PEP - 49: PNI Compensation

Attributes

  • Author(s): Michael O’Rourke (PNI CEO), Arthur Sabintsev (PNI COO), Laxman Pichappan (PNI CFO)
  • Recipient(s): Pocket Network, Inc
  • Category: Imbursement
  • Asking Amount: 45,000,000

Summary

Pocket Network Inc. (PNI) is requesting 45M POKT from the Pocket DAO treasury.

This proposal highlights the reason behind why we believe we should ask the DAO for POKT in the first place, the need for the POKT, as well as a detailed history of our previous POKT sales. The primary reason we are asking for this POKT is to increase all employee and contractor vesting commensurate with the scale of what we are building and in comparison to what the network has earned.

The current DAO treasury sits at about 120M POKT. For the avoidance of doubt and transparency, we believe it is important for the community to understand the full details of PNI’s POKT history before asking for this amount from the DAO.

Motivation / Background

Our core motivation is that PNI has not historically asked for anything from the DAO, and given the company’s initial treasury allocation, we are extremely low on POKT in the company’s treasury after token grants and token sales following our launch.

In 2022, Pocket Network Inc. (PNI) has grown in size (e.g., headcount) and scale (e.g., product offerings) as we continue to build out our burgeoning ecosystem. At the same time, the community has stepped up in adding many of its own enhancements and bugfixes to the protocol and gateway. Many of the community submissions, have been reimbursed at rates [1, 2, 3, 4] that go well beyond the average PNI’s staff-members 4-year vesting cycle, as the model used for compensating DAO contributors uses the current value of POKT while PNI has used the arbitrary value of $1.00/POKT, both in the previous bull-market and current bear-market.

Aside from the imbalance around compensating staff-members and DAO contributors, PNI’s own reserves have dwindled down to ~15.3M POKT, which affects our ability to hire top talent. We would like to rectify both of these imbalances by requesting 45M POKT from the DAO to properly compensate current staff-members and bolstering our coffers to hire talent in the future.

Up until now, our primary motivation has been to provide as fair an environment as possible following the launch of Pocket Network in July 2020. To achieve this, we:

  1. Forced all POKT holders, regardless of how long you’ve worked with us or how early you invested, to run a maximum of three nodes for a year after launch (August 2020 - August 2021)
  2. Chose not to run any nodes until December 2022
  3. Left PNI and PNF reserves with 8.9% (57M POKT) each at launch
  4. Sold POKT, at launch, from our treasury to all purchasers, accredited or not, with strong limits on how much could be purchased and strong usage requirements related to staking and using POKT

We began with a supply of 650M and have nearly tripled the supply in 2.5 years with intentional dilution from the initial largest POKT holders. As a direct result, we have created one of the strongest and most committed communities in web3 with what we believe to be one of the fairest launches for new Pocket ecosystem participants.

In addition, the vision of PNI’s future has evolved over the years. Early on, we anticipated dissolving the company, and fully working for the DAO directly. This would have resulted in all of us associated with PNI having salaries paid by the DAO. Today, this is no longer the vision. Automattic, the company that built Wordpress is a great example of how a for profit organization can be synergistic with the broader ecosystem. I am also extremely optimistic with the Foundation’s efforts to continue to reduce friction from the ecosystem alongside PNI.

To build out that infrastructure within the DAO takes time and focus, and we decided to put our efforts in growing the protocol instead. As such, some of the early decisions we made were with a future of dissolving the company in mind.

At the end of the day, our goal is to be a profitable, sustainable company within the ecosystem to show the path forward on how to build more businesses on top of the protocol for other entrepreneurs in the ecosystem.

The history of PNI POKT sales and allocations

We launched mainnet with 650M POKT in circulation. In our docs, the initial distribution has been made public. Including other programs from initial allocations, PNI had a total of 113,750,000 POKT that was not allocated towards founders or employees. PNF began with 57,850,000 POKT. Sales have been made from both treasuries to continue funding operations. From some of the larger POKT vested employees and co-founders leaving, PNI had an additional 36M POKT that was available to sell.

