# MIP40c3-SP35: Deco Fixed Rate Core Unit Budget ## Preamble ``` MIP40c3-SP#: 35 Author(s): Vamsi Alluri @Vamsi Contributors: @juanjuan, @Wouter, @NikKunkel Tags: core-unit, cu-deco-001, budget, dai-budget, active Status: Accepted Date Proposed: 2021-09-08 Date Ratified: 2021-11-22 Resubmission: First formally submitted for October's Governance Cycle (https://vote.makerdao.com/polling/QmZyjR4t) Ratification Poll URL: https://vote.makerdao.com/polling/QmPPvUhN Forum URL: https://forum.makerdao.com/t/mip40c3-sp35-deco-fixed-rate-core-unit-budget/10225 ``` ## Sentence Summary The Deco Fixed Rate Core Unit is requesting a Budget for the fixed period of December 1, 2021, through December 1, 2024, with a fixed budget floor of 1,862,500 Dai annually, paid monthly, secured in advance quarterly. ## Paragraph Summary The Deco Fixed Rate Core Unit is requesting a Budget for the fixed period of December 1, 2021, through December 1, 2024, (36 Months), with a fixed budget floor of 1,862,500 Dai annually, paid monthly secured in advance quarterly. Deco is not requesting, nor has it included any upfront reimbursement of costs for past work. Instead, Deco has proposed a revenue share model: Maker will pay to Deco 15% of the revenue from the Fixed-Rate CLAIM_FEE token sales only AFTER it has reimbursed the Deco Core Unit and DecoM operating expenses, advanced by Maker, and any MKR distributions which are to be valued in Dai as of the date of acceptance and and approval by Executive Vote Pass and to be utilized through December 1, 2024. ## Specification ### Motivation Deco will bring fixed rate vaults to Maker, under the control of Maker governance. Deco has already independently covered the cost of the design, architecture, and coding of the protocol as well as the proposed Maker integration. Deco is not requesting, nor has it included any upfront reimbursement cost for past work in the integration and maintenance budget. This approach has de-risked Maker’s exposure to the design and development of the product, and has effectively reduced Maker’s exposure with regard to the cost of integration and maintenance. Deco has created and validated the actual tokenized stability fee product. The budget is a floor for the maintenance operating level of the staffed core unit: Maker will only cover the fixed floor integration and maintenance budget. The objective is to build a Maker revenue generating unit and to have Deco participate in a modest revenue share (15%) based upon fixed-rate CLAIM-FEE token sales. Deco will receive 15% of the fee generated by the transaction using Deco. This percentage is intentionally projected below the initial anticipated operating costs and functions as a performance incentive after the integration is live and used at a significant scale. The 15% revenue share on fixed-rate CLAIM-FEE token sales is only applicable on the excess of the floor maintenance fee budget, as well as any MKR allocated using the published MKR value at the time of acceptance and approval by Executive Vote Pass, and which is to be accounted for monthly, and if necessary, disbursed from the Auditor wallet. ### Core Unit ID DECO-001 ### Budget Implementation The Deco Core unit budget is designed to operate a fully staffed core unit to support MakerDAO in this new lending segment. The core unit is modeled after other core units with standard compensation and comparable to the budgets outlined by SES. The fixed rate business operates on terms which are subject to markets and external dependencies, including Maker policy and monetary changes. Consequently, the monthly paid fixed floor budget assures uninterrupted maintenance and operation for the benefit of MakerDAO. This model allows the Core Unit to continue operations in support of MakerDAO, providing for ongoing services and future issuances, even when no CLAIM-FEE tokens are issued in a month by MakerDAO. Conversely, when the aggregate 15% income exceeds the drawn Dai budget, MakerDAO shall receive a credit toward the floor operating budget. The Deco budget is structured as a Fixed Compensation Budget. This means that the Core Unit will deliver the required