Prime Rating July + August Budget Proposal (USD 58.3k)

Governance
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Author: @mm3729
Created: July 9, 2022
Status: Discussion

Q2 budget re-cap
Prime Rating ended Q2 with actual costs 25% lower than plan at USD 118k vs USD 158k. This was due to (i) slower than expected hiring of the core team; (ii) lower marketing expenses vs. plan; and (iii) lower community bounties vs. plan with core team leading major initiatives (vs. paying out community bounties).

For the first time, Prime Rating also generated revenues, totalling USD 13.7k, in the quarter. USD 12.5k was from an event sponsoring by 1kx, USD 875 was from an RoD article commission, and the balance USD 404 was from our Gitcoin grant.

Despite the lower costs, Q2 was Prime Ratingā€™s most successful in terms of total number of submitted reports (>100), outreach to new partners (Metaportal, Celo and 1kx), expanding token coverage to ReFi and Metaverse, reaching full-staffing of core team, and creation of two new product verticalsā€“RoD and Ratings API.

July + August budget ask
Our budget ask for July and the first two weeks of August is USD 58.3kā€“USD 48.7k paid in USDC, and the rest in 30k D2D (assuming a 30d MA price of USD 0.32 per D2D). Details of our budget and itemized cost breakdowns can be found here.

Compared to Q2 plan, our budget ask for this cycle is 33% lower on a pro-rata basis. This is due to (i) salary cuts taken by the core team given difficult market conditions; (ii) elimination of all marketing/advertising expenses after seeing their lack of efficacy in Q1 + Q2; (iii) pivot to a sponsorship model to support future ratings Seasons and Rate-athons.

There are 7 objectives for us in this budget cycle:
(i) Migrate our hosting service out of Webflow
(ii) Build a mobile-enabled frontend
(iii) Add frontend service page for RoD and API
(iv) Business development and finding product-market fit for RoD + API services
(v) Prepare for Season 4 launch with a major grant/sponsorship partner in the Ethereum ecosystem
(vi) Revamp rating governance incentives to better align stakeholder interests
(vii) Revamp core team payout structures to a fixed+ model to better align incentives with OKRā€™s

In addition, we will continue providing ongoing community support and stewardship, building out our governance frameworks to foster decentralized decision-making, and to build out partnerships to support our rating expertise.

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Thanks for the write up @mm3729
Impressive to see that Prime Rating started earning money, spend less then planned and created more output then ever. Looking forward to what the rest of the year will bring!

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Thank you @mm3729 for the preparation.

I am super happy to hear that Prime Rating started to generate some cash flow.

Unfortunately, I will be voting NO for this proposal.

Multiple points to be made;

  • Ecosystem Workstream currently has 14 members that operate the Prime DAO - from Prime Launch Business Development team to the Prime Deals communications team. And the total cost for 14 active builders, that contribute to 80% of the DAOs operations, will be 50k USDC for 6 weeks of operations. So imo, the ask of 58k USDC to the Rating squad doesnā€™t justify the means.

  • The spin-off model for Prime Rating has been in talks for a while. The state of the DAOs treasury is apparent to every contributor and if this amount is approved this will badly affect the PrimeDAOs runway .

  • Proposal Inverter, as an example of a spinning-off project, has asked a total of 75k USDC from Prime DAO within the last ONE YEAR of operations. Besides Prime DAO, Proposal Inverter has received up to 200k USDC in grants from partnered DAOs and currently operates with 12 active contributors. On the other hand, the Prime Rating team has asked for up to 300k USDC in the last year of its operations from Prime DAO only!

I believe this is an unhealthy sign of operations.

Since the revenue generation is effective, I highly recommend the Rating team limit their proposal to 15k USDC (maximum) - which was the last amount the Proposal Inverter team asked from Prime DAO. And will NOT ask for any extra contributions from the DAO totaling, again, 75k USDC asks for the last 12 months of operations.

Thank you,

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Dear Rating team,

Thank you for the proposal but I want to say NO to this proposal.

I would like to reason my vote by each objective.

  • (i) Migrate our hosting service out of Webflow*

    I donā€™t have a comment about this.

  • (ii) Build a mobile-enabled frontend

I believe, it is redundant in the current market conditions. I donā€™t know why the rating team decided this improvement but if you guys did a research on this ( such as customer feedback, market research etc.) I would be happy to be informed.

  • (iii) Add frontend service page for RoD and API

In the Q2 proposal Prime Rating team stated;

ā€œBuild structure, processes & website to feature new service line, offering research-on-demand, have one marketing campaign to kick off the new serviceā€

So, for requesting budget for implementing ROD frontend would be a double funding of the same milestone. However, I am super in favour of creating a front end page for API service. It would be a nice addition to Prime Rating !

  • (iv) Business development and finding product-market fit for RoD + API services

In the Q2 proposal Rating team stated ;

ā€œOnboard 5 beta users (potential clients) to try and test the rating API. Plan go-to market strategy, pricing, marketing & partnerships for APIā€

I believe the Q2 proposal was very big proposal (158k USDC) that would allow Prime Rating team to have enough talent and FTE for completing such achievement. I think without completing a milestone from a last proposal, and requesting budget for same endeavour should not be a practice in PrimeDAO.

  • (v) Prepare for Season 4 launch with a major grant/sponsorship partner in the Ethereum ecosystem

That is an awesome plan to go!

I also donā€™t understand Q2 budget recap part of the this proposal. If the Prime Rating team did not spend 158k and spend 118k, this means 40k has been sitting in the teams treasury. On top of that the team generated 13k extra income (which is good !). However, why would this money will not be used to cover expenses of the team ? I believe the idea behind generating revenue from a product is to create ,first, self sustainable; second, profitable product. I think it is not appropriate to request money without spending your generated cash.

