Align Team Incentives Through SushiMaker Upgrade

Summary

Currently the Sushi team’s compensation is not aligned with the goals of the DAO.

Through a simple upgrade to the SushiMaker contract we can ensure:

  • Ensure the team has appropriate compensation.
  • Ensure the Onsen program has adequate funding and isn’t dilutive.
  • Create a Sushi burn to offset Sushi dilution.

Specification

In the repo above, we’ve outlined a proposal that would create:

  • 8% of Sushi fees going to the team treasury each year to help solve compensation issues in a sustainable way without diluting from the treasury, and while aligning goals as if the team wants to boost compensation they can do so by boosting volume.

  • 8% of Sushi fees going to an Onsen vault to be used in rewards, so that these rewards are no longer diluting Sushi but instead done through market buying.

  • 12% of Sushi fees sent to the burn address to help offset previous inflation and benefit the governance authority of sushi and xSushi holders more evenly across the board.

  • 72% of Sushi fees staying with the current xSushi program.

While this reduces the current fees to the xSushi staking program it should actually have a higher net impact by preventing on-going inflation, adding a burn to offset previous inflation, and improving the core teams ability to hire and execute on growth.

Poll

  • For New SushiMaker Proposal
  • Against New SushiMaker Proposal

0 voters

4 Likes

Points 1 and 2 are things I have been thinking about a bunch as well.
We need to create a revenue stream if we want to be able to keep putting out good products. If we want to stay competitive we have to pay competitive salaries and don’t be afraid to use our treasury. This is only possible if there is money flowing back into the treasury.

I have been worried about what will happen to liquidity once emissions end. I am not sure if 8% of the fees will be enough to really solve that problem, but it’s a step in the right direction.

The only thing I am not sure about is burning 12% of the fees. This money would, in my opinion, be better spent on the treasury or the Onsen vault.

I am going to agree here since it is an improvement to the current SushiMaker, but I would prefer to see a version without burning, or to switch the burning off at a certain point in the future and move the fees over to treasury and Onsen.
For example as long as Sushi supply is above the desired amount of X there will be 12% of fees burned, once supply is below that we will split those 12% up. 6% will move to the treasury and 6% to the Onsen vault.

3 Likes

I like utilizing this method as a way of incentivizing the team to continue to progress the platform. Is there details somewhere about how they are currently being compensated? Are they getting any sort of accrual like this already? If so at what rate?

As I mentioned in the discord, this is similar to how financial companies currently operate. They take a % of revenues every quarter called a ‘comp accrual’ and put it into the comp fund. We can utilize a similar method. A % of all fees goes to fund compensation for the team that develops and operates SushiSwap. Want more comp? Progress the platform and drive higher fee revenue. Similar to say, an actual exchange.

I think 8% should be enough because the don’t need to be used right now, so there should be a healthy runway built up before emissions end.

The growth of Sushi’s value would also help with that.

Part of the issue is just cycling these back into the vaults doesn’t help evenly, it encourages them just to be dumped.

But, if there is a burn that is capturing that value, it means that the price point of the Sushi that is directed to the vault and the Onsen (as well as to xSushi) should increase in proportional value overtime.

This means you are better encouraging the treasury, the Onsen vault and xSushi holders to hold over a long time period and be less likely to be constantly cycling the asset.

Not a bad idea, but certainly an increase in complexity in terms of setting fair targeting. Often with targeting you create the wrong types of incentives.

Conditional logic would also be a larger increase in gas, but may be fine if the logic was pulled out into a splitter contract.

Not as far as I’m aware. I think salaries are just currently set based on the Sushi treasury and that Sushi is sold.

Which is not a healthy and sustainable model.

2 Likes

Thank you for your answer. You have a point and I’ll think a bit more about it.

As an alternative we could also just raise a new proposal if we think it’s time for a new version of Sushimaker.

Yeah then this needs to be structured like a formal exchange in a way. Create a SUSHI Corp. SUSHI Corp is the body that operates the accounts. Revenues are generated from fees collected on the SUSHI dex. % of those fees go to treasury to fund development and operations. Compensation programs can be established with fixed salaries and annual bonuses that are a % of revenues with scales based on seniority and tenure.

Corporate bylaws need to be established dictating the operation of the accounts. Power is placed in the hands of SUSHI holders to vote on any changes to bylaws or to the accounts and accrual rates themselves. Compensation agreements can even be voted on. Necessary review periods, perhaps annually, are established for things like the accrual rate. In US equities, compensation accruals are set quarterly by the corporations themselves. In the case here, quarterly votes may be a lot, so an annual vote may be more appropriate.

To get this rolling, think it needs to be established what an expected annual revenue target is, then you can think about the % accrual. 8% could be right, but i have no idea how to ballpark that. It also may need tiers ie 8% on revenues up to $100M, 5% 100 to 500M, 2% above $1B/yr. Something so that it doesnt get egregious if (when) the SUSHI exchange really takes off.

Also to get this off the ground, there may need to be a good-faith 1 time bonus payout to the SUSHI team to get them on board. It is not unusual in the corporate world to provide a 1 time bonus payout when changing the structure of the employment agreement. That value can be debated.