We have made the following sales:

  • Shortly after launch in 2020 we sold $9.5M at an average price of $0.12/POKT between May 2020 and November 2020. This amounts to about 80M POKT.
  • In summer 2021, we along with PNF sold $10.5M at an average price of $0.26/POKT between July 2021 and December 2021. This was about 40M POKT. This was split between both the foundation treasury and PNI’s treasury. PNF sold 26.6M and PNI sold 12.4M.
  • On August 15th, 2022, we made a $3M OTC sale of 18,750,000 POKT at $0.16/POKT.

This results in a total of 138,750,000 POKT sold between the two organizations to help fund operations in building out the current ecosystem. With an initial allocation of 171,600,000 POKT between PNF and PNI, this leaves about 32M POKT between the two organizations. Note that we have grouped the organization’s POKT sales together because most of the proceeds of these sales have gone towards PNI’s operating costs as the core contributors to the ecosystem. This will change with PIP-26, as part of an evolution towards PNF supporting a more pluralistic contributor ecosystem and PNI becoming a more independent organization, and PNI will need to find ways to become a more self-sufficient operation.

Today, our average POKT grant to employees and contractors is around 400k POKT, vested over four years. We scaled the company from 20 people to 65 people over the last 12 months, and most of our existing grants were given when the price of POKT was above $1. We are still early in Pocket’s existence and I believe those who are putting in an incredible amount of effort should be rewarded for this work, particularly in comparison to some of the proposals we have seen throughout the year 2022.

There is a severe disconnect between our average employee grants and what the average PEP asks for in POKT over the last year. This has been pointed out by community members in previous proposals. I can attest that this has caused resentment and frustration at times from PNI employees seeing some of the grants having passed. In the current macro market, I believe we will be in a slog of a market for the next 12 - 24 months, and it’s important that we provide enough incentives for those who are building the protocol and the tooling around it.

Between additional hires and these sales, this has left PNI with 12.5M unallocated POKT on our books.

Needs Being Met

Link to relevant Feature Requests and/or Proposal Requests from the Needs category in Discourse, which your proposal fulfills.

Rationale

There are two reasons in asking for this POKT:

  1. To meaningfully increase the POKT allocations of existing employees and contractors
  2. To ensure we are able to offer competitive packages to future employees and contractors

To date, PNI has funded all operations through token sales. As a result, it has left PNI with limited remaining POKT in its holdings (~12.5M POKT). Revenue generation has just begun, with a clear Go-to-Market strategy and roadmap to grab market share. With 12.5M POKT ($1.2M at today’s market rates) would add only a month to the runway. PNI has operated to date through its token sales with the goal of subsidizing the network to grow it.

With the limited treasury, all grants to employees are negligible in value over a 4 year period. This also misaligns employees who have token grants. With this additional infusion of 45M POKT, PNI bridges that gap significantly in aligning incentives across all stakeholders.

Below are our current usage and allocations of POKT:

In the current market for talent, we need to be able to offer competitive packages of POKT to ensure incentives continue to be aligned.

Budget

The plan for the funds is as follows:

  • 15M POKT will be committed to current staff-members in the form of new 4-year cliff vesting agreements. During each staff member’s vesting period, their tokens will be run in aggregate with PNI’s nodes, and the rewards (less taxes and node-running costs), will be provided to each staff-member once a month. As an individual’s tokens vest, their vested tokens will be removed from PNI’s node-running pool and sent into each individual’s custody to do with as they please.
  • 30M POKT will be committed to future hires to ensure we can offer very competitive packages for high-caliber talent

As mentioned above, while no one has a crystal ball, I believe we will be in a difficult market for the next 12 - 24 months. 30M POKT for future grants gives us the ability to bring on the absolute best talent with competitive packages, given the price of the token today and where we believe it will be in the future. For example, a competitive package of an additional $50k a year (comprising 25% of base salary) in POKT over 4 years, at time of writing results in 3.3M POKT alone.

Dissenting Opinions

Why didn’t you sell POKT when the price was higher to conserve treasury?

