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MIP40c3-SP14: Modify Collateral Engineering Services Core Unit Budget

Preamble

MIP40c3-SP#: 14
Author(s): @monkey.irish
Contributors:
Tags: core-unit, cu-ces-001, budget
Status: Request for Comments (RFC)
Date Applied: 2021-05-12
Date Ratified: <yyyy-mm-dd>

Sentence Summary

MIP40c3-SP14 adds the budget for Core Unit CES-001: Collateral Engineering Services.

For more information on the changes to this MIP, please see:

Specification

Motivation

Building upon the theme of sustainability of the Collateral Engineering Services Core Unit (CES), the budget reflects support of the Mandates and business continuity in MIP39.

Any elements of this budget reflecting a likeness to other Core Units is a principle of building on the shoulders of giants. Much appreciation is given to all the trailblazers.

Core Unit ID

Collateral Engineering Services Core Unit

Budget Implementation

The CES budget is designed with the following in mind:

  • Paying for the operational costs to run the Core Unit
  • Building a reserve for sustainability
  • Building trust between CES, the DAO, and community, test then trust

Therefore, a vote to ratify this MIP means MKR holders make a commitment to:

  • An initial six month (Q1-Q2) budget for CES
  • A continuous funding model (after six months) that operates on a quarterly, semi-annual, or annual basis based upon achieving CES milestones
  • A MKR vesting schedule for CES based upon the SES and Oracles Core Unit proposal

Budget Responsibilities

  • Auditor's multi-sig Wallet to honor and uphold MKR holders preference for the CES Budget Breakdowns
  • Operational multi-sig Wallet to run the operations of CES
  • CES commitment to the transparency and accounting of funds during all budget cycles

List of Budget Breakdowns

Team Structure

The initial team will consist of two types of members: permanent and new ecosystem engineers training on the Maker protocol. The permanent team members are full-time contributors within the Core Unit. The temporary team members are mainly engineers that will rotate through the Core Unit to help them with training on the Maker protocol. As an example, working in a feeder system where new smart contract engineers spend up to three months training on the protocol. The engineers could come from any of the Core Units.

Team Summary for 2021

Team Members
Permanent 6
Advisors 2
Temporary 2
Team Total 10
Governance
1 Core Unit Facilitator
  • Works with the DAO and community
  • Strategy for the Core Unit
  • Business entity leader
  • Team leader
Advisors
2 Core Unit Advisors
  • Advises macro-level strategy for the Core Unit and business entity
  • Signers on the 2 of 3 multi-sig Operational Wallet controlled by CES
  • Individuals with crypto and blockchain experience
Engineering
3 Smart Contract Engineers (perm)
2 Smart Contract Engineers (temp)
  • Engineering services relating to collateral on/offboarding
Product
1 Technical Product Manager
  • Product strategy
  • Roadmap owner
  • Manages backlogs
  • Reporting
Operations
1 Project/Operations Manager
  • Handles the 100's of details needed to manage the operations of the Core Unit
  • Helps organizes the business formation activities

The numbers in this MIP represent a fully populated team and are included for comparison and completeness. CES is onboarding a completely new team and the goal is to ramp up within the first six months of the Core Unit formation.

Any other business functions (HR, Legal, DevOps, etc.) not listed here will be contracted on an hourly basis.

Team Hiring

The progression of team hires is as follows:

Phase 1

  • Core Unit Facilitator (Expert, Permanent)
  • Smart Contract Engineer (Lead/Senior, Permanent)
  • Smart Contract Engineer (Senior, Permanent)
  • Technical Product Manager (Senior, Permanent)
  • Project/Operations Manager (Mid/Senior Permanent)
  • Advisor1 (Permanent)
  • Advisor2 (Permanent)

Phase 2

  • Smart Contract Engineer (Jr/Mid, Permanent)

As Available

  • Smart Contract Engineer (Jr/Mid/Senior Temporary)
  • Smart Contract Engineer (Jr/Mid/Senior Temporary)

Team Responsibilities

As we populate the team, we will be able to take more responsibilities from a product and engineering perspective. On a meta-level, the following are a some guidelines of what CES plans to accomplish as we ramp up. This is based upon the Team Hiring plan and staring with a team size of three. Difficulties finding qualified people will impact our timeline.