Hadn’t seen this, but this proposal is leadership agnostic.

It avoids a one time grant, it gives over time funding, and that funding model solves the fact that Sushi lacks competitive salaries to attract and retain strong talent.

If there are internal issues with individuals, that is something the DAO can vote on.

But whatever the future core contributor set looks like, it needs proper funding.

5 Likes

Very well put together. As you say this is the low hanging fruit and solves some of the problems we face.

We have other problems that we need to solve but that’s up to other proposals!

Thank you for putting the work in. :pray:

2 Likes

@AdamSCochran this a great way to proceed during a time of uncertainty and doubt.

Keep your head down and keep building:

I enjoyed the framing of the proposal. It seems as if about 28% of fees will be redistributed, correct me if I have mistaken.

A burn will be an interesting mechanism to add to SushiSwap - my one question is does this feature make it too similar to Maker? While it is a different product I fear the assets could be competing.

Second question - can this fee distribution be rebalanced? Sounds like the size of treasury isn’t the issue.

Thanks.

I love this proposal. Sushi definitely needs to have incentives based on platform performance. Not only will this lead to better retention it will definitely help with hiring. Thank you.

2 Likes

I would say that with the governance proposal being put in place with Arca, and the desire to ship Trident + build out Sushi and its many projects (Shoyu, Mochi etc etc), the fees sent to burn address should instead be redirected to team treasury.

If talent compensation is a concern, we shouldn’t be spending capital on a burn mechanism during this crucial build out phase - perhaps this can be revisited after the protocol reaches a higher level of maturity, or tokenomics are revisited further, such as a move to an inflationary model (oSushi)

Otherwise, I agree with reducing the overall take to xSushi holders in order to benefit and grow the protocol.

2 Likes

Hey @AdamSCochran, following up here with some updated analytics from our team.

Looking at the SushiMaker contract, the buy back has been volatile and hard to predict. Please see the visualization of the buybacks over the past year: $SUSHI Buybacks

Screen Shot 2021-12-07 at 11.44.44 AM

Is it possible to smooth this distribution through a contract upgrade and create a more consistent buy back mechanism? If so, it may be easier to decide the new fee breakdown.

You can also see the xSUSHI to SUSHI ratio growth over the past two years, showing the increase in xSUSHI’s rewards and value.

xSushi to Sushi Conversion Ratio

1 Like

That’s fine, what matters here is the annualized number is within a useful range. Even if its $6M-$8M annually and staggered inconsistently over that year, that’s not an issue.

Almost no company/product (apart from maybe some SaaS) make money consistently through out a calendar year. It’s the job of a CEO or CFO to manage that budgeting, and in a DAO that can also be managed through budget setting.

The point is to roll those fees into a team vault that can be used and allocated both as salaries and incentives. That doesn’t mean 100% of everything coming in needs to be instantly distributed.

There is also the treasury Sushi which in a down month can be used to compensate staff if needed, and then refilled with this share as it comes in.

You can’t create a smoother fee buyback, as the fee buyback comes from the overall volume of fees collected (and therefore the volume of trades). Not something anyone has control over.

1 Like

Yes the volume is variable and thus fee accumulation is variable, but the serve frequency from the SushiMaker to the SushiBar contract could be standardized. Currently, we may go up to 48+ hours in between serves, and we are only serving the pools with the largest amount of accumulated fees due to gas.

Also on the topic of SushiBar serves, we have over $7 million in accumulated fees on the Polygon network that need to be bridged over to Eth mainnet before we can serve them. Issue is that our Sushi-ETH pool is now too small to serve the full amount of the eventual Polygon serve, and would result in a huge amount of slippage. This has been a common price_talk topic the last few weeks but wanted to bring more attention to our fee serving mechanisms on the forum.

We could buy the sushi from the Treasury and thus avoid slippage + diversifying the treasury. Problem is that it will make the LPers in Sushi/ETH pool … unhappy. So may be we could buy on Sushi/ETH pool an amount with acceptable slippage and the rest from the treasury…

How much work would it be to upgrade SushiMaker?
The majority of votes are in favor.

Joseph was right with the team needing proper compensation.
I think we should try to get this proposal done and pay the fees accrued as a bonus to the team, at least until the restructure is complete and we can get a proper setup for an appropriate compensation model.

Would also be a sign of goodwill towards the devs from the community “we truly want the best for you as well, thank you for sticking with us through hard times”

Having a 48 hour time between distribution does nothing negative to impact team distribution. Not sure how those are related.

Standardizing the serve time at a set time/date would cause front running.

Not much, in the Github repo above I already coded a crude version of this change. That could be quickly run through unit tests. Then all it takes is multisig changing the feeTo() variable on the factory.

It could be further gas optimized though, by pulling it into a separate splitter contract but as long as the multiple send doesn’t cause reverts on small balances or increase gas too much then this would be a really simple change.

I believe it also should be tied to the value created to the Sushi bag hodlrs, that way they dont operate in a vacuum, while everyone else is drowning!

How would the burn work with the capped supply?