Pre-MIP discussion: Incentives to align interests of Maker workers with MKR holders around burning MKR

This is a Pre-MIP discussion and poll to gauge interest…

I have posted elsewhere the core concepts of this basic idea which is pretty simple.

Take some portion of the MKR slated to burn via a flap and use it as an additional reward to align interests of those doing the hard work of Maker with shareholders around improving MKR burn.

The mechanics of the idea are straightfoward.

  1. Determine some percentage of the MKR flap to set aside in another account via a MIP14_subMKR transfer to an account accumulate this over a time period T
  2. Determine the reward metric and distribution(s):
    Examples:
    • A% to be divided and go with sourceCred xDAI rewards during the monthly payout over the timeperiod T. I’d like to see github perhaps included in sourceCred on this btw and have the grain go 1/3 to forums 2/3 to github. (NOTE: I want core people who get a lot of cred to be the key receivers of this bonus but others who are not to as well. It may be their job to be here but they should also get some MKR tokens to vest for their work)
    • B% to be divided between domain groups to be distributed as they see fit internally
    • C% for a monthly or quarterly Maker exceptional contributor/contribution award(s)
    • D% to be divided for other interesting possible stuff
      • rewards for vault holder participation
      • rewards for top MKR governance participation
      • closing out a large vault after paying at least M DAI in interest.
      • a general Maker Vault lottery system (say for vaults over some active borrow amount or interest paid amount)
      • a Maker bug bounty or contract error finder reward.
      • other stuff others think of.
  3. Mechanics so all of these rewards end up in
    • DSSChief with their respective MKR delegated to the owners wallet
    • vested for at least 1-3 years where anyone can execute a vesting release once it becomes executable.

I believe doing something like the above will better align the interest of people working at Maker with the interest of MKR holders. The vast majority of good companies offer employees or people working for the company stock rewards or stock options. Here rewarding people for positive contributions beyond a monetary value and including all the people now who are under salary from sourcecred rewards to actually earn some well deserved MKR bonus adds positive incentive. Making this reward tied exclusively to MKR burning aligns incentives to increase burn for everyone working to improve Maker.

The bonus of this suggestion is that as MKR burns we end up with more MKR in DSSChief with people that are the MOST likely to vote with it and the people who, other than MKR holders, may have the most to lose if Maker doesn’t succeed. We potentially get more people into governance directly. In fact we can even reward these people for voting, and have that MKR vest just like the rest. There will be a reason to vote again but it won’t be because they will get DAI immediately but because they get MKR that in 1-3 years they can withdraw and put in their warchest or sell for DAI.

I almost can’t count the reasons to do this.

The few I can think of against is that it decreases the total burn by A%
MKR is too precious to use as a reward - force everyone to buy it like everyone else. Others I am sure will think of more.

As this is a pre-MIP discussion I am only going to put up a simple poll.

Do you think Maker should persue diverting some portion(to be determined later) of MKR to be burned, and use it as an extra reward for Maker Contributions and work?
  • Yes
  • No
  • Abstain

0 voters

1 Like

We’ve had this discussion before, but how would this differ from paying for those things with DAI from the surplus buffer instead of waiting for FLAP auctions. It’s essentially the same thing but allows users the choice to convert to MKR if they wish.

Pros - less slippage, more options, stable value.

I’m of the opinion now that we should just scrap FLAP auctions, make the surplus infinite and use that capital to do as we see fit. Thoughts?

Edit: In before taxes.

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While I like to reward people with MKR (to give them stake in the game) it also seems that, for simplicity, it is more efficient to pay them in DAI.

Very often, simple = good.

2 Likes

Answering this separately:

I agree with this. There is no urgent need to burn MKR. In fact, even more with the introduction of the PSM, I think it’s best to increase MakerDAO reserves in cases something unthought (cf., @mrabino1 's questions during the last Maker call) happens.

Hey @Aaron_Bartsch! Yeah we have had these discussion before. I agree on the whole slippage concept.

The difference here is the MKR vests for 1-3 years and ends up immediately in DSSChief connected to people who are known contributors.