Phase 1

  • Work with the stakeholders and community to assess the current collateral on/offboarding processes
  • Determine which technical responsibilities can be offloaded to CES once the Core Team is hired
  • Assume the coordination and collaboration responsibilities of collateral on/offboarding
  • Develop an overview of a product management process for our collateral
  • Hire and train the first permanent members of the Core Team
  • Form the CES business entity and setup the infrastructure
  • Work with SES on the parallelization initiative to enable our efforts

Phase 2

  • Continue/complete the training of permanent members
  • Hire the remaining permanent member of the Core Team
  • Work with stakeholders to uncover unmet needs relating to collateral engineering services
  • Build a product vision, roadmap, and backlog
  • Rollout the initial product management process
  • Manage the product and iteration backlogs
  • Determine KPIs, OKRs, and reporting for CES
  • Offload the initial technical responsibilities to the CES Core Team

Budget Breakdown

Total Budget Cap for the Cycle

The Total Budget Cap for the Cycle is $1,479,696, spanning a 6 month Cycle. The annual budget is projected at $3,191,861.

6 Months 12 Months
Budget $1,479,696 $3,191,861

Budget Detail

Summary Q1 - Q2 Q3 Q4 12 Months
Salary + Benefits + Taxes* $960,781 $658,125 $658,125 $2,277,031
Travel $32,000 $24,000 $24,000 $80,000
Hardware $17,500 $3,500 $0 $21,000
IT & Subscriptions $25,000 $12,500 $12,500 $50,000
Referral & Sign-on Expense $125,000 $50,000 $0 $175,000
Audits $0 $0 $0 $0
Bug Bounty $0 $0 $0 $0
Gas Costs $11,250 $5,625 $5,625 $22,500
SC Verification & QA $0 $0 $0 $0
Professional Services $100,000 $25,000 $25,000 $150,000
Contingency Buffer $208,165 $104,082 $104,082 $416,330
Total $1,479,696 $882,832 $829,332 $3,191,861

A few notes about the Budget Detail:

  • The Budget Detail contains a provision for two temporary Smart Contract engineers for a period of up to 90 days. Until we implement a feeder system and training model, it is unclear which Core Unit will pay for the temporary engineers. I've included the salary and overhead for both engineers for completeness. For the Salary + Benefits + Taxes line, this amounts to $650,000 of the yearly budget. The actual number will vary based upon the agreement between the Core Units.

  • The Budget Detail in the first version of this MIP was $2,466,500. This has been revised to $3,133,211. The increase is primarily due to 1) Scaling Salary + Benefits + Taxes by 30% for benefits (including healthcare) and taxes, 2) Increasing the Contingency Buffer to 15%, and 3) Increasing Referral & Sign-on Expense and Professional Services.

Illustrating these details as a percentage of the total budget request for overall comparison (12 months):

CES 12 Month Budget

Budget Details:

Providing additional detail with regards to the above line items:

Salary + Benefits + Taxes: The initial team has 3 full-time smart contract engineers, 1 full-time product manager, 1 full-time project/ops manager, 1 Facilitator/Team Lead, and 2 Advisors (for a total of 8 permanent members). The team will have up to 2 temporary smart contract engineers for a total of 10 members. This opportunity to scale will enable us to better meet the demands of the community.

The total cost of an employee includes salary, all benefits (including healthcare), and taxes. This has been calculated by scaling salaries by 30%. This premium is likely an overestimation, and the realized cost is expected to be lower. That being said, paying salaries to a a global remote team in a multitude of jurisdictions can be quite expensive without the proper legal infrastructure in place.

Travel: The team may travel to present at industry events or participate in a team offsite. The budgeted amount is $1000 per person per month.

Hardware: An allocation of $3,500 per new team member.

IT & Subscriptions: We anticipate a variety of costs relating to software subscriptions, cloud services, and contract service providers.

Referral & Sign-on Expenses: Provided at the discretion of the Facilitator to attract top talent to the team.

Audits: Initially, this work will be coordinated with the Protocol Engineering Core Unit. Budget modifications will be submitted when appropriate.

Bug Bounty: Initially, this work will be coordinated with the Protocol Engineering Core Unit. Budget modifications will be submitted when appropriate.