services under the direction and management of the Deco entity over the specified period utilizing the allocated funds. No contingency funds have been included as a margin in the budget. Any overages will be absorbed by Deco. Upon completion of the integration of the Deco Protocol, the administrative, operational and maintenance obligations, including legal, will be assumed by a separate legal entity, DecoM, which will function in alignment with Maker policy and procedures. #### Budget Implementation Considerations ##### Fixed-Rate Premium Deco helps MakerDAO discover and collect the Fixed-Rate Premium in crypto lending markets. For Deco on Maker, this premium is the cost a vault owner would be willing to pay MakerDAO in addition to the current stability fee rate. The rate premium price, above the current floating stability fee in the open market, is the additional cost paid to provide a risk hedge against rate volatility (in either direction). The rate premium allows a user to receive the guarantee of a fixed rate for a certain duration in exchange for the premium payment. In Deco on Maker, the fixed-rate premium is the difference between the current variable floating rate (the stability fee the DAO is currently collecting from all vault holders of a collateral type), and the implied fixed-rate based on the sale price and validity duration of the CLAIM-FEE token. Deco proposes that MakerDAO will set the premium over its current stability fee rate, as per normal market conditions. ##### Fee Proposal MakerDAO will set the premium over its current stability fee rate and Deco shall receive 15% as a revenue share of the fixed-rate CLAIM-FEE token sales. The objective of the revenue share is twofold: first, to set a floor to cover the Core Unit operating costs, and second, to incentivize growth and improvement of the protocol by increasing fixed-rate revenue for Maker. Maker would receive a credit for the annual budget costs. Please refer to our supporting documentation, [Appendix A](https://uploads-ssl.webflow.com/60f36d3a3ee90b586e386a7f/6138fcca32a0a53e4e73f701_MIP40c3-Appendix-A.pdf), for a detailed description of the calculation and methodology. ##### Maker Buyout Option The fee structure described above is favorable to MakerDAO and Maker holders, which retain most of the revenue and profits that are discovered with the fixed-rate premium. In exchange for the product feature, only when the feature is used, Maker pays the fixed rate transaction support fee. This feature is designed for and controlled exclusively by MakerDAO Governance. Deco simply receives a portion of the revenue stream generated by its contracts and features. In the expectation of a successful integration, and amidst the uncertainty attendant to a novel protocol, we propose to encode a buy-out clause up front to give Maker the option to purchase the transaction support fee mechanism for CLAIM-FEE token sales. This option would be available for activation at the three-year mark after initiation of the Deco Core Unit, December 1, 2024. The payment for the buyout would be a lump sum payment, and in the absence of agreement, determined by three mutually agreed upon independent appraisers from internationally recognized accounting and valuation organization. Until the option is exercised, the Deco Dai budget would renew on the same budget terms quarterly. #### Payment Implementation The Deco Payment Implementation will follow the proceeds outlined below and from an accounting point will be based on a thirty-six (36) month term. ##### Wallets There will be three (3) multisig wallets each of which will serve a separate function, and which will be identified as: the Deco Operational Wallet, the Deco Protocol Wallet, and the Deco Auditor Wallet. 