[Signal Request] Should We Mint New MKR for Protocol Expenses or Fund Them With MKR from the MakerDAO Treasury?

Overview

Maker Governance has passed several budgets that include payments of MKR to Core Unit members as part of a compensation package. It is not inconceivable that other expenses denominated in MKR may become apparent in the near future. Some of the current MKR vesting schedules may be seen on Makerburn.

At present, there is no clear indication about what should be the source of the MKR used for these expenses. There are two main options to source this MKR:

  1. Use MKR from the MakerDAO Treasury - currently MakerDAO owns 83700.1 MKR that was transferred from the Maker Foundation. This is visible at the address: 0xBE8E3e3618f7474F8cB1d074A26afFef007E98FB
  2. Mint new MKR using the PauseProxy

The purpose of this poll is to see which of these two mechanisms Maker Governance would prefer to utilise.

This thread on the forum contains some discussion around this already and may make for useful reading.

Use MKR from the MakerDAO Treasury

Pros

  • We already own this MKR - no requirement to mint new MKR or purchase it on the open market
  • Does not inflate MKR supply - this MKR already exists, although it is currently locked.

Cons

  • Governance has previously demonstrated a desire to delay spending this MKR. See thread.
  • Some community members have called for this MKR to be burned. See this thread and this signal request. Committing to using this MKR will likely prevent this to a degree.

Mint New MKR

Pros

  • Familiarises people within and outside the DAO with the concept of minting MKR. Further MKR minting has been suggested in some recent proposals.
  • Preserves the amount of MKR which the DAO owns directly for future use.

Cons

  • Dilutes overall MKR supply, potentially decreasing the MKR/DAI ratio.
  • Minting new MKR potentially carries some legal and/or regulatory risk.
Should we mint new MKR for expenses or use MKR from the MakerDAO Treasury?
  • Mint New MKR
  • Use Treasury MKR
  • Abstain

0 voters

Next Steps

Poll will run for two weeks until Saturday, November 27th. Following this, an on-chain vote will be held for MKR holders to confirm the decision.

7 Likes

Related Signal Request posted by @aburban90 is currently ongoing.

Please note these two signal requests are not mutually exclusive and Governance could elect to burn a portion of the Treasury MKR while still preserving some funds for expenses.

1 Like

Thank you for creating this signal request. Based on watching the federal reserve… I do have concerns that if our community were to turn the MKR printer on indefinitely we would have a very difficult time turning it off again.

3 Likes

When MKR is paid to contributors for services, it is an additional expense to the Maker Protocol.

1 Like

Good point - I’ve phrased that really poorly. Will edit it later. Thanks

Abstained because my answer is Neither.

We should Make MKR vesting directly related to DAI net profits via having a MKR buy component.

Example for illustration: lets say protocol makes 10M DAI net expenses during a 3 month period.
We could take 5M and buy MKR and 5M to build surplus and then fund the MKR vesting. Lets say MKR purchased averaged 5K/MKR (so we bought 1000MKR with the 50% DAI net and built the surplus with the other 50% DAI net).

Lets also say only 500MKR was required for vesting during that 3 month period. So we can do a few things.

  1. Save the extra 500MKR for vesting when net DAI isn’t sufficient to cover vesting schedule.
  2. Burn some fraction of the 500MKR and save the rest.
  3. Burn all the 500MKR

Let say 2000 MKR was required.

  1. We fund the MKR compensation at 50% level and ignore deficits.
  2. We fund the MKR at 50% level and save deficits to be made up with MKR purchased later.

The above model is fully sustainable because

  1. MKR vested is tied to net DAI profit completely aligning interests of people working with MKR holders. (how much of this profit is set aside - many different ways to manage set this)
  2. No new MKR minting is needed for DSSVest.
  3. Automatically determines the vesting price because MKR was purchased with DAI.
  4. Allows a continuous purchase of MKR based on profits vs. some arbitrary SB level and directly related to DAI profits.
  5. MKR burn happens when there is excess MKR purchased beyond needed for vesting.
9 Likes

This is a really intriguing post and I would be interested to see you take this further.

However, there are multiple MKR vesting schedules that have already been accepted by MKR holders in the form of MIPs and these would therefore require a MIP amendment or entirely new MIP to change.

This signal request aims to identify how we should fund these already accepted MKR vesting schedules and any future MKR expenses, in the absence of a complete system overhaul in the manner that you suggest.

1 Like

I have been suggesting something like the above ever since the first posts regarding compensating CUs with MKR but everyone seems to be hot on just giving MKR away and doing it unsustainably vs. creating a system that is sustainable out of the gate. As with everything I figured it could be changed later once people ‘came around’ if they ever did.

Appreciate the sentiment but would rather someone else who is being paid decide whether this idea is worthy of being driven down the governance road. I simply don’t have the time to drive this stuff basically for ‘free’. The basic concepts are outlined in the above.

My goal has always been to try to suggest sustainable solutions to basic Maker issues. Whether MakerDAO or anyone decides to work with me to bring them forward - well so far not many takers.

