This proposal aims to clarify performance fees and compensation guidelines previously set forth, in light of the extraordinary token migration that happened in Q4 2023.
- I would like to see a formal proposal
- I am not interested in seeing more
Wonderland recently migrated to a new token called Volta. Per CMP#1, the last of these migrations (which are now manual migrations) will conclude January 1, 2024. Because a significant portion of wMEMO tokenholders will not have migrated their holdings, this will decrease the circulating VOLTA supply used to calculate backing per token and mechanically increase backing per token.
I propose that the performance fee calculation exclude changes to backing that resulted (mechanically) from this migration, which had nothing to do with any investment activity or acumen.
Performance fees are currently paid on account of performance. As it stands (reference Q3 Treasury spreadsheet), performance fees are
10% * (BackingPerTokenEnd - BackingPerTokenStart - TOProfitPerToken) * EndingCircSupply.
In general, this is wonderful: performance fees align incentives and motivate good performance. I even support paying performance fees for the value accretion that arises from buybacks.
As noted above, Wonderland recently migrated to VOLTA. The conclusion of these migrations on January 1, 2024, per CMP #1, will result in a significant reduction in circulating VOLTA supply because a large proportion of wMEMO holders have failed to migrate their token-holdings. This will lead mechanically to a sharp increase in liquid backing per circulating token.
This is an exceptional situation unanticipated in the vague language in which performance fees were first established. The purpose of this brief CMP is to clarify what to do here.
I propose that the performance fee calculation exclude the increase in backing that resulted from the migration. Specifically, instead of computing
10% * (BackingPerTokenEnd - BackingPerTokenStart - TOProfitPerToken) * EndingCircSupply,
10% * ( [ (AugBackingPerTokenEnd - TOProfitPerToken) / BackingPerTokenStart] ) * StartingLiquidValue
AugBackingPerTokenEnd = (EndingLiquidValue - StartingLiquidValue)/(StartingCircSupply - #BoughtBackTokensinPd)
This computes a rate of return on backing per token that excludes (only) return from the migration-related token supply reduction. It then computes 10% of the dollarized value of that return to give as a performance fee.
Performance fees are meant to incentivize good management of the treasury. Even buybacks require intelligent timing and execution. I have nothing against paying for that. But, the migration and associated backing increase had nothing to do with good treasury management.
Hopefully this is not controversial. I am not trying to change rules; I am trying to elucidate them in a special circumstance.