1) The Deco Operational Wallet: The Operational Wallet is a 2-out-of-3 multisig wallet controlled by the Deco Core Unit to fund ongoing operations. **Address: 0x56349A38e09f36039f6AF77309690d217Beaf0bF** 2) The Deco Protocol Wallet: The Deco Protocol Wallet is a 2-out-of-3 multisig wallet controlled by the Deco Core Unit to be used to aggregate Deco revenue pending achievement of benchmarks and subsequent distribution. **Address: 0xA78F1F5698f8d345a14d7323745C6c56fB8227F0** 3) The Deco Auditor Wallet: The Deco Auditor Wallet is a 2-out-of-3 multi-sig wallet controlled by trusted MakerDAO members composed of representatives from core units outside of the Deco Core Unit. Initially, the proposed signers are to be SES Core Unit members similarly to current incubator implementations. This wallet provides a buffer of three (3) months for ongoing core unit operations to insure uninterrupted operations. **Address: 0xF482D1031E5b172D42B2DAA1b6e5Cbf6519596f7** ##### Monthly Budget Statement Within the first 5 days of each month, the Deco Core Unit will submit a Monthly Budget Statement to the auditors which will include the following information: 1) **Monthly Protocol Operation Review.** This will breakdown the total revenue generated by the protocol, the fixed costs of the Deco Core Unit, and a breakdown of profit-sharing activities from the previous month. It will also show payments to the MakerDAO and the Deco Protocol Wallet. 2) **Rolling Accruals.** This will show the rolling accrual of ‘Protocol Credits,’ which is defined as revenue sharing funds which exceed the monthly fixed budget of the Deco Core Unit for a given month. 3) **MIP Term Commitment Breakdown.** This will show the total funding commitment remaining from the MakerDAO to the Deco Core Unit for the fixed monthly budget. This number is the operating floor budget minus any credits generated in the prior month. 4) **The Transfer Amounts.** This category will show a breakdown of the distribution of funds from each wallet for the prior month (the Protocol Wallet and the Auditor Wallet), as well as any top-up required from the MakerDAO to the Auditor Wallet. ##### Monthly Top-up Cycle The following describes the planned financial cycle for a month of operations for the Deco Core Unit. 1) Within the first 5 days of a new month, the Monthly Budget Statement from the previous calendar month is submitted to the auditors. 2) The Deco Core Unit executes the initial funding transaction from the Deco Protocol Wallet to the Deco Operational Wallet which is not to exceed the monthly floor operating cost. 3) In parallel, the Deco Core Unit submits the necessary transaction requests to the Deco Auditor Wallet. a. The transaction from the Deco Reserve Wallet, if needed, is executed after the transaction from the Deco Protocol Wallet has been confirmed. * When there is a surplus between the Revenue Share and the Core Unit Budget fixed monthly budget, the funds generated more than the monthly budget will be accounted for as a ‘Protocol Credit’ on the monthly budget statement. * When there is a deficit between the Protocol Wallet and the Core Unit Budget floor, a manual distribution will be requested from the Reserve Wallet to meet base requirements of the Operational Wallet. This payment will be calculated as [Fixed Monthly Budget - Protocol Wallet Transaction]. 4) The Auditor’s wallet is continuously funded for 33 months by the DSSVest config defined below. 5) When the Protocol Wallet has received funds more than the thirty-six (36) month MIPs commitment, the core unit is fully funded. a. Protocol Credits held more than the MIP Term commitment will be labeled as “Protocol Surplus”. 6) Once the Deco Core Unit is fully funded for the MIP term commitment, the Deco Core Unit may draw against the ‘Protocol Surplus’ monthly at its discretion, so long as the operational floor for the MIP term of thirty-six (36) months is maintained. ##### Initial Seed Transfer The initial seed transfer shall be $465,625 DAI and sent to the Auditor Wallet upon vote approval of Deco’s Core Unit MIP. - **What:** Initial transfer of the total budget cap for the 3-month runway. - **When:** Upon executive vote approval (spell cast). - **How:** Automatically (spell cast). - **Amount:** **465,625.00 DAI** - **Sender:** Maker Protocol Surplus Buffer - **Recipient:** Auditor Wallet: 0xF482D1031E5b172D42B2DAA1b6e5Cbf6519596f7 ##### DssVest Auditor Wallet Stream - **From:** Maker Protocol Surplus Buffer - **To:** Auditor Wallet: 0xF482D1031E5b172D42B2DAA1b6e5Cbf6519596f7 - **Term:** Dec 1, 2021 – Sept 1, 2024 (33 Months) - **Rate:** 155,208.33 DAI / month streamed continuously ##### December 1, 2021, Transfer The Deco Auditor Wallet signers will manually transfer one month’s operating budget floor to the Deco Operations Wallet upon receipt. - **What:** Initial operational wallet transfer of the monthly operating budget floor. - **When:** Immediately upon receipt of 3-month runway seed transfer by Auditor’s Wallet - **How:** Manually by Auditor’s Wallet - **Amount:** **155,208.33 DAI** - **Sender:** Auditor Wallet: 0xF482D1031E5b172D42B2DAA1b6e5Cbf6519596f7 - **Recipient:** Deco Operational Wallet: 0x56349A38e09f36039f6AF77309690d217Beaf0bF ### Budget Breakdown #### Dai Expenditure The quarterly budget is 465,625.00 Dai (3 months). Ratifying this MIP commits to funding the initial quarterly budget for the Deco fixed rate core unit (DECO-001), as well as a continuous funding model at the same quarterly budget, from December 1, 2021, through December 1, 2024, (36 Months). #### Core Unit Composition The composition of the core unit will for 5 FTE and include: - 1 FTE – Principal Smart Contract Engineer - 1 FTE – Product Manager, Governance Facilitator - 1 FTE – Data Analyst - 1 FTE – Front End Engineer - 1 FTE – DevOps Engineer - Outside Support, including but not limited to legal, accounting, UI/graphics design, operations, documentation support, et cetera #### Total Engineering Compensation The total annual cost of annual engineering: - Principal Smart Contract Engineer @ 1 FTE: Spells, Issuance, New Deployment, Integration and Support. $275K Base - Governance Facilitator, Product Manager @ 1 FTE. $150K Base. - Data Analyst @ 1 FTE: Analytics, Analytics Dashboards, Rate Data Reports. $150K Base. - Front-End Engineer @ 1 FTE: Maintain UI for CLAIM-FEE Tokens, Admin Dashboards. $175K Base. - DevOps Engineer @ 1 FTE: Develop and maintain Keeper Infrastructure for Redemption, Snapshots, Close, Monitoring, et cetera. 175K Base. #### Annual Budget **Component**|**Dai Amount** :-----:|:-----: Salary - Engineering (Salary + Benefits + Taxes @ 30%)|1,202,500 Accounting, Operations, UI & Graphics Design|130,000 Audits|80,000 Bug Bounty|20,000 Travel & Meetings|40,000 Legal|230,000 Marketing|60,000 Gas Costs|100,000 **Total**|**1,862,500** The budget will be managed, controlled, and accounted for at the discretion of and by the DecoM entity, with appropriate and conforming [reporting requirements](https://github.com/deco-protocol/maker-cu-transparency-reporting). ### Budget Details #### Salary - Engineering The engineering team compensation package includes salary, all benefits (including healthcare), and taxes. This has been calculated by scaling salaries by 30%. #### Accounting, Operations, UI & Graphic Design Accounting shall be provided Quarterly financial reports. Operations includes the work of managing the enterprise including the costs associated with planning, organizing, and supervising the execution of the integration and its continued management, and maintenance of a central operational hub, as well as outsourcing relevant business-related work. The design of graphics for all aspects of presenting and promoting the fixed rate protocol. #### Audits Audits and verifications involve 2 FTE for a period of two (2) weeks for product security and verification. #### Bug Bounty This involves reward to independent researchers who identify various levels of issues with the protocol. #### Travel & Meetings The Team will be disbursed geographically, and a certain minimal number of in person team meetings will be necessary to improve collaboration and productivity. Also, travel will be necessary to meeting with outside consultants. This budget would cover flights, food and lodging, and incidental expenses. #### Legal Coverage for legal costs including legal consultation, opinions, and litigation. #### Marketing This involves activities to promote the utilization of the protocol. This activity will involve other relevant Core Units. #### Contingency No contingency fund has been set aside as this is a Fix Compensation Budget and Deco will cover any overage.