MIP61: Delegate Compensation

MIP61: Delegate Compensation

Preamble

MIP#: 61
Title: Recognized Delegate Compensation
Author(s): Joshua Pritikin (@jpritikin)
Contributors:
Tags: template
Type: process
Status: RFC
Date Proposed: 2021-10-01
Date Ratified: <yyyy-mm-dd>
Dependencies:
Replaces: <List of MIP it is replacing>

References

Sentence Summary

This proposal describes how Recognized Delegates will be compensated.

Paragraph Summary

Governance Facilitators will compute and send the compensation to Recognized Delegates starting from the MIP adoption date with payments sent monthly.

Component Summary

MIP61c1: Definitions
MIP61c1 defines key terms.

MIP61c2: Compensation Formula and Process
MIP61c2 specifies how to calculate the compensation and convey it to Recognized Delegates.

MIP61c3: Examples
MIP61c3 provides examples of the calculation for a few different situations.

MIP61c4: Modification of Parameters
MIP61c4 is a process component that allows authors to appeal to Maker Governance to change compensation parameters.

Motivation

Vote outcomes are largely determined by how well voters are informed. As recognized delegates hold a great deal of voting weight, MKR holders are strongly motivated to encourage delegates to be as informed as possible, deliberate on questions of governance in depth, and engage in discussion with all stakeholders to gain the broadest possible perspective on the questions presented before them to decide. Compensation will help free delegates from some of their other responsibilities. For outstanding delegates, a secondary goal of compensation is to retain talent and prevent poaching of delegates by other businesses.

Specific Goals

  1. Delegate compensation should be positively correlated with MKR weight.
  2. There should be a per-delegate maximum compensation because we do not expect a large difference in performance among outstanding delegates.
  3. Compensation should be skewed toward delegates with smaller MKR weight to encourage recruitment of new delegates.
  4. The compensation formula should discourage zero-sum thinking among delegates. One delegate’s compensation should be as independent as possible from another delegate’s compensation.

Relevant Information

Specification / Proposal Details

MIP61c1: Definitions

  • Recognized Delegates: Any delegate that has been labelled as a Recognised Delegate by a majority of Governance Facilitators according to a public and consistently applied criteria.

MIP61c2: Compensation Formula and Process

A Solution

Goal 1 can be addressed with a linear relationship or many different curves. Goal 3 can be addressed by using an exponential with a factor between 0 and 1 (exclusive). A factor of 0.5 results in quadratic funding. The idea is to distribute compensation proportional to the square root of the MKR weight. To achieve goal 2, we cap the maximum per-delegate compensation.

Parameter Math Symbol Initial Value
Threshold for a large delegate T 10k MKR
Exponential factor q 0.5
Maximum annual compensation per delegate C 48k DAI

The formula is C*min(1,MKR^q/T^q).

Action Plan

Rates of payment need recalculation only when the amount of delegated MKR changes. A rough approximation is obtained by recalculating only at regular periods (daily or weekly). Governance Facilitators shall look for changes at least daily and include the DAI transfers as part of an executive vote once per month.

Compensation Eligibility

Governance Facilitators track participation and communication metrics for each Recognized Delegate. In order to receive regular compensation, Recognized Delegates must maintain a minimum percentage on each of these two metrics, namely:

  • Participation is required to be at least 90%.
  • Communication is required to be at least 90%.

These requirements and metrics may be adjusted in the future depending on the number of Recognized Delegates, the resources available to the Governance Facilitators, and feedback from the delegates themselves.

MIP61c3: Examples

Suppose the parameters are set to their initial values.

With 100 MKR delegated, the compensation is calculated as C*min(1,100^q/10000^q). This is C*10/100 = 4800 DAI per year.

With 6772 MKR delegated, the compensation is calculated as C*min(1,6772^q/10000^q). This is C*82.29/100 = 39500 DAI per year.

Compensation can be visualized by plotting the amount of MKR delegated against the compensation formula,

Rplot

MIP61c4: Modification of Parameters

The parameters that can be modified are:

  • Threshold for a large delegate
  • Exponential factor
  • Maximum annual compensation per delegate

Recognized Delegates are potentially conflicted in consideration of these proposals. There may be a temptation to approve increases in compensation and vote against decreases. Hence, a Signal Request is required to assess broader community sentiment and spotlight any positions on the MIP61c4 proposal staked out by Recognized Delegates. Sunshine is the best disinfectant. The Signal Request Poll must be posted at the start of the Frozen Period.

MIP61c4 subproposals have the following parameters:

  • Requirements: 7-day Signal Request Thread, passing with 51%. If the Signal Request fails, then the proposal does not proceed to the Governance Cycle.
  • Default Feedback Period: 1 month
  • Frozen Period: 1 week
  • Governance Cycle: Monthly
6 Likes

Thanks for all the work you’ve put into these delegate compensation plans. Compensation is never an easy topic to discuss and I think (Recognised) Delegates need to get paid in order for this to work.

I’m curious to hear more from the delegates themselves but in order for delegation to be an effective, I think we need to create a situation where:

  1. Delegates don’t worry about gas.
  2. Delegates don’t worry about legal/regulatory risks. This isn’t to say delegates shouldn’t be concerned with legal/regulatory risks; only that we’ll have a hard time finding and retaining good delegates if they’re worried about going to jail.
  3. Delegates are able to justify the time needed to effectively evaluate proposals. In other words, if we want good work, we have to pay for it.

