Proposal
Authored by MrKvak and Milamber on 16 Feb-23 with review from the Treasury Council
Proposal: https://docs.google.com/document/d/1xH6-ryg8a7BxsxbWMM5qxcJxLkUoEzJLY6l7sXaD_-Y
Workings: https://docs.google.com/spreadsheets/d/1TE53wolq4BdK9Fx1Bc_tDDggcNzXosDHyiLrTzHUlqs
Summary
We propose to establish an incentive scheme for the executive team (comprising Defi Ted, FlapJackson, JCrew, Milamber and Rhagga) in order to ensure their long-term motivation and incentivisation to drive the business forwards and maintain the high work standards displayed to date. We propose to i) return Defi Ted his donated founder voucher; and ii) grant each party 500k PDT vested over two years, and 3x additional 100k grants should PDT reach and maintain $1, $3 and $8 respectively for 30 days (4m total).
This scheme is intended to mimic a typical employee share option scheme (instead, using the governance token) and does not preclude team members from participation in any other bonus or incentive scheme the DAO may implement.
Motivation
It is common practice in start-ups to incentivise founders and key personnel with grants (particularly while a business is pre-revenue) in order to ensure their motivation to work hard and drive the business forwards in line with the stated mission and goals, with the carrot of a future large windfall. As a small decentralised entity, ParagonsDAO’s success is heavily reliant on the work and guidance of its lead core contributors, who are remunerated well but have no significant financial stake in the DAO.
The Treasury Council has recently completed the buyback of 9.9m PDT tokens from inactive founders at significantly discounted rates (in addition to Defi Ted donating his own 1.2m share), and also halved the DAO’s Uniswap liquidity resulting in another c.11.5m PDT coming back into the Token Treasury multisig.
As such there is an opportunity to repurpose some of this recaptured PDT and model a viable incentive scheme for the Executive Team (and other stakeholders) to support long-term participation and effort.
Specification
Determine maximum amount of recaptured PDT available for repurpose
The founder buyback successfully recaptured 9.9m PDT tokens (vested and unvested) for $211k or roughly 2c per PDT. After the full redeployment of Uniswap liquidity, the Token Treasury received a net 11.5m PDT tokens in. Combined, there is a maximum 21.4m of recaptured PDT for consideration.
Determine personnel eligible for participation in this scheme
The senior team consists of Defi Ted (Project Lead), FlapJackson (CMO), JCrew (Growth), Milamber (CFO), Rhagga (COO) and Tea (CTO), who all individually lead areas of the DAO’s operations. All will participate in this scheme aside from Tea, who will participate in the separate Dev Team Incentive Scheme.
Return Defi Ted’s PDT founder voucher containing 1,234,567 tokens
We recognise Defi Ted’s exceptional contribution to the DAO since project launch and throughout the challenges of 2022. While the donation of his tokens was admirable, if anyone deserves to keep their founder tokens it is him, therefore we propose to return his donated founder voucher in full.
Design an incentive scheme for the Executive Team and obtain approval
A fair and balanced plan will be created, treating each team member equally and without using an excessive amount of treasury funds, while still being a motivating incentive. The draft proposal below suggests a base award of 500k PDT per team member vested over two years, and 3x additional 100k grants should PDT reach and maintain $1, $3 and $8 respectively for 30 days is reasonable and fair. Post-feedback, this should be voted on and ratified by both the Core Contributor and Treasury councils.
Ringfence the PDT allocated to the scheme in a separate multisig
A new multisig, controlled by the Treasury Council, will be created and the maximum PDT award (4m) transferred to it so that funds are not mixed with existing treasury assets to be used for operations.
Monitor team and token performance, execute transactions as required
A monthly payment plan will be set up in Utopia for 1/24th of the total base award (500k) for each person. These payments will be executed at the end of each month by the Treasury Council, subject to satisfactory performance and continuing “employment” of the contributor in question. The token price will be monitored in the event that an additional grant is close to being triggered, with amounts paid out once the relevant conditions for payment have been met (i.e. price maintained for 30 days).
Workings
Proposed incentive scheme structure
The workings below show the proposed incentive scheme structure based on the five eligible team members. This suggests a base grant of 500k PDT per team member (to be vested over 24 months), followed by three additional potential grants of 100k per team member at various price points for PDT (which will be payable if the token remains above such prices for at least 30 days). Salaries are redacted.