Gas Costs: Initially, this work will be coordinated with the Protocol Engineering Core Unit. A nominal amount has been allocated for administration. Budget modifications will be submitted when appropriate.

SC Verification & QA: Initially, this work will be coordinated with the Protocol Engineering Core Unit. Budget modifications will be submitted when appropriate.

Professional Services: Coverage for managing general operational overhead and services, legal costs including entity creation, legal officer/company insurance, as well as monthly and annual financial reporting.

Contingency Buffer: Approximately 15% of budgeted costs to be held in reserves for business continuity. The CES entity will be a business and this will represent a profit by tax standards. Therefore, the actual amount in reserves will be lower due to corporate tax rates in the United States.

MKR Vesting and Incentive Structure

The CES Core Unit supports the Sustainable Ecosystem Scaling Core Unit (SES-001) and Oracles Oracles Core Unit (ORA-001) proposal for MKR Vesting. This model has been proposed by the SES Core Unit along with the Oracle Core Unit modifications.

MKR Vesting Details

Property Value
MKR/USD lock-in Price (New Team) Trailing 6 month average
MKR/USD lock-in Price (OG Team/Advisors) MKR = $1956 (11/12/20 - 05/12/21)
MKR Price Floor (New Team) -30% (Trailing 6 month average hire price)
MKR Price Floor (OG Team) -30% ($1,369)
Quarterly MKR Amount Initial Annual Incentive Value (USD) / MKR/USD lock-in Price / 2
Vesting Period 4 years
Cliff Vest 6 months
Vesting Transfer Schedule After the Cliff Vest has expired, the Quarterly MKR amount vests every 3 months and is distributed the day after vesting: Feb/May/Aug/Nov 1
Manual Repricing Yes
Auto-Renewal Yes
Estimated Max Total team MKR After 6 Months (6 FTE)* 468.89
Estimated Max Total team MKR Quarterly (6 FTE)* 234.44
Estimated Max Total team MKR After 1 Year (6 FTE)* 937.77
Estimated Max Total team MKR After 4 Years (6 FTE)* 3,751.08

MKR Forecast

Assuming a fully populated team today, this would result in the vesting transfer schedule below.

Vesting Transfer Date MKR Amount
01 Feb 2022 468.89 MKR
01 May 2022 234.44 MKR
01 Aug 2022 234.44 MKR
01 Nov 2022 234.44 MKR
01 Feb 2023 234.44 MKR
01 May 2023 234.44 MKR
01 Aug 2023 234.44 MKR
01 Nov 2023 234.44 MKR
01 Feb 2024 234.44 MKR
01 May 2024 234.44 MKR
01 Aug 2024 234.44 MKR
01 Nov 2024 234.44 MKR
01 Feb 2025 234.44 MKR
01 May 2025 234.44 MKR
01 Aug 2025 234.44 MKR
Total 3,751.08 MKR

A few notes about the MKR vesting schedule:

  • The estimated MKR incentives is the best guess of how much MKR will be used with the current team configuration. The number of MKR might decrease/increase rise due to raises, new hires (coming in at a much lower MKR price), resetting the price due to a market downturn, or delayed hiring for the Core Unit.
  • The Vesting Transfer Date is one day after that period's vesting date. For example, a Jan 31 Vesting Date would have a Vesting Transfer Date of Feb 1.
  • The two temporary Smart Contract Engineers are not included in the CES MKR incentive plan. The hiring Core Unit would need to allocate the MKR incentive, not CES.
  • Manual repricing allows any contributor of CES to calculate a new MKR/USD lock-in price using the trailing 6 month average. This ensures that contributors who join during a bull market are not penalized relative to new contributors who join later during a bear market. In order to prevent abuse, manual repricing will reset the 6 month cliff vest period.

Budget Implementation

Goals

The CES budget implementation is architected to build and sustain a stable Core Unit in relation to the volatility in our industry.

  • Funding for the initial six months of the Core Unit with a contingency reserve
  • Thereafter, a continuous funding model operating on a quarterly, semi-annual, or annual basis
  • MKR vesting with a 6 month cliff and quarterly vesting
  • Provide full transparency and accounting of funds during all budget periods

CES Cycle Alignment

Key Takeaway

The theme for this Core unit is Survivability, Sustainability, and Continuity.

