New Compensation Scheme: Cut and Paste
Why DAO-Controlled Retro-Funding is an Absolute Necessity
In clear violation of transparency and conflict of interest principles, Michael’s current plan allows him and his co-directors to make decisions behind closed doors on their own compensation. In addition, our DAO-administered retro-funding scheme allows for reducing the price-target milestone rewards if necessary to protect the health of Pocket Network, thereby avoiding the possibility of large payouts that could drain the treasury and leave the DAO unable to fund vital operations. Other reasons why our retro-funding scheme must replace the current compensation plan are detailed below.
Overview
Below you will find the fully developed retro-funding scheme that we propose in place of the current compensation scheme of the Second Revised version of PIP-38. Supply growth calculations (by Ramiro) show that the number of tokens available as rewards for hitting each price target is very similar - and for the $1 and $5 marks, even larger. Price targets will be deemed to have been hit based on a 120-day TWAP to ensure that rewards are paid for improvement of POKT fundamentals, not price blips. The benefits of our retro-funding scheme will be summarized in bullet form at the end of this post.
Cut and Paste
We recognize that replacing the current compensation scheme of PIP-38 with several rounds of retro-funding takes time and that the effort needed to draft this change might work against its adoption. Accordingly, to spare Michael the work involved, and to help move the proposal to a speedy vote, we provide below the amended scheme that Michael can cut and paste into the final version of PIP-38.
Current Compensation Scheme
Replacement Scheme: Retro-funding Rounds
Cut and paste starts here:
POKT Performance Remuneration
Approve the following incentive-based retro-funding rounds for Pocket Network developers and contributors.
The Foundation board of directors shall organize retro-funding rounds to reward developers and contributors to the Pocket Network when the POKT token price reaches each of the following targets:
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$0.50:
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$1.00:
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$3.00:
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$5.00:
*All prices are the average trailing 120-day price based on data available at coingecko.com.
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The price targets must be achieved within three years from the passage of PIP-38, though the DAO can extend this time frame by vote that terminates before the three years lapse.
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Payment of the retro rewards will come from the DAO treasury, be held separately in a multi-signatory wallet controlled by the Foundation board of directors and be distributed to the various developers and contributors as per voting by the DAO.
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PNF will create a neutral committee to oversee all retro-funding rounds. The composition of the committee can vary between rounds.
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Depending on tokenomics at the time of the retro-funding rounds, PNF may require that token grants, or a portion thereof, be locked for a given time period from the date of receipt, with a set percentage unlocking each year thereafter.
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Retro grants will be awarded to applicants whose work is shown to have had a positive impact on the token price and on Pocket Network fundamentals. The DAO may choose to widen the scope of recipients to include other contributors to the network or ecosystem generally.
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The Grove team behind the work on Shannon and launching it on mainnet will be eligible to apply for retro-funding as part of the first round held after Shannon’s mainnet launch. Payments Grove employees already received for their work on Shannon could be considered in determining the size of any retro grants.
Percentage of ‘Value Created’
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The DAO will allocate 20% of “value created” for retro-funding grants after achievement of the first milestone ($0.50) and 10 percent for the $1, $3 and $5 milestones. “Value created” is defined as the total of POKT tokens in the treasury wallet (6386713deb27b609daad5e2e32ee6591753e5f4e) multiplied by the price target that was reached minus the amount of POKT tokens in the treasury wallet (6386713deb27b609daad5e2e32ee6591753e5f4e) at the time of PIP-38’s passage multiplied by token price at that time. PNF or the DAO can reduce the percentage of “value created” to be distributed at each milestone if necessary to preserve the value of the POKT token and Pocket Network health.
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If a price target (or targets) has (have) been achieved before a funding round for the previous price target has started or if it has started but the application window is still open, the two (or more) rounds, together with their respective reward pools, shall be combined into one.
Cut and paste ends here.