Hindsight is always 20/20. We began having conversations around our more recent sale when the price was $0.18. We priced the sale between $0.23 - $0.36 depending on how long the purchaser’s lockup was. Throughout the process the price of the token began increasing significantly, and we were not going to renegotiate with purchasers who had already been partners with us for some time.

Why does PNI stake employees’ unvested POKT?

The reasoning is two-fold:

  1. Many of the individuals we hire come from well established non-crypto tech companies where certain perks, such as ASPP/ESPP or RSUs are commonplace. As we are a private entity, and as we desire to hire experienced talent to grow PNI to compete with other players in the wider ecosystem, it behooves us to compensate these individuals accordingly. As we need to preserve fiat to pay for our non-personnel COGS (e.g., infrastructure-spend, vendor platforms), marketing budgets, and sales budgets, we are able to save on some of the cash using this dividend-like payout on a monthly cadence.
  2. We believe it is incumbent on each individual to understand how the various parts of our ecosystem work, and we believe there’s no better way to do so than making them first-party stakeholders by providing them access to tokens ahead of their 1-year cliff.

Does PNI believe it’s good to control an even larger percentage of the network?

As we plan on running nodes with unvested tokens, and as we do not plan to take on more than 20% of the validator pool, the plan is to methodically add to the servicer and validator pools to stay within those boundaries.

The expectation is for the PNI validator pool to decrease to single digit percentages over time. Over the long run, no single provider should have more than 5% of the network at any given time.

This is 37.5% of the DAO’s treasury. This is far too much after inflation continues to be lowered.

I would advocate for increasing the DAO’s capacity to give more grants moving forward by increasing the DAO percentage. As we continue to lower inflation, I believe it’s going to be critical to get more POKT in the hands of folks who are active in improving the protocol. This means increasing the amount of POKT not in circulating supply via the treasury rather than deleting it from existence. Additionally, as the foundation operations begin to get ramped up, I anticipate more POKT being allocated moving forward.

How can we be confident that you won’t ask for more POKT moving forward?

With the hiring of our CFO, Laxman, we have completely rehauled all our controls and projections. We are in a place where we feel extremely confident that we will never have to ask the DAO for POKT again.

What if this proposal doesn’t pass? What will you do?

We will move forward regardless. Until we have enough POKT in our treasury, it may be more difficult to hire talent as we will be negotiating from a position of less strength. Up until now, it has been PNI that has fundamentally driven the value and growth of the network over the last 2.5 years. By hamstringing our ability to bring on the best, the implications for the network are that it takes longer to hire the best talent, as we cannot offer competitive packages with upside.

Copyright

Copyright and related rights waived via CC0.

8 Likes

I strongly support this proposal.

5 Likes

I strongly support this proposal

5 Likes

I do not hold a vote, but as a community member support this.

6 Likes

I strongly support this.

Even after this payment, the DAO will still have a large treasury and a low burn rate.

Being able to hire more qualified people and further motivate employees is a clear win.

The fact the CFO has confidence that this will not be a recurring ask and is a medium term finance request that should alleviate cost pressures during the current negative market conditions is reasonable and demonstrates clear thought to long term sustainability.

6 Likes

I do not have a vote, but as a stakeholder I strongly support this proposal.

6 Likes

I support this proposal

6 Likes

I support this proposal.
Good luck to us all!

6 Likes

I’m not a DAO voter (yet), but I would like to express a strong support for this proposal.

4 Likes

I support this proposal.
I think it is important to clarify, that this is not a request for POKT tokens in order to sell them to fund PNI operations. This is a request for tokens to allocate to vesting incentive programs, for current and future employees. This is especially important, to retain key employees, in light of salary cuts (average 35%) that have just been implemented. These salary cuts will extend PNI’s runway, a prudent move in this market, as they build out v1.
This is the web 3 version of web 2 stock options for employees. It further aligns the incentives of those employees that are motivated and willing to stay, and work towards and share the long term vision. It rewards those employees appropriately as the token price increases.

7 Likes

I strongly support this.

I am always for employee motivation and having good-quality professionals is a great plus in a team!

