Compensation payout in USDC stablecoin (full or in partial)

Hello fellow DAO members, I’d like to preface this proposal by saying as one of the newer members of the group that I feel a bit out of my depth posting this. However, I’ve had a few discussions recently that lead me to believe it is a conversation worth having, especially at this point in the DAO’s development. Although I do have an opinion on the topic, the driving motivation behind this proposal is ultimately just to raise the question and establish how the DAO wants to move forward on this matter.

As most of you have likely heard, we are getting closer to receiving full execution of the agreement between The Graph Foundation and the DAO, which will subsequently clear the path for the Graph Foundation to provide funding for the DAO. Although I am still quite new to the DAO, it is my understanding this has been long awaited and will mean the DAO will be able to proceed with compensation payouts for epoch 0, 1 and 2 (which ended yesterday – May 31st).

The delay in executing the agreement (and thus receiving funding) may have created an opportunity for the DAO to consider a potentially positive proposal. Currently, compensation is scheduled to be paid out entirely in GRT, since the entire DAO funding will be received in GRT. However, it may be worthwhile to consider engaging with the Graph Foundation to discuss the feasibility of the DAO receiving partial or all funding that is budgeted for compensation in USDC stablecoins instead. This idea, if permissible by the Charter and agreeable to the DAO and the Foundation, would provide DAO members with a greater degree of consistency and fairness regarding the value of compensation they receive at the time of payout.

As an example, in epoch 2 for May, the GRT conversion rate that is set for May is $0.42 while the current price of GRT is currently around $0.15 at the time of writing. This means, under the current model DAO members would receive an approximately 60% reduced value at the time of payout. While it’s understood that these changes can go in both directions, it exemplifies the high range of fluctuations crypto currencies have historically experienced and are likely to continue to experience for the foreseeable future.

I believe that switching to a model of entirely USDC compensation would benefit not only the DAO members individually but also each of the three committees collectively (who must create quarterly and yearly budgets that include member compensation) by providing consistency and reducing workloads by removing the need to create, monitor, modify, and communicate the GRT conversion rates on a regular basis. It should also be said that there’s nothing stopping DAO members from converting USDC to GRT on their own after receiving the payouts if they were so inclined.

There is also the option of a “blend” model: Partial GRT and USDC compensation. I think there are some benefits with this approach, however, I personally think it would get quite complicated very quickly and require unnecessary work for DAO members/committees (both of which already have their hands full).

I’d like to emphasize that any change of this magnitude should be based on principle and not merely the current price. There is obviously the chance that DAO members could benefit from the current model in future epochs, and it would look poorly on us a group if we were to request a switch now because of unfavorable directions, only to go back to the Foundation asking to switch back on the heels of potentially favorable directions in future epochs.

One very important item to address if the group does vote to make changes to the current compensation model is ensuring that the current charter language could allow partial or all compensation to be provided in stable coins (USDC). With that in mind, I’m CC’ing @dannyb here for his input.

Lastly, to provide additional clarity on the proposal, here’s the [Graph AdvocatesDAO Financials File] (https://docs.google.com/spreadsheets/d/1cp8PA9ihOQJvCzE8NfYNV1N5fGo1QN2LlXt0snlGzYI/edit#gid=835093003) that details the Q2 budget of the DAO. We are expecting a total funding from the Graph Foundation in the amount of 624,750 GRT. You can see that $61,500 is earmarked for compensation (currently expected to be funded 100% in GRT). That $61,500 is the amount in question, whether it should be funded to the DAO (partially or full) in USDC.

With all of that said, I have created a poll that DAO members can vote on below, please vote for the structure that you prefer.

Which Committee compensation structure do you prefer?
  • 100% USDC / 0% GRT

  • 75% USDC / 25% GRT

  • 50% USDC / 50% GRT

  • 25 % USDC / 75% GRT

  • 0% USDC / 100% GRT (current structure)

0 voters

7 Likes

Thanks for the idea, and I want to share some of my perspectives on a payout in USDC.

Payout in USDC is better for the sustainment of members’ lives in a stable way, but there might be a tax problem on both the foundation and members.
I think the core teams may have some similar issues on the payout.

And in my opinion, if it’s implementable that we just need to choose the structure between 100% USDC and 100% GRT to avoid calculating problems.

7 Likes

Thanks for bringing this up @Mr.1776

This is an important conversation to have, especially as DAO members will soon likely want to host or attend IRL events that require payment in their local fiat currency.

Unpredictable GRT price volatility complicates the logistics of event planning since DAO members (and Advocates) cannot accurately forecast the fiat currency-equivalent value of GRT very far into the future.

Stablecoin payouts to members in USDC would provide protection from volatility, but converting between USDC and USD (or local fiat) will likely incur tax liabilities for individual DAO members and/or Advocates (even though they are using funds to support DAO success). I’d like to protect DAO members from exposure to tax liability as much as possible. Additionally, I think we want to encourage protocol participation (i.e. delegation, etc.) so paying 100% in something besides GRT doesn’t encourage protocol participation (without potential token conversion tax implications).