Ignoring Gauntlet, because they haven’t been delegated MKR or voted yet, the Recognised Delegate with the least MKR currently holds 66.75 MKR. What if we set a floor and make any Recognised Delegate with at least 50 MKR eligible for a “base salary” and use the curve to allocate additional compensation?

I’m not sure what to propose as a minimum for dealing with gas so I’ll throw out 50/week as a starting point. Legal fees can easily run from 300-600/hour. Assuming a delegate wants 5 hours/month of consultation, we’re looking at 1500 - 3000/month. If we stick with the low end of these estimates and kick in 1000 for their time, we could start at 2700 or just round up to 3000/month/delegate as the base.

@seth Do you see your base compensation proposal as independent from the proposed MIP? If so then perhaps it could be pursued independently and does not hinder or advance the current proposal?

It could be independent if the DAO wants to consider things that way but I’m just sharing feedback. I think it’s ultimately up to delegates to let the DAO know what they want and need with regard to compensation so I don’t feel like it’s my place to make a formal proposal.

To be clear, I don’t mean to suggest that you shouldn’t have submitted this MIP; like I said, I think it needs to happen and am glad to see the discussion.

1 Like

Posting here because it’s relevant. $100-$500/hr pay at Aave is about to purchase hours from one of our delegates + one of our important risk assessment personnel.

Given we all have 24 hours in a day, Maker needs to find ways to retain the full attention of key personnel, even if it’s just extra hours. People will follow the money, and you can’t blame them one iota.

6 Likes

This Aave Risk DAO is relevant, and MakerDAO can just cut and paste it (and probably should).

This is about delegation of work (and payment for it), not delegation of voting.

Governance selected individuals for a quarter term, 5-10 hours per week, $100-$500/hr (skills based, avg. $200), 10% re-hire bonus, success metrics for doing risk based work.

It’s the entire opposite end of the spectrum from a voting delegate.
It’s narrowly focused work that voters are funding people to perform.

1 Like

Could we also post something in here that shows how this works out for the existing delegates? Not as part of the MIP, just as an aid to help people understand how it breaks down.

We need to include some minimum requirement with respect to communication and participation metrics here, otherwise this is very abusable.

I would recommend >90% for both, that leaves enough leeway for unavoidable absences / accidents while still ensuring the delegates maintain a good standard.

1 Like
delegate per month
monetsupply 679
Flip Flop Flap 3255
MakerMan 118
Field Technologies 4000
Tim Black 404
Planet_X 4000

These numbers are taken from the lower block of Delegate Reward Proposal v2.0 - Google Sheets

3 Likes

If I recall correctly, @blimpa suggested that I remove the definition of Recognized Delegates and leave that to Governance Facilitators to define. @blimpa can you comment?

I did find it a bit odd to have that one definition there, which I also found to be prescriptive in tone, since delegation had been worked outside of the MIPs Framework. I suggested to add a reference to the forum post Delegation and MakerDAO.

I don’t think that removed definition made any reference to minimum communication and participation metrics though, but I might be wrong.

I actually suggested that that go in. In an ideal world it would be defined in the MIPs framework itself. Given that no one has done that yet, the best way to define it is to refer to the governance facilitators. In practice it’s accurate, and is more or less the best we can do in the MIP.

The alternative is not defining it at all, which I believe is worse.

Minimum comms and participation metrics don’t define Recognised Delegates, but they do need to define who gets compensated.

Hey bud your numbers need to be updated – some of the Delegates have been allocated a little more MKR to their respective delegate contract.

Added goal 4:

We certainly don’t want delegates wasting energy trying to sabotage other delegates. In contrast, let all flowers bloom. :sunflower:

Since there already is a maximum per delegate compensation amount, is there a limit on how many such delegates there can be and/or a maximum total compensation amount?

Note that depending on what parameters you choose, this doesn’t necessarily mean zero-sum thinking (which I agree should be avoided) with the number of delegates right now.

No, it is in the hands of MKR holders how many delegates to delegate to. The only limit is imposed because there is a finite amount of MKR.

Originally I was thinking that there should be a parameter for the maximum total comp summing across all delegates. However, this parameter could be updated by vote anyway so why not just let MKR holders determine the parameter by how they delegate. It seems more direct and simple.

Maybe this was discussed further elsewhere and you can point me to it if so but the last post here seemed to propose a maximum of 10 well-compensated delegates. EDIT: I see LFW’s proposal on the spreadsheet now.

My two cents on this is that I prefer your original line of thought. Either a maximum number of delegates or maximum total compensation would be a good thing as it provides an additional safeguard on the total expenditure, even if it adds some complexity. This is a parameter that can be updated by MKR holders, if required.

1 Like

Yeah, that’s correct. There hasn’t been much debate on this decision. @LongForWisdom proposed the simple compensation scheme in the current draft. I decided that I liked it because it makes delegate compensation more independent.

I’m not sure how strongly you feel about this change. MIP61 is pretty much certain to pass once it is up for a vote, regardless of the details. If we need to go back and debate this detail then what process would you propose? Informal poll?

1 Like

I agree - this point is very unlikely to affect whether it passes or not.

It was sort of polled in your original thread and had 50% abstaining and the next highest option selected was 10 delegates. But I think things were a lot less clear back then when the question was asked and participation was low. I’m not sure what the appropriate process is here. Maybe @LongForWisdom or @prose11 can suggest an appropriate course to take.

I personally think including a cap doesn’t have any downsides and is a good safety feature to have so it’s more of a suggestion from my point of view.

Well, if we had 11 delegates then they would find themselves in a situation where persuading one of the delegates to resign and drop out would increase the compensation to the remaining delegates. That is an unpleasant zero-sum game dynamic.