Compensatory Mechanism Proposal

Proposal
So am gonna just get a rough proposal together for my proposal for how to structure the compensation plan.

  1. Make a vault based token that allows the token to be burned for mybal/totalsupply worth assets.
  2. Drop the token to all index holders/lps affected at a $1 to 1 token rate.
  3. All DAO revenue and some dndx revenue sent to the vault. The DAO has ndx to cover expenses doesnt need revenue.
  4. Commit 500k NDX to a backstop whereby when NDX reaches $30 we OTC the tokens, pay back the debt, and then we are free from any debt clouds/holders are compensated fully and soon as possible/good reputation for the project having compd holders.

Why
This would give a secondary/prediction market on repayment, will allow partial repayments (person is happy with 50%, they burn the token when it covers 50% of total debt), with more early people redeeming you have to repay less.

Also allows for speculators to bet on NDX to succeed, buying a token for a small part of what the token will be worth should NDX succeed, which we all expect otherwise why be here. That allows for a competitive market and for those that want to get what they can now to get a reasonable rate, and for those who have compensation tokens to be repaid much sooner than based on revenue only.

Ultimately feel that by combining a vault that pays back based on revenue, has a win condition to free us from any debt based on success and a strong come back, free market to form as a compensation mechanism for both short and long view compensation and the ability to terminate debt early at a discount should be the best way forward that aligns everyone to want the project to succeed.

5 Likes

Looking at the proposal from @pr0 and also the Rari and Pickle solutions I have some general comments without being knowledgeable enough to articulate a comprehensive solution.

  • I like the idea of a token based solution as @pr0 suggested and as used by Pickle
  • The Rari solution of issuance of their governance token does not seem possible given the size of the losses
  • We want to move quickly and avoid needing to apply alot of scarce Core resources to get this done, so speed and ease of implementation are important considerations.

The NDX backstop is interesting and I like the idea that NDX price appreciation could help with compensation funding. I I’m not sure it is reasonable to expect an OTC to be immediately filled, it would look to me like a huge limit order to sell at $30 that would put a ceiling on the price, not that I would be unhappy with NDX at $30 however :wink:

Here are some further thoughts on the compensation plan.

Determining Loss Amount
It seems there is consensus that the loss amount should be determined in US$ for naked Index and LP holders at the time of the exploit, but not those who purchased after the exploit. The determination of the loss amount per wallet should differentiate the Index token losses and any LP losses in separate tranches. The loss amount should be offset (reduced) by the value of any proceeds from sale of tokens or undoing of LPs since the exploit plus the value of the same that has not been liquidated at the time of loss determination calculation. This last point is to account for any residual value that may exist for holders that have not yet liquidated at the time of loss calculation.

I believe the exploiter address and any MEV bot arbs that benefited from the exploit should be explicitly excluded from any loss amount calculation.

Index vs. LP Compensation Ratio
Index holders should be eligible for 100% return of the Calculated Loss.
LP Holders should be eligible for a smaller portion of losses based on the higher Risk/Reward they chose, this probably needs to be determined by snapshot like we did for the dNDX split.

Compensation Token Underlying Assets and Vault Structure
I would like to see a Nirn vault used for the funds backing the Compensation Token using a US$ stable such as DAI or the proposed IBSI Stable index as the underlying asset. We should eat our own dog food as much as possible here and make sure the compensation funds are productive until claimed. This may be aspirational and not practical however in light of wanting to make this happen quickly and without exceptional effort.

Donations/Voluntary Forfeiture of Compensation
It seems that there is some interest in allowing individuals to forgo compensation. I expect this could be implemented with a “burn without claim” option or by simply allowing tokens to be surrendered into the Compensation Vault.
While not binding, I would support a DAO convention that individuals that receive compensation from other sources related to the exploit would be encouraged to forfeit an equivalent amount of compensation from the fund.

Compensation Funding
Funding should continue until the entire outstanding compensation amount has been collected, sources of Compensation Funding should include:

  • 100% of any return of assets by the exploiter or LP/MEV arbs
  • x% of all Protocol Revenue BEFORE the Treasury/dNDX split as already defined so that we don’t completely unwind the recent dNDX launch. This should likely be >= 50% of all Protocol Revenue allocated to Compensation Funding, but something less than 100%.
  • Any available grants/gifts that may be available to Indexed.Finance to compensate victims of exploits (not sure if anything like this exists)

It is a possible, but unlikely condition, that return of assets could occur in the future (i.e. court resolution or settlement) resulting in the compensation fund being over funded. I think this unlikely condition could be upside to benefit of the compensation token holders.

Review of LP Incentives
I believe the current LP incentive program is too generous, and in this time of financial pressure changes should be made to preserve treasury resources that are likely better allocated to TVL growth. I would like to see us go ahead with the Olympus Pro “pilot” using DEGEN or the “New” index to replace DEFI5/CC10 and expand the program if it is successful to move towards Protocol Owned Liquidity.

I’m sure there are more topics and parameters to discuss and I look forward to the dialog and coming to a relatively quick set of decisions and implementation to restore trust and confidence.

2 Likes