Reserving venues and catering will likely require fiat currency for the foreseeable future (at least a couple of years), so perhaps we should discuss a “normy logistic fund” for when DAO needs to interact with fiat currency-only businesses. A reserve of USD (and other local fiat currencies) could be helpful for navigating these sorts of situations.

This is a tough one :laughing:

3 Likes

Thank you both @jiimxjim.eth and @pakaliscious for your feedback. It really is a tough one!

The tax implications are critical. If they cause tax challenges for either the DAO members or The Foundation then a payout in USDC is likely not feasible. Do we know if there any members in the DAO or core teams who have expertise/experience in this area or know someone who can provide insight on this?

@jiimxjim.eth I agree that whether it’s USDC or GRT, providing compensation without a split seems optimal for efficiencies sake.

@pakaliscious I also agree that the funds provided for compensation would ideally go back into The Graph network (that’s what I’ll be doing whether it’s GRT or USDC) but I do believe there is some portion of the DAO members that hope to use the compensation as more of an income source than a source of funds for delegation/investment. However, to your point, if it exposes DAO members to unnecessary tax events it’s almost certainly not worth it.

Lastly, to your question about reimbursement for events: I believe there’s already language in the charter to provide reimbursements in USDC. It’s just compensation that is currently restricted to being paid out in GRT.

Thank you both again for your feedback!

3 Likes

I would be in favor of full payment in USDC. Personally I will likely just swap this into GRT upon receipt (since this income is mostly side money to increase my delegations).

I think an important thing to highlight here is that since we receive the grant funds at the start of the quarter, if we try to budget at the beginning of the month based of the TWAP of GRT, we can unintentionally create a bigger portion of our budget going to compensation which can shrink the amount we’re able to pay out for grants (which is obviously not what any of us want).

6 Likes

Thank you @DataNexus for explaining things better than I have been able to thus far.

I think it is important to note that this isn’t simply a decision about how each DAO member wants to be compensated. I too am in favor of switching to a full USDC compensation, but would also convert it all into GRT for delegation.

Although this may seem inefficient at first glance, I would like to reiterate what @DataNexus expressed above: Providing compensation in 100% GRT seems like it will create a significant challenge for the DAO committees when creating and operating within budgets. If GRT rises significantly we have less to distribute to advocates grants and reimbursement because it’s going to DAO compensation. If GRT drops significantly we distribute less to DAO members for compensation than expected at the beginning of the quarter.

The current -60% deficiency in the GRT conversion rate for DAO compensation displays the kind of volatility we can see within a quarter. Not only is this likely discouraging to the DAO members who have poured themselves into the first three epochs, but if we had been giving out reimbursements and grants throughout the quarter it seems we would’ve had to monitor the status of the compensation conversion rate before approving each grant/reimbursement.

Tax guidance is still really needed here as that will shape the discussion dramatically. Anyone who has expertise or experience in this area please chime in. Also adding @dannyb again to see if a switch to USDC is even permissible per the charter.

Thanks again to everyone who has provided feedback and votes so far!

5 Likes

This is a very interesting debate. I think payment should always be in GRT. USDC is a stablecoin that is not issued by The Graph.
A way to support and validate the protocol is to have any compensation in GRT.
I think we should analyze the situation as DAO members. I think it is not beneficial for the community to see that payments are made in stablecoin instead of GRT.
We could establish a payment that take into acount the EMA 7 (when the payment is in different periods), to update at the time of payment.

2 Likes

The GRT that we would be receiving is not newly issued by The Graph, but it is instead coming from already issued GRT that is held by The Foundation (@Oliver you can correct me here if I’m wrong on this point).

As a possible solution, we may be able to receive our quarterly compensation budget in the form of USDC, but actually pay DAO members in GRT, then we replace the GRT by swapping our USDC to GRT. This would essentially ‘refill the coffer’.

The main problem I want to avoid is in scenarios like we’re currently experiencing where we would receive 624750 GRT for the quarter, which at current prices would not cover the DAO compensation and expenses (let alone the grants we all want to fund etc.)

3 Likes

Great discussion and super, super important! I recall having a similar conversation on this topic in the very early days of the DAO, so it’s nice to see everyone resisting and considering important topics.
I don’t have a strong position on this issue, but I do have some thoughts.

First, as already noted by everyone who has posted, the value of GRT directly impacts the DAO’s budget and flexibility to fund community projects - a risk that the DAO needs to develop competency in managing. (For anyone who hasn’t thought through the math, here is a simple example: Let’s assume the DAO determines it will always provide 100,000 GRT per quarter to Event Evangelists for events. If GRT is valued at .10 USD, then one $2,500 event held by an Event Evangelist would require 25,000 GRT to fund; whereas if GRT is valued at .50 USD, one event would require 5,000 GRT to fund. Consequently, at a value of .10 USD, it would take only 4 total events during the quarter (at a price of $2,500 per event) to use all the budgeted 100,000 GRT, whereas at .50 USD you could host 20 total events.)