5 Likes

I strongly support this proposal.

3 Likes

I strongly support this proposal.

3 Likes

Wild to see everyone support this without much pushback.

How much of PNI’s initial treasury allocation from PoktDAO went directly to employees?
How much has PNI raised to date in USD?

You say PNI has grown in size in 2022, but this was absolutely the wrong decision. PNI should have been cutting headcount, not growing it. The biggest win for Pocket Network in 2022 was LeanPOKT which was actually not supported by PNI in its early stages.

You say there is an imbalance between compensating staff and the DAO, but I believe the DAO has only paid out close to 4m pokt in 2022. How much $pokt vested in 2021 and 2022 for PNI team members? I’ve seen more than couple people from Pocket Network Inc. make the comparison of between how much the DAO pays out and how much the employees earn, this is not right. We should be encouraging more individuals to be paid out from the DAO not the opposite.

To point number 2. You say you chose not to run any nodes till 2022, but Alex the CTO, and Adam the COO, were running nodes with Nacho nodes since August 2021, so that is not correct.

I’ve been advocating for the DAO to spend more funds for the past 9 months, but giving 37.5% to PNI is a bad decision imo. I think we should get some more transparency on where these funds will be allocated and to who specifically. It should probably be paid out in tranches, 10m here, 15m there, once objectives are met. And before this is even close to being put to a vote, I would support paying out LeanPOKT and GeoMesh first.

The DAO needs to move away from paying to PNI specifically and move towards paying projects/individuals. PoktBlade. MSA. GeoMesh team.

If PNI wants to hire contractors, they should be paid directly from the DAO, not to PNI and then to the contractor.

You don’t give very compelling reasons for 45m to be paid out from the DAO other than we need to keep current talent and we need to stake it. There is so much wrong with this proposal and to see a lot of the community support it in its current form is worrisome.

6 Likes

I do not support this proposal. I did not feel comfortable with the quickness to deflect away responsibility for the chain halt during the state of the union, a lack of ownership overall in regards to growing pains within the ecosystem, and growing conflicts of interest in regards to competition with the community they claim to be supporting. I am also unhappy with the feeling that the bootstrapping phase of the pocket network was more an incubation for PNI at the expense of the community during the highest period of inflation.

4 Likes

I do support and happy to vote on this.

It is incredibly important to not only make sure the employees get paid as they deserve, but an additional token compensation provides extra motivation also.

2 Likes

Let’s all remember that PNI is not responsible for bringing inflation down, the DAO is. The DAO is reponsible for all the big wins of 2022 (LeanPOKT, Geo Mesh, PUP-22 FREN).

The situation that PNI is in currently is no ones fault but their own. Not sure how most of the community can continue to trust their decisions without more transparency into who gets what + more accountability going forward.

How much $Pokt has been given out to PNI founders + employees to date? The 4 founders collected 150m $pokt. Let’s also keep in mind that PNI has raised $25,000,000 to date.

The last thing we want is Pocket Network becoming an echo chamber…again.

What has PNI done this past year besides increase head count in a clear bear market, and 2 back to back chain halts?

Pokt DAO has 120m $pokt to spend, we should be moving in the direction of everything being managed by the DAO. If PNI wants DAO monies, then who is getting it, how much are they getting, and what is their role? To treat PNI differently than any other DAO contributor will just get us more of the same.

SendNodes collected 1.3m $pokt from the DAO and sure you could ask 'Well, who did that go to ethen?". But 1.3m pokt is not 45m pokt.

I would love to get some clear answers on how much PNI has in the bank, how much they spend per month, how much $pokt they have on hand, and how much $pokt they earn per week running nodes.

And to my first point, the DAO lowers inflation, and then boom, gives away 45m. Makes no sense.

