you want folks to Not get Equity in something they are passionate about–you’re in the wrong Sector. These Folks deserve and have a RIGHT to MKR equity, IMO.

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

EDIT: BTW, the idea on this Amazing Tech is to get rid of the Carl Icahn’s of the world.

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No one has a right to $46 million without a little push back. The DAO has a problem with treating large financial outlays nonchalantly. Yes, this information was in plain sight for anyone with 5 minutes and pencil and paper. But not only is this expense material to our earnings, it would more than double current expenditures for the year – all without even acknowledging that fact.

The main quarrel is with the level of MKR compensation expenditure. If MKR appreciates significantly, it could be a larger expenditure than our total profits. My own feelings – and of several with whom I have discussed this with – are that it’s less important how MKR gets distributed than it is about reigning in expenses. A secondary point would be to tie MKR to milestones when possible, to make them performance based.

That said, I do not personally have the MKR to move a vote in any direction, so I would direct defenses of distributing MKR to the tune of 30 cents on the DAI we are projected to earn (in today’s MKR and today’s profit estimates, both of which will surely rise) towards those who can. And at least some of them are unsatisfied with how casually large expenses are treated in general, and that the largest expenditure to date would not be clearly marked as such.

In general, there perhaps needs to be some kind of reminder when presenting this kind of large expense to clearly state an estimate of how much that will be. In this case, there is not even a highlighted total MKR line. While I’m sure that’s an oversight and we can all do addition, engagement with this kind of dense reading does not appear to be very high, and people skim. A proposed expense of $46 million in today’s prices – which are well off the highs and I think we can all agree represents an under appreciated value – needs to be clearly marked as such and discussed with that in context.

To reiterate, I will be campaigning actively against this level of overall MKR compensation on an annual basis. It should not be this high, it should not be connected to headcount instead of to the individual units, and it should not be 100% divorced from performance. I do not think this will pass in its current form, and recommend revision – with the total expenditure being the real intractable issue, and all other details considerably less important.

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I’m having a bit of hard-time understanding–are you saying that the DAO should implement what some traditional folks use/call, “Performance-based options”, versus timed-based options? If you are referring to “performance-based options” please remember that MKR price has to appreciate for the “option” to be worth anything and then the performance condition has to be achieved before the option can be “earned” or exercised. With that in mind, you and I both know this is an opaque industry with a lot of headwinds ahead. Hence, it’s a startup–and All of DeFi is full of startups–past performance is not indicative of future results.

EDIT: Also, what performance measures will be used? Financial measures (revenue growth, earnings growth, return on capital), operational objectives? This is hard to determined in a volatile industry. But what do I know…

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Speaking of the man himself:

[Once likening cryptocurrency to the 18th century Mississippi land bubble that led to the collapse of stock markets in Europe, Icahn now appears intrigued by cryptocurrency’s potential.

“I’m looking at the whole business,” said Icahn, referring to the crypto industry.](Billionaire Carl Icahn Eyes Potential $1.5B Crypto Investment)

OK.
You are probably aware of that Protocol Engineering budget passed so the question is more the level of compensation, not compensation as such.

Performance based compensation was discussed in the working group, but the problem lies in the practicality of execution. Growth CU can’t really brag about their business development work if they work under a non-disclosure agreement. Oracle CU can’t be judged purely on the number of number of oracles they onboard, there are cost and quality issues that must be considered. If Protocol Engineering’s performance is measured in the number of ERC20 collaterals onboarded then work on L2 bridges or RWAs could suffer. All in all Maker’s present organization is likely much too young for performance based compensation. Feel free to disagree.

Ah - my bad. Will fix.

I welcome your opposition! I have already some thoughts about revision - for example the proposed 3-month lag before a new CU can apply for MKR compensation is probably much too short.

You feel the amounts are too high? Yes - they are high. Yes - that is a lot of money. But I feel this MIP “both fulfills the requirement of offering globally competitive compensation for critical Core Units, but also seeks to reward all contributors with a share of the Maker protocol.”

The best ting for the whole community would be if you and your like-minded companions got together and ironed out a counter proposal including argumentation. Then we simply vote on it.

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That is absolutely correct. I can’t speak for others about a specific level, but a total pool of MKR that is distributed to the CUs — who can internally decide its per-person distribution— seems the best course.

So while I know it is unhelpful not to have a number to counter with, this one is too high. Also, it should not be based upon headcount, as then there is an incentive for a CU to accumulate extra bodies in low-level positions as a means of being assigned more MKR.

Lower overall expenditure is the main suggestion. This would more than double proposed expenses for the year. That seems too high.

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@PlanetX could you clarify a few things or point me to the right place if you’ve already discussed them:

  1. The MKR tokens for compensation - according to current projections, are they expected to come from minting new tokens or from the profits we make or elsewhere (e.g. the 84k in the treasury)?

  2. Would you mind adding to your table (if this information is known) the compensation in DAI on a per person basis in each CU?