Second, I highly doubt the DAO will be funded in anything other than GRT. Based on my recollections of early conversations around this topic, I recall a firm position on the issue of funding to the DAO being in GRT (@Oliver may be able to further illuminate or correct me here).

Lastly, if my assumption about the funding to the DAO will be in GRT is correct, then I would propose that the DAO needs to reframe this discussion in terms of what it plans to do upon receipt of funding because it is only at that time where the DAO can actively manage some of the risks, such as moving some/all of the GRT into a stablecoin, etc. I would also argue that the DAO needs to also develop competencies around forecasting/modeling so that, for instance, the DAO doesn’t find itself in a position where it’s urging Event Evangelists to have more events but the DAO can’t fully fund them.

4 Likes

Thank you Kyle for posting this proposal and everyone for their active participation in the discussion. Appreciate everyone’s feedback on this topic. To clarify a few things that were mentioned throughout this thread:

* What part of the overall budget is proposed to be paid out in USDC (full or partial)?

The proposal only covers the DAO committee compensation budget, not anything else. Out of the total $255K USD for Q2, that would only apply to $61.5K USD earmarked to be distributed across DAO members for compensation

* Why not propose USDC for the entire budget?

Nick is correct in saying that there has been high motivation so far in the Community Grants program to pay out grants in GRT, for all the reasons mentioned in earlier conversations. I would expect this still to be the case today. However, I believe there is an open line of communication available with the Graph Foundation to have discussions on USDC payout with regards to compensation budgets, as that part is recognized more as ongoing contribution income. If DAO members may not want to be exposed to such high fluctuations in return for income of their work, then I the Graph Foundation may show appreciation for that.

* Risk mitigation of GRT fluctuation

We have included in our budget a 15% buffer for GRT price fluctuations relative to the price that was used to request funding for the quarter. In other words: if the DAO applied for funds at a time when GRT price = $1.00, then there is enough GRT budget available to cover all of the budgeted costs for the quarter down to a GRT price of $0.85. We’ll have a shortfall once price fluctuation go beyond negative 15%, like we’ve seen happening during Q2 over the last couple of months

2 Likes

I highly value the financial security distributing the DAO committee compensation in USDC would give to DAO-committee members.

2 Likes

Risk mitigation of GRT fluctuation

To your point here, it sounds like you’re saying by issuing in USDC, we (as a community,) risk a budget-shortfall. However, if we keep pay-outs in GRT, we won’t “stress the system” or stress our GRT budget, is that correct?

Actually, it’s the other way round. For now, I would disregard the idea that the DAO itself would conduct token exchanges from GRT to USDC. That wasn’t included in the proposal, and that idea itself would have some complexities of its own.

The proposal asks whether the DAO should receive some of its funding from The Graph Foundation in USDC, for the compensation budget. We have earmarked $61,5K USD of the funds we receive from The Graph Foundation for compensation. However, under current agreement we will receive that amount in GRT and the exact conversion for that is 146,428 GRT since the GRT conversion rate at the time the budget was approved by the Graph Council was $0.42. Currently, the price of GRT is $0.10, reflecting an ~80% drop of the budget in fiat value.

Hence, if we were to pay out epochs 0,1,2 per the current structure, then DAO members would receive ~80% less than what they had expected in fiat value. If someone thought they had received $1,000 USD in total compensation, then that is currently only valued ~$200 USD based on current GRT price. Anyone who intended to keep their GRT and put it in the protocol might not be worried about it, but those who planned on paying bills off their compensation might be really concerned.

These swings can also go in both directions. Right now, we’re in a bear market. When the market goes the other way, then there is a chance for DAO members to gain in fiat value, where an expected $1,000 compensation turns out to be $1,200 or $1,500, etc. at the time of payout. Goes both ways, and I agree with @Mr.1776 initial assessment that our decision today should not be dependent on current market conditions, but rather how we think about it fundamentally. It would be poor reflection on the DAO to swing back and forth on that question with the market trends.

5 Likes

From a US tax standpoint, it doesn’t matter which token is received- the Feds want a slice either way. :roll_eyes: Denominating the compensation in USDC is probably the simplest and least volatile method. I don’t have a strong opinion either way, but I tend to favor less-volatile, more stable options. Overall, I prefer receiving the originally intended amount, and forgo the future possibility of receiving “extra” value. Either way, mine’s going back into delegation or curation, so it’s not a huge concern for me.

4 Likes

Confirming that DAO has voted to change compensation payout for DAO Committees to 100% USDC

1 Like