3 Likes

Agreed! It is alarming that PNI allocated 60 million POKT over a four-year period to only four individuals, while the remaining 62 employees received an average grant of between 400,000 and 700,000 POKT during that time. This creates doubts about the fairness and equity of PNI’s compensation policies. External contributors compensation should not be compared to PNI employees, and PNI employees should not be restricted from contributing and receiving compensation from the DAO. The recent departure of key executive team members, including COO, Cofounders, Lead Engineers, Director of Engineering, and CTO, also raises questions about PNI’s management and operations. PNI has failed to achieve its objectives and has insufficient funds to distribute to employees due to overpayment of early employees, poor sales, and financial mismanagement. It is not the responsibility of the DAO to bail out a failing organization.

1 Like

Hey ethen,

Appreciate your thoughts, but I’d like to clarify a few things.

How much of PNI’s initial treasury allocation from PoktDAO went directly to employees?

PNI was allocated tokens at network genesis as indicated in the proposal and has never asked the DAO for funding up until this point. All token grants have come from PNI’s token allocation.

How much has PNI raised to date in USD?

We’ve sold about $25m in SAFTs and direct sales since we launched. This is highlighted in the proposal.

How much $pokt vested in 2021 and 2022 for PNI team members?

80M in 2021, 50M in 2022

I’ve seen more than couple people from Pocket Network Inc. make the comparison of between how much the DAO pays out and how much the employees earn, this is not right. We should be encouraging more individuals to be paid out from the DAO not the opposite.

No one is arguing against any more individuals getting paid by the DAO, I completely agree with you. This is a big reason why Jack, Dermot and Nelson are taking a more active involvement with the Foundation. They will be able to more effectively facilitate more folks getting paid, and independent teams/companies to receive POKT.

To point number 2. You say you chose not to run any nodes till 2022, but Alex the CTO, and Adam the COO, were running nodes with Nacho nodes since August 2021, so that is not correct.

Alex and Adam who were previously on the team ran an independent node running business, they did not run nodes with PNI’s POKT. We only recently started running nodes with PNI’s POKT to solve a few problems simultaneously:

  1. Secure the network by running a percentage of the validators
  2. Be able to push through consensus breaking changes faster. As the amount of network participants is mature (e.g., fairly decentralized), but as the network is still at an early stage from a technical perspective, having control of a percentage of validators (no more than 20%) allows us to push through upgrades faster with buy-in from the community.
  3. Be able to build the node-running skillset in house, so that we can share the same skills as our node-runners and build tooling to alleviate pain points, both on the devops-side and protocol-side.
  4. Earn POKT for the company.

I think we should get some more transparency on where these funds will be allocated and to who specifically. It should probably be paid out in tranches, 10m here, 15m there, once objectives are met.

We’ve been (and will continue to be) fully transparent about everything related to POKT allocations and sales in the company. We will not give any individual’s numbers. Everyone has full visibility into the company’s finances, sales, headcount, etc. If we are negotiating to bring someone on board, these not having the POKT hamstrings us into needing to put a vote in the DAO - we can’t predict when someone will come on board and how much POKT we’ll have at the time.

And before this is even close to being put to a vote, I would support paying out LeanPOKT and GeoMesh first.

This is a completely independent proposal and should not be a dependency on what they’ve worked on. I would love to see proposals for both.

The DAO needs to move away from paying to PNI specifically and move towards paying projects/individuals. PoktBlade. MSA. GeoMesh team.

PNI has never asked for funding from the DAO until now. We’ve been focused on maintaining v0, building v1, the portal and many other products to help grow the adoption of the network.

If PNI wants to hire contractors, they should be paid directly from the DAO, not to PNI and then to the contractor.

While we are full in support of community grants funded by both the DAO and potentially the foundation. We still feel it makes sense to have a focused PNI core development team working on the protocol and building products to drive adoption to the network.

I did not feel comfortable with the quickness to deflect away responsibility for the chain halt during the state of the union, a lack of ownership overall in regards to growing pains within the ecosystem, and growing conflicts of interest in regards to competition with the community they claim to be supporting.

We take full responsibility for the chain halt and the growing pains the Pocket Network has had over the past 12 months and we have taken steps to ensure there are independent checks against conflicts of interest moving forward.

I am also unhappy with the feeling that the bootstrapping phase of the pocket network was more an incubation for PNI at the expense of the community during the highest period of inflation.