A successful executive remuneration scheme in start-ups or other performance-driven organisations has several elements to them, which has informed the logic used here to create this proposal:
Base salary (stables)
The base salary is in place to remove financial stress from contributors and should not be demotivating. Ideally it is sufficient remuneration to allow the individual to enjoy a good quality of life day to day, but the goal is primarily to allow the individual to reliably pay bills and not make someone wealthy in itself.
Base salary (PDT)
In the absence of “equity” some contributors have chosen to take part of their base remuneration in PDT, increasing their governance in the DAO as a whole. The contributor may also negotiate a slightly higher salary by taking an element in PDT vs. USDC.
General performance bonuses
Organisations may review performance annually and may choose to award personnel with an additional payment as a thank you for their hard work. The DAO does not yet have a general incentive scheme in place, however the Executive Team should not be excluded as a result of introduction of this scheme.
Grants/bonuses (base PDT grant)
Every eligible Executive Team member should get a significant PDT grant subject to vesting (500k), which is similar to an equity award in a typical tradfi start-up (instead, using the governance token). If the project succeeds this will give the individual a large financial reward, and if not they will not have suffered a negative personal financial loss. This award should be paid monthly over 24 months, effectively simulating vesting, but paid out of a Treasury Council controlled multisig for ease. If a contributor subsequently leaves the DAO, they forfeit any remaining PDT to be distributed from their grant to be used as determined by a future council vote.
Additional incentives/options (price-based PDT grant)
Though PDT is a governance token, the market gives it a value, and perceives ParagonsDAO’s success in terms of market price. Although we don’t encourage speculation nor suggest PDT will provide profits, we do need simple systems that give the team a shared goal to position the DAO and its stakeholders to success. The shared goal of long-term PDT price appreciation is the best simple goal we can have as a team and community, so the scheme contains an uplift for scenarios where the price of PDT grows. These are three grants of 100k PDT per team member should PDT reach and maintain prices of $1, $3 and $8 respectively for 30 days.
Recommendation
We recommend the above proposed structure for the Executive Team Incentive Scheme is enacted. We believe the base amount to be reasonable at today’s prices (c.$150k), and stretch targets reasonable being that they are based on price targets that would mean the overall perceived value of the project has grown. Additionally this represents only a small part of the total recaptured PDT from the founder buyback.
Rationale
An incentive scheme will motivate and incentivise key personnel long-term
It is common practice in start-ups to incentivise founders and key personnel with grants (particularly while a business is pre-revenue) in order to ensure their motivation to work hard and drive the business forwards in line with the stated mission and goals, with the carrot of a future large windfall. As a small decentralised entity, ParagonsDAO’s success is heavily reliant on the work and guidance of its lead core contributors, who are remunerated well but without having governance in the DAO. This scheme will ensure that they remain properly motivated and committed to the DAO for the long-term.
This is simply a repurposing of founder tokens bought back at a large discount
9.9m PDT tokens were bought back from inactive founders at significantly discounted rates (c.$0.02c average), as well as another net c.11.5m PDT coming back into the Token Treasury multisig from the Uniswap LP redeployment. This proposal seeks to redistribute just 10-20% of this PDT to the new key contributors to the DAO who are critical to ensuring it succeeds in its mission. These are effectively new founders replacing old founders, being rewarded at a cost to the DAO of just ⅓ of the current price.
It is a small initial outlay to secure the services of key personnel long-term
While the total potential market value of the award in USD could be over $6m, the majority of this is subject to significant token price appreciation which would benefit all holders and the overall value of the business. The base or committed portion of the grant is just $150k at today’s market value, which is a small price to potentially secure the services of the DAO’s key personnel for the next two years. Being that most of these tokens were rebought at $0.02c, the true cost is even lower at c.$50k across all five team members.
Other team members will be captured in separate schemes
This proposal is intended to capture the Executive Team, however they are not the only contributors to the DAO who are critical to its success. A separate proposal will be shared alongside this one focused on the dev team and incentivising the build of our core products, and in future we intend to implement a general scheme which captures all personnel across the DAO so that everyone shares in its success.
Timeline
Within one week of this proposal, subject to Treasury Council approval at its next meeting.
Costs
Up to 4m PDT with a minimum of 2.5m PDT as a base award, with a further 1.5m PDT achievable. The initial base outlay represents a $50k cost to the DAO (being repurposed founder tokens bought back) or $150k at today’s prices.