I completely agree we should make the surplus infinite. I have another post I am working on about taking that capital in the surplus - grouping with USDC that we are going to liquiditate - drop it on curve to provide liquidity for stablecoin trading and then just pull a piece of the LP profits to use as the slated funds for MKR burn. This way literally we build up a massive treasury that burns MKR with the return say everytime when network tx costs to do a Uniswap MKR-DAI or MKR-USDC or whatever are <.1% of the total value of the MKR that is to be burned.

This would make for a very tiny burn relative to cash flows though but I like it conceptually. IMO I think this whole hoard MKR idea to make it valuable is kind of flawed. What we want is a healthy MKR flow and an amount that steadily declines. Make MKR valuable by what you can do with it and what it is earning in revenue, not because you just sit on it doing nothing.

In general I agree with you (I often do) that right now we should just be building a surplus to heaven. If I was going to change anything I would say to put it so that we flap at a rate of 1% of surplus over 1% of DAI outstanding.

So right now with 1B 1% is 10M DAI. I would not even try to flap until we are over 10M DAI and even then I would only flap when the price of 50MKR is 1% of the amount OVER the 10M which currently would be around 11M.

I also would like to see us pull money from surplus into a treasury. But for now I want to see surplus larger and growing. If i have my numbers right we are going to flap again here in what 4-5 days with a profit coming into the system of 1.25M/month give or take.

I think this should only be done if the MKR is locked and they cannot unlock it for a number of years.

Otherwise some will just sell immediately.

One interesting option (needs some smart-contract work) is to introduce futures.

For example, MKR1Y is a token that matures (i.e., can be turned 1:1) to a MKR after 1Y.

Governance could decide to sell, to people with enough cred, MKR1Y tokens at a particularly good (i.e., discounted wrt current MKR value) price.

This would:

  1. reward cred-holders, i.e., active members of the community -> They have access to discounted MKR
  2. However the MKR they buy is locked for 1Y and this means that their stake in the game is long(ish) term.

what do you think?

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I thought about this. I don’t care about the implementation details just the concept and am asking if people are interested in persuing this at all or do we dump it again.

What hit me most on this idea was a very good alignment between MKR holders and Maker workers regarding MKR burn and with vesting we get people who probably will vote in DSSChief for 1-3 years.

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This seems like a lot of proposed complexity added and before investing in this it is worth making sure that there is actually a strong preference for contributors to be paid in MKR rather than DAI.

2 Likes

Just to be clear:

  1. I agree with @Aaron_Bartsch that payments should just made in DAI, not MKR. Then they do with it what they want.
  2. To promote active community members to use their earned DAI and become MKR holders, I proposed the MKR1Y idea. But this is not urgent nor necessarily the best idea.

Everyone contributing that I see as the key receipients of the sourceCred are ones who are already receiving DAI either by sourceCred or under Foundation grants. I want to see everyone who is active not just get DAI but also some even if small amount of MKR that would vest and be accessible for protecting the hat and general governance activities.

The goal here is to provide incentives to workers to align interests towards increasing MKR burn. I don’t think paying people in DAI has any additional alignment to these people to have MKR burn. Not saying they don’t but people who are earning money to pay bills and getting a little bit of stock in the company are going to have more incentive towards the goal than ones who don’t.

That is the prime point of this idea.

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I also want to add that if it is desired, that we can compensate people in MKR while preserving the token burn model. We can simply mint the desired amount of MKR as needed to pay people while auctions continue to run. This gives us more flexibility in how much MKR we can pay out rather than waiting for it to be collected as part of the flap process and reduces implementation complexity.

Personally I think the flap auction mechanism is core to giving MKR monetary value, and as the value of MKR is critical to the security and insurance of the protocol, I am strongly opposed to seeing them cancelled or drastically changed.

Re: MKR1Y, I don’t see this as being priced much differently from MKR unless you are assuming the protocol won’t be around in one year. Especially if it is a fungible and tradable token. I don’t think this really helps compared to simply distributing MKR directly.

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This is exactly NOT what we want to do. The point of diverting even a small portion of the MKR burn to this is to make people working happy that some MKR from burn is in the pipeline to them. Everyone then works toward increasing burn. Everyone is happy when MKR burns. The whole point here was to completely avoid minting MKR but only diverting MKR coming from a burn cycle into the reward hopper.

No burn, no extra reward plain and simple.