PNI’s mission is and always will be to drive adoption Pocket Network. We feel it makes sense for the community to have a core focused team like PNI driving protocol development and adoption in a sustainable way.

Let’s all remember that PNI is not responsible for bringing inflation down, the DAO is. The DAO is reponsible for all the big wins of 2022 (LeanPOKT, Geo Mesh, PUP-22 FREN).

The DAO and community has done a great job in proposing changes to the inflation which we agree have been for the better and we would certainly encourage more community lead initiatives like this moving forward.

What has PNI done this past year besides increase head count in a clear bear market, and 2 back to back chain halts?

While I agree we should have taken a more conservative approach to headcount growth in light of the current market environment, hindsight is 2020. PNI has been focused on a number of key areas including v0, v1 research, the portal, adding new chains and maintaining relay growth through the bear market.

The situation that PNI is in currently is no ones fault but their own. Not sure how most of the community can continue to trust their decisions without more transparency into who gets what + more accountability going forward.

We have certainly made mistakes, and we will continue learning from them. We are heading in the right direction. We are working to continue providing more ongoing transparency as we scale.

Pokt DAO has 120m $pokt to spend, we should be moving in the direction of everything being managed by the DAO. If PNI wants DAO monies, then who is getting it, how much are they getting, and what is their role? To treat PNI differently than any other DAO contributor will just get us more of the same.

We’ve gone full open kimono on everything related to the company. I don’t think any other company in the web3 ecosystem operates with more transparency than us outside of DAO collectives. We’ve shown our financials, sales, pipeline, token allocations, history of token sales, product roadmap, etc. We are always interacting in the channels, having open and honest AMA’s, etc.

I would say we are held to a much higher standard (as we should be) than any other DAO contributor at this point given everything we’ve shown. We’ll continue to improve our transparency practices as we move forward.

And to my first point, the DAO lowers inflation, and then boom, gives away 45m. Makes no sense.

I would advocate to increase the DAO percentage while decreasing emissions over time. @msa6867 mentioned that this was a proposal he was thinking about as well. I agree with you that we should be more aggressive about allocating POKT.

It is alarming that PNI allocated 60 million POKT over a four-year period to only four individuals, while the remaining 62 employees received an average grant of between 400,000 and 700,000 POKT during that time. This creates doubts about the fairness and equity of PNI’s compensation policies.

To put this in context, most founders of public companies end up with <10% of equity by the time their company goes public. 60m POKT was about 9% of initial supply at launch, and we continued to be diluted as we were only able to run one node for a year. We steadily decreased vesting allocations over time as we felt that we de risked the protocol by launching mainnet, growing as we did.

The recent departure of key executive team members, including COO, Cofounders, Lead Engineers, Director of Engineering, and CTO, also raises questions about PNI’s management and operations.

While there have been a number of changes to the team, this is standard in any high growth startup. The people who got you to point B are rarely those who get you to point C, D, etc. We are maturing as a company. I feel confident with the new team we have today that we are stronger than ever.

8 Likes

Where can I find the information on PNI’s finances and sales?

Genesis Supply (650m $pokt)
Founders - 23.1% (150,150,000 $pokt)
Team 1 - 14% (91,000,000 $pokt)
Advisors - 6.1% (39,650,000 $pokt)
Team 2 - 3.7% (24,050,000 $pokt)

Almost half, for a total of 46.9% of genesis funds were given to team + advisors. Wild.

The day you launch a token is the day you become a public company. This is not web 2. You might be able to extend that a little bit (when OTC sales started).

Do Alex and Adam still have the independent node running company? Likely not, as it was spun up specficially to run nodes for PNI employees. Which is actually fine, I just wish there was more transparency around it at the time.

I don’t think anyone holds PNI to a higher standard. One of the most respected teams (Thunderhead) and devs (Poktblade + Daichi) was basically lambasted for their ask from the DAO, but PNI comes with an ask for 1/3 of the dao funds and within hours has 10+ posts in favor of it.

Before this goes to vote, I think the community should see the sales figures. Pocket Network needs paying customers.

3 Likes