  3. It might also be worth adding some information about the last known Foundation-era budgets for each of these CUs as well as how many staff they had back then. This would give a much better picture of average compensation rates before vs how they are expected to be according to our plans for the future.

About this comment

I thought the Protocol Engineering team budget (including MKR compensation) was already fixed since the vote passed. If so, is the level of MKR compensation under discussion only for the remaining CUs?

Thank you!

But it is not. (Yet?) We compete in a crazy crypto space for a scarce labour supply. Some labour is worth every penny to us, some may be unnecessarily overpaid. Who’s to decide? While this is the case now, it will definitely change as time goes on, so I’m wondering what you would consider competitive and fair compensation?

I think it’s essential to have a guideline for MKR compensation for the Core Units. Still, before setting a guideline for that, we should find a way to coordinate the work between CUs and the community, and I would like to use the MKR compensation to incentivize every participant of the DAO to go in the same direction.

I understand it’s more practical to create a framework based on salaries (SES proposal) or a fixed number depending on the CU’s tier (working group proposal). But, I would prefer to set clear objectives for each CU and align those with the goals we have for the DAO before defining how to manage the MKR compensation.

Right now, the DAO needs more CUs: regulators CU, marketing CU, UX CU, processes CU, Maker for institutions CU, innovation CU, growth CU #2, smart contracts CU #2… I don’t think this proposal will help the DAO with the creation of more CUs. Actually, if the incentives are around retention, this will increase the number of contributors in the existing CUs. Therefore, I’m not sure retention is what we should look for as a DAO, If someone is looking for career advancement or is not satisfied with the strategy of the CU I would prefer to incentivize that person to create a new CU.

If we decide to move forward with this proposal, I think the tier structure could be improved by having a point system to evaluate each CU and include everyone -even the CU- to define the tier where they belong.

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Revisions 2 June 2021:


Updated with total MKR line as per @PaperImperium request.

  1. MIP53c3: Recommended best practice
    The minimum 3-month gap between core unit approval and MKR vesting application changes to 12 months. The sums involved make conservatism necessary.
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I do not have any information about this - sorry.

Well the intention is rather that MIP53 overrules other MKR vesting proposals so that people know they are included in a MKR vesting program without spending endless hours creating and justifying their own proposals.

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I see nothing really wrong with what you are saying here - this issue is one of ease of implementation. While far from perfect, I feel the proposed MIP53 will get the job done, albeit at a somewhat categorical level. This is also why 2025 is set as a preliminary end to the program as crypto moves so fast and Maker is evolving quickly - the situation a few years from now could be quite different.

Fortunately for us the blockchain is immutable so there are breadcrumbs out there…

Through 2019 it looks like the foundation used the following multisig wallet as a developer fund
MultiSigWalletWithDailyLimit, MakerDAO, Developer Fund, MultiSig, Maker
https://bloxy.info/address/0x8ee7d9235e01e6b42345120b5d270bdb763624c7

Now what is interesting is in October of 2019 the Developer fund transferred 51,290 MKR to another contract that has a time lock on it and limits the contract owners to only withdraw upto 5 MKR a day.
(Contract)
This time locked contract still has 23371 MKR in it and there are addresses which actively do withdraw their allotted balances from it.
https://etherscan.io/address/0xfc7e22c6afa3ebb723bdde26d6ab3783aab9726b
(Transaction)
https://etherscan.io/tx/0x5ae2682f29621cdf62e635e5656245c16e9e57226e9b8121228ca67b9e3c0745

I would be interested to know if any CU are double dipping between their prior agreements and the future compensation guidelines we are discussing.

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Dear Community,

MIP53 is to a large extent my work, but after giving it some serious thought I am withdrawing the proposal.

Why?

First and foremost I fear MIP53 will create social stratification between Core Units that could be highly unwanted over the next couple of years. Second I fear onboarding new core units could become more problematic and I suspect differing compensation levels will make CU scope changes more difficult, lessening the Maker ecosystem’s ability to make necessary changes.

I know I probably look pretty stupid since I was involved in shaping this proposal, but I am prepared to swallow my pride on this one.

MIP53 is hereby withdrawn.

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It’s times like this, when someone changes their mind based on progressing insight, that give me the greatest confidence in this community. Lots of respect for a difficult decision after putting so much work and effort into this.

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Doesn’t look stupid at all to me. I think it was definitely worth trying to come up with a framework for this. We could not have seen the issues it caused without trying to come up with a framework in the first place!

Thank you for your efforts towards this, even if it didn’t work out. Maker is stronger as a result of your work.

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I am very impressed by that message. Especially as a long-time community member you’re helping create a culture that welcomes changing one’s mind in public. Thank you.

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We, as a DAO, are on this discovery journey that I believe no one has all the answers figured out yet. Thank you for all the work you have put into this.

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Don’t worry, it’s a long road of trial and error, of testing.

Thank you for your work and for being aware of those possible flaws and attacks, rather than swallowing your pride, it is to have a cool head to be able to say it and accept it.

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