The following chart exemplifies how the size of a retro-funding rewards pool will be determined.
| Item | Amount | Note |
|---|---|---|
| Treasury Amount | 30,554,471 | 6386713deb27b609daad5e2e32ee6591753e5f4e |
| Current POKT Price | $0.04 | Needs to be calculated at time of passing |
| Current Treasury Value $ | $1,222,179 | Needs to be calculated at time of passing |
| Future Treasury Amount | 300,000,000 | Input |
| Future POKT Price | $1.00 | Input |
| Future Treasury Value $ | $300,000,000 | |
| % Payout | 10% | |
| Value Increased | $298,777,821 | |
| Payout $ | $29,877,782 |
The following chart compares the maximum rewards available for retro grants at each milestone with the payouts proposed under Michael’s current compensation scheme.
| Quarter | Supply POKT | DAO Treasury | DAO Value | POKT Price | Tag | DAO Treasury Change | Milestone Reward | Milestone POKT | Mike Proposal | Diff | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Q0 | 1.68B | 30M | $1.52M | 0.05 | Today | 0 | $0.00 | 0.00 | $0.00 | $0.00 | |
| Q1 | 1.77B | 93M | $4.69M | 0.05 | - | ||||||
| Q2 | 1.86B | 160M | $8.01M | 0.05 | $6 M | ||||||
| Q3 | 1.95B | 230M | $115M | 0.5 | 1st Milestone | $113M | $22M | 45M | 48M | $24M | -$1.28M |
| Q4 | 2.05B | 303M | $151M | 0.5 | - | $150M | |||||
| Q5 | 2.15B | 380M | $190M | 0.5 | - | $188M | |||||
| Q6 | 2.26B | 461M | $230M | 0.5 | - | $229M | |||||
| Q7 | 2.37B | 546M | $546M | 1 | 2nd Milestone | $544M | $54M | 54M | 48M | $48M | $6.46M |
| Q8 | 2.49B | 635M | $635M | 1 | $633M | ||||||
| Q9 | 2.61B | 728M | $728M | 1 | - | $727M | |||||
| Q10 | 2.75B | 827M | $2.48B | 3 | 3rd Milestone | $2.48B | $247M | 82M | 98M | $294M | -$46M |
| Q11 | 2.88B | 930M | $2.79B | 3 | - | $2.78B | |||||
| Q12 | 3.03B | 1038M | $5.19B | 5 | 4th Milestone | $5.19B | $519M | 103M | 98M | $490M | $29M |
Comparison between retro-funding and Michael’s current compensation scheme
Comparing the proposed retro-funding method with Michael’s scheme, we see that the total pay package values for each scheme are very similar: slightly lower at $0.50, $6.46m more at $1, and $46m less at $3 and $29m more at $5.
The retro-funding rewards pool sizes noted above will be reduced by any DAO spending.
As the DAO treasury will be growing at a fast clip due to the 75% DAO take, the longer it takes to reach a milestone, the fatter the DAO treasury will be at that time and the larger the POKT pool available for payment of retro-funding grants.
There is a clear correlation between the wealth of the DAO and the rewards that it will be distributing for each milestone. This is much healthier for the DAO’s finances than being locked into paying compensation irrespective of the treasury contents as in Michael’s current version of PIP-38.
Why DAO-controlled Retro-Funding is Superior to the Current Scheme
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Better for Decentralization. DAO keeps control of its treasury (better for decentralization). There is absolutely no justification for the DAO to relinquish control (to PNF) over the distribution of its treasury funds as part of a compensation scheme; maintaining control over compensation spending in no way interferes with PIP-38’s core objectives - revitalizing Pocket Network and lifting the token price.
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Avoids Egregious Conflicts of Interest. Having the DAO make decisions on the compensation spending will address the inevitable conflicts of interest that arise when PNF directors seek a piece of the compensation pie. Leaving the decision on how to apportion compensation to the directors will lead to an untenable conflict of interest. Even if they were to recuse themselves from voting on their own compensation, having the directors vote on compensation for their co-directors is equally unacceptable.
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Transparency and Fairness. A close-door process where the Directors (including the Executive Director) decide on their own compensation violates DAO principles of transparency and fairness. Further, while PNF may publish the reasons for its allocation decisions, by having the DAO control the grant application process, openly engage with applicants, and vote on the grants, the process will be far more fair and transparent.
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Flexibility. The DAO or PNF can decide to reduce the reward pool size if necessary to protect the token value or health of Pocket Network. This makes it possible to avoid large payouts that could drain the treasury, leaving the DAO unable to pursue other important activities. Also, based on tokenomics at the time of each retro-funding round, PNF will decide whether to require reward locking and unlocking periods.
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Consideration of Previous Payments and No Double Dipping. Eliminates the separate funding round for the Shannon shippers upon Shannon mainnet launch, and instead, makes the Grove dev team eligible for additional compensation at the price milestone that follows the launch. This avoids a situation where they get rewarded twice for the same work, and also allows the DAO to consider any previous payments from Grove in determining appropriate additional compensation.