Screw up and Maker has to mint MKR and flop it - the MKR they are vesting goes down in value. a kind of punishment for collective bad work.

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MM (and perhaps for others), do you all think DAO workers would prefer to be paid in Dai, MKR or some combo of both? I’ve never seen this answered anywhere, so I’m curious to know.

I don’t think you’d want to use MIP14 for this.

I’ve heard this argument a lot. And while it is ‘essentially the same thing’ in terms of transferring value, distributing value in MKR sends a different message to those involved in the protocol.

The question boils down to whether you want those working on the protocol to have a monetary stake in its success. If the answer is yes, then distributing value in MKR is a great way to achieve that. Even without vesting, it changes the default from ‘get paid to work on Maker’ to ‘earn ownership of Maker when you work on Maker.’ The second is far more powerful, and as much as you can argue that ‘it’s the same’ (or even slightly less) value being transferred, it feels different to people.

I’m not sure this is a good argument against doing it. Under the current system, all of the MKR is sold immediately, if even some of the distributed MKR remains in the hands of those that have been working on the project, that’s a win.

It actually might turn out better for MKR price as well. If you are distributing 10% DAI to participants, you are only using 90% of it to buy MKR from keepers. If you spend 100% of the DAI buying MKR, and only 5% of the MKR is actually sold by the recipients, then you should have provided more upwards pressure on the MKR price.

This is a good way to align incentives.

This was covered in the SourceCred survey thay can be found here: SourceCred Trial - Final Report

  1. Do you, or would you prefer to receive MKR through SourceCred rather than DAI?

RESPONSE: (16 responses) 3 for MKR, 3 for DAI, 10 for No Preference, of those No Preference votes 3 advocated for 50/50 allocation, and several references made to leaving it up to users

2 Likes

I agree. My biggest concern here is being able to pass something like this through existing MKR holders. My assumption is that most whales are not currently active in governance and so they will see any attempts to subvert MKR burn to other actors as an attack on their value accrual. I think we will have to find a compromising position to allow for everyone to win or else we may never be able to pass these types of policies.

I wish and hope that these people will see that implementing these types of proposals will actually accrue them more value in the long term but I don’t have that much faith in humans being able to think outside of themselves for the most part.

Hello @Tosh9.0

People want to be paid what theu need to live, cover bills etc (and perhaps a bit more if they can of) in DAI but any ‘incentives’ as a bonus to their pay (think stock options or stock here folks) as MKR. The key point on this proposal is that the MKR vests with a lockup. You can vote with it, but you can’t sell it for 1-3 years. Another key point is that I want everyone to get some of this. Not just people who are not working the hardest (everyone being paid under Foundation/Maker grants etc.)

I want people like @amyjung and @LongForWisdom and yes even @s_ben etc. to have a chance even if is through a MKR bonus edition sourceCred to earn MKR they can’t sell but can vote with as well as everyone else. Long is going to earn the lions share of this - he and everyone else deserve to have some small bonus in MKR that they can and will use in governance to get skin in the game.

People can buy MKR and use it in governance at any time, and then just take it away and sell it. This is MKR that is locked up for 1-3 years minimum. It simply doesn’t and can’t hit the markets until 1-3 years has passed.

MKR building in governance for people working positively for the system that can’t sell or got to LP and can vote in governance by these same people.

Hmm. What a concept!

Agree. I just tossed that out there. I envisioned this as it’s own MIP with two parameters. A percentage of the burn that would be pulled aside and a sub section for the tranche address that would change periodically. There has to be some thought on the mechanics of this to both reduce cost and track the vesting traunches for unlocking. But beyond that - I hope you will co-author the MIP with me if this finds support.

The details we all can work on and talk about (like the % to start with and implementation). Lets just see if we can get past the hurdle of garnering the political support so we all can see the benefit not just with everyone on the ‘happy side’ because people will be earning a bit more. But on the governance side as we get a huge influx of new active voters in governance.

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Thanks – sounds good to me re incentivizing people correctly. I haven’t been around recently so didn’t see the Sourcecred data. Nice that we’ve been able to obtain that info from the community. h/t @LongForWisdom

It’s really not a lot of data to be fair. I think we’d look at doing additional surveys before making any decisions around the issue.