Here is another example I have been waiting for @LongForWisdom to comment on before I even brought it forward regarding a general governance compensation model.

and another set of comments on this in my delegate thread that isn’t as clean as the above.

Regarding this signal request because I have long been talking about the above I pretty much am going to abstain from these and let the DAO do whatever it wants to do with the existing vesting ‘model’.

3 Likes

Adding this quote from the core unit facilitator of PE as it seems relevant to our current conversation.

1 Like

@MakerMan I agree, the current model of minting MKR to cover core unit compensation is totally unsustainable as it does a horrible job of aligning incentives between the core units and Maker holders.

I think @rune put it best.

4 Likes

Just a quick note that except for PE, I’m not certain this is correct? MKR payments are to CUs, which also means quite a bit of MKR is accruing to vacant positions or may need its schedule adjusted for those hired after approval of the plan.

So it may be worthwhile to figure out how much MKR is actually in the process of vesting — and when it will be due — while debating these details. (“How much?” seems like it may impact the answer to “How?”)

1 Like

I’m not sure if that’s correct. Aren’t all MKR vesting arrangements paid out of the roughly 83,700 MKR in treasury? Minting MKR for anything BUT flops (which should be avoided at all costs) seems irresponsible.

Nope, the current implementation mints new MKR. It does not pull MKR from the treasury. I agree, it’s irresponsible.

2 Likes

Just a quick note that except for PE, I’m not certain this is correct? MKR payments are to CUs, which also means quite a bit of MKR is accruing to vacant positions

The currently approved Core Unit MKR budgets, as far as I’m aware, all share the same end goal which is the compensation of Core Unit members. In practice, the MKR will be passed on to the individual contributors as part of an overall compensation package. In that regard, I’m unsure how what I said is incorrect but I’m always happy to be told I’m wrong; I may be misunderstanding your point here and I apologise if that’s the case.

The precise nature of how this happens is left up to the CUs themselves and you are right to state that several CUs have budgeted for vacant positions. PE is, so far, the only CU to have separate MKR streams for specific contributors.

Regarding the “how much MKR” question - it’s clearly very difficult to tell. As we’ve noted, there are vacant positions, CUs that haven’t submitted MKR compensation plans, and CUs that are yet to be onboarded so a lot of variables to consider and any answer is liable to be inaccurate.

@Tosh9.0

I’m not sure if that’s correct. Aren’t all MKR vesting arrangements paid out of the roughly 83,700 MKR in treasury? Moving MKR for anything BUT flops (which should be avoided at all costs) seems irresponsible.

It’s actually currently undefined where the MKR comes from, which is the reason why the GovAlpha team decided to submit this Signal Request in pursuit of clarity. The original DSSVest thread has a discussion about this starting from this comment by @wouter onwards. Tbh the whole thread is worth a read though.

3 Likes

Currently CUs appear to be vesting as if 100% of all vacancies were filled. Leaving aside the trust issues about requiring a return of MKR when head counts are not verified for a protocol that values avoiding trust, it mostly means we don’t actually know how much MKR will be due when.

Given the size of the treasury, perhaps it doesn’t matter. But people may have different feelings about sourcing, say 10k MKR vs 20k (just made up numbers for illustration).

3 Likes

There needs to be more incentive alignment between contractors and investors

Just using MKR from the treasury isn’t a sustainable solution as it will eventually run out.

As a long term fix couldn’t we create a new auction type (flap-b)?

X% of the dai issued to core teams would be sent to a flap-b auction. MKR would be used to purchase the dai offered in the flap-b auction. Rather then burn MKR from the flap-b auction it would be sent to the treasury to vest until it is eventually distributed through dss-vest.

This would ensure incentives are aligned between MKR holders and core teams and that we can support vesting well into the future. It also acts as a way to ‘lock up’ more MKR

2 Likes

NEITHER - and there should be a vote for such a choice. See @MakerMan 's reply. Use DAI to buy MKR on the market to satisfy such commitments/promises. NEVER mint MKR for this purpose.

8 Likes

I’ve voted for the “Use Treasury MKR” option for now but I agree completely with MakerMan’s post. This should come from protocol earnings, not from minting or dipping into reserves.

I’m not sure if it’s possible to make this happen for existing commitments but any future ones should go through this route.

6 Likes

+1, I’m in the same boat.

Voted “Use Treasury”, but really like the fundamental sustainability in Makerman’s model. In drafting our own CU’s MKR comp package these things are all being noted. We want a model that makes sense for both the protocol and its contributors.

2 Likes

At current prices there seems to be 18M worth of MKR vested annually, so it seems doable at the current profit level. However price increases may change that picture drastically so to be really sustainable the MKR vesting may need to be denominated in profit % of the protocol. That would need to be negotiated with CUs. It sounds better than burning though!

This model is very different from the usual one where shares in comp packages may create dilution. It could ultimately result in reduced MKR compensation, but it also increases the incentive to buyback across the board, which positively impacts the price, so maybe not.