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

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.

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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

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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.

I do not think that Source-cred should lead to any sort of monetary reward. The reward of being part of community is the sense of community and shared common goals. Once you bring money into community driven efforts the it muddies the waters. At that point you would have to wonder who really cares about Maker and who is simply trying to earn some money. Right now I know I can trust LongforWisdom and Makerman, and others bc they are not being paid! But throw money into the equation (esp if it is big money and not chump change) and you are going to attract all sorts. The incentives of such a system just don’t work. It also makes hodling MKR less attractive as their are random folks perhaps drumming up working (bc incentives at play) and sucking off MKR’s teat.

If we want more MKR to vote the solution is very simple and I have outlined it elsewhere. Create a system that allows for:

  1. Delegated voting. You delegate your MKR to a MKR politician. The politician gets a fee from you. The politician could very likely be a person with a lot of Source-cred bc that is who people would probably trust.

  2. You can also vote manually. If you vote manually you do not have to pay a fee.

  3. You can choose not to delegate your vote and not to vote manually, but then you would not receive any protocol rewards.

The above would improve MKR’s tokenomics and the voting situation in one stroke.

I am being paid, and have been paid for over a year. I wouldn’t be able to spend as much time on Maker as I have if not for that. I like to think that most would view my contributions as a net-benefit, but admittedly that is hard to judge while the Maker Foundation is paying my hourly rate rather than the DAO.

I don’t fully disagree with you, money does have the potential to do this. However, it also provides freedom for those to spend time on something who wouldn’t otherwise be able to. Governance of the Maker Protocol is not trivial. It does cost something for those involved to remain involved.

I appreciate this point of view. But I do disagree with it. The people in this forum are the people who are working to make the Maker Protocol a success. If people were not paid to work on the Maker Protocol, passive MKR Holders would be free riders in the system. MKR Holders profit from the work being done by individuals, MKR Holders pays those individuals for their work.

I don’t agree that this makes holding MKR less attractive, either. Would you rather hold ownership of a Protocol with no developers, no risk analysts and no plan for future growth?

The things you are listing are all already planned (sans voting rewards, which are still being debated, and don’t have firm plans.)

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I 100% agree that that people who are in the forum are working to make the Maker Protocol a success. The people in this forum are awesome. I am not worried about any of the people here now; I am worried about the people who would come later, once monetary incentives have been put in place.

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You’re right, it is a concern, but I think that the solution to that is solid moderation. We can combat people trying to game the system to take advantage of incentives. If someone is doing such a good job of gaming that they’re actually providing value, then there is nothing to combat, that’s what we want to encourage with the incentives.

People doing things for the money works well enough for most of the world. I agree that in a perfect world you want people who care deeply about the Protocol to be the ones working on it and governing it, but that isn’t a hard requirement in my eyes.

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So long as such a system is very tangential I would have no problem with it. But the core incentives have to originate from actions taken or not taken with the MKR token. If the core incentive system is off-chain actions then what exactly is the MKR system? It would not have elegant tokenomics. The MKR token would be even less attractive than it is now (for whatever reason that currently is lol, I for one can’t put my finger on it) and in which case I would advise just sticking with the tried and true buy and burn as boring as it is…