Total Budget Cap for the Cycle

The Total Budget Cap and estimated MKR vesting for the Cycle, specified in the Budget Breakdown and MKR Forecast, will be transferred to the Auditor's Wallet. This wallet will keep the funds and transfer them as requested by CES, per the below.

The Auditors Wallet balance will never exceed the upper limit voted by Governance. If this limit needs to be raised, or we're no longer expecting to ever need it, an additional subproposal MIP will be submitted to adjust it.

CES Budgeting Cycle

CES Budgeting Cycle

Core Unit Ratification

When the CES Core Unit is ratified:

  1. Core Unit begins
  2. Six month budget & estimated MKR incentives transferred to Auditor’s multi-sig Wallet
  3. Initial requested budget transferred into the CES Operational multi-sig Wallet

Core Unit Monthly Budgeting Cycle

Within the first 5 days of each month, CES will submit a Monthly Budget Statement to the signers of the Auditor's Wallet with the following sections:

  1. For each month, provide an accounting of funds spent in the prior month
  2. Provide an updated budget for the remaining cycle
  3. Provide a MKR vesting overview, by month
  4. Auditor verification of accounting
  5. Requested additional budget allocation & MKR incentives transferred into the CES Operational multi-sig Wallet

The Monthly Budget Statements will be added to the MakerDAO forum. The originals can be found in this git repository on Github.

Core Unit Summary Cycle

  1. Reconciliation of budget, actual vs. spent
  2. Review results & achievements
  3. Present new budget, MKR vesting, & goals
  4. Commit to length of next budgeting cycle
  5. Entire committed budget & estimated MKR incentives transferred to Auditor’s multi-sig Wallet
  6. Initial budget transferred into the CES Operational multi-sig Wallet

MKR Incentive Vesting Implementation

MKR will be transferred from the Auditor's multi-sig Wallet into the CES Operational multi-sig Wallet no later than Core Unit Monthly Budgeting Cycle before the month the MKR actually vests. For example, if a Vesting Transfer Date is 01 Feb 2022, the MKR will be transferred into the Operational Wallet no later than Dec 2021 Core Unit Monthly Budgeting Cycle. Once DssVest is ratified and implemented, CES will investigate the use of automated MKR incentive vesting.

Wallets

The following wallets are involved:

  1. The Auditor's Wallet -- A 3-out-of-4 multi-sig, controlled by trusted Maker DAO members. This multi-sig will hold the Total Budget Cap in DAI. All funds pass through this wallet before any are sent to the CES operational wallet. One of the signers is the Facilitator of the CES Core Unit.

    The signers of the Auditors Wallet are still being confirmed and will be added to the MIP40c3-SP14 forum thread. No funds will be sent to this wallet before the signers' addresses have been set in the wallet.

  2. The Operational Wallet -- A 2-out-of-3 multi-sig, controlled by CES. This multi-sig will be used for Core Unit expenses. One of the signers is the Team Lead of the CES Core Unit.

Transfers

Core Unit Budget Cycle Transfer

  • What: Initial transfer of the Total Budget for the 6-month Total Budget Cap Cycle.
  • When: Automatically, upon executive vote approval (spell cast).
  • Amount: 1,479,696 DAI
  • Sender: Maker Protocol Surplus Buffer
  • Recipient: Auditors Wallet: TBD

Core Unit MKR Cycle Transfer

  • What: Initial transfer of estimated MKR for the CES MKR incentive plan.
  • When: Automatically, upon executive vote approval (spell cast).
  • Amount: 468.89 MKR
  • Sender: TBD
  • Recipient: Auditors Wallet: TBD

August 2021 Budget Transfer

  • What: Operational Wallet for initial requested budget.
  • When: Manually, upon August 2021 Budget Statement review.
  • Amount: Determined by the August 2021 Budget Statement
  • Sender: Auditors Wallet: TBD
  • Recipients: Operational Wallet: TBD

Related Documents

MIP39c2-SP12 Collateral Engineering Services Core Unit MIP

MIP41c4-SP14: Facilitator Onboarding, Collateral Engineering Services Core Unit