These are the reasons for my vote !

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Hi @maerg.eth and @mertozdal: thanks for your feedback and for your rationale. First up, I made an error in posting the budget amount (not used to making a budget when we have BOTH a budget surplus and incoming revenues :)). I posted our total SPEND for 6 weeks and not the total ASK. As Mert points out, once we account for our Q2 budget surplus and for forecasted revenues, the total ask rate will decrease. I will post the new numbers up shortly and we can have a discussion around those, if needed.

Secondly @mertozdal: your question on why we build mobile front-end, we have two prospects lined up to use our API. Given that they are paying customers, we want to offer our rating app to them on both desktop and mobile surfaces. Hope that clears up why we prioritize it at this moment.

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gm all and thanks for your comments, Iā€™ll also try to bring some more clarity.

First, I donā€™t think we should compare Rating to something like the PI, in terms of spending, FTEā€™s or any of the metrics used above. They are completely different products, each have their own requirements to be successful. For instance, if we want to compare FTEā€™s we could say that rating actually has over 50 contributors (including all the community analysts). In that regard the total spending is actually quite small.

We have actually done the marketing campaign and also build some initial processes & infrastructure. However, it hasnā€™t been implemented into the website yet, mostly because it was quite difficult to get any dev resources allocated to rating. We now have a technical project dev (from DAOism Systems) who will lead the technical development. So reducing the ratings ability to invest in this, will prevent the implementation of this important next version of the website

You are right, however the rating treasury never received the full amount from the last budget. In the last proposal the team asked for:
* 108ā€™500$ in USDC
* 50ā€™000$ in D2D = 135ā€™135 D2D (@ 0.37$ 10-day MA price)

In practice the treasury only received 80ā€™350 USDC (see trx here and here), and 106ā€™234 D2D (see trx here and here). Thatā€™s $38k less and 28k D2D less than was asked for. Hence, the buffer in the Rating treasury is not as big as it might seem.

I hope this helps to clarify the current ask.

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Thank you @Lavi for the response.

But to pinpoint a couple of my worries;

Having more contributors to the same amount of revenue generation is actually worse in my opinion.
It means that 50 contributors are doing work that doesnā€™t represent the growth of the project - therefore, the spending increases without a proper revenue structure which leads most startups out of business for excessive spending and unclear product/market fit.

So before additional asks from the DAO, which will jeopardize the treasury health of the DAO, I heavily recommend the Rating team to figure out how to sustain their team with a unique Business Model.

I am very, very worried about this!!
Daoism Systems already carry Prime Launch - which was supposed to be responsible for deploying Prime Launch to Celo Network last week. They are late on delivery.

Daoism Systems currently holds Prime Pools developments.
And now Rating?
I donā€™t see how scaleable this would be. Ad I hope, it will be.

In general, I heavily recommend the Rating team reduce the amount asked to 15k USDC maximum.

Anything above, I will be voting NO and I encourage everyone to check the Prime DAO treasury and also the new proposals from the other builder teams and calculate the remaining amount to support Prime DAOā€™s own Revenue Model to create more sustainable financial growth moving forward.

Thank you.

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Well again here FTEā€™s in this case is not = fixed costs, but a meritocratic system only rewarding when actual contributions (ratings) were done.
But definitely agree on the BM comment. As stated in the vision update, the team intends (and already has) shifted focus and resources mostly toward BD and PMF exploration with new initiatives. However, this also comes with trade-offs.
On the concern about DS, I hear you. I think an ideal scenario would be that rating has itā€™s own dedicated tech lead (CTO/senior dev), that is part of the core team. I raised this requirement a few times, however this will also be quite expensive, so the current set up is a good short/medium term solution imo.

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I highly recommend the Rating team adjust their costs according to the value they can bring in.
+250k USDC in total is more than a pre-seed investment and it should have been more than enough to start operating on a profitable business model.

Anything beyond that I think is unfair to the Prime DAO and its amazing contributors across the ecosystem.

I understandā€¦ but I have been, personally, encouraging the rating team to figure out their revenue model for the last 8 months. The lack of operational adoption shouldnā€™t be charged to the DAO - again, this will jeopardize the treasury health of the DAO.

So far, the support/investment given to the Rating team by the DAO should be sufficient enough for you guys to kickstart with whatever you envision. And 10k or 15k should be enough for you to double down on your revenue model and figure a way out to survive and grow.

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And just to add here, I believe in Rating.
I believe in the product and the ecosystem the Prime Rating team has been building.

But unfortunately, I think the family support to a startup that is struggling to find its revenue model and proper operational structure should stop when the family is running out of cash and the startup continues to not deliver upon necessary requirements - cash inflow!

The revenue inflow can be obtained via a spin-off structure, which I do not recommend until you properly define cash inflow because then you would probably tokenize and just waste on the intrinsic value you would create.

I highly recommend the Prime Rating team adjust its costs according to the market and product conditions: lower its wages, operational spending, building spending, and double down on revenue generation through a solid business model and design.
Then, trigger the spinoff by establishing its organizational framework and revenue share model with Prime DAO for all the support in the past.

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Hi again @maerg.eth and @mertozdal, coming back as I had promised. As Lavi pointed out earlier, we did not receive the total ask for Q2, and this has left us with a USD 51k shortfall (Ask of USDC 108.5k/D2D 135k vs. received USDC 80.3k/D2D 106k). Thus, after meeting all our expenses for Q2 and despite being 25% lower vs. plan, we only have excess funds of USD 9k in our treasury.

However, both @Lavi and I take the point made by you both to reduce costs. We have cut salaries further for core team and changed the comp structure more to reward only when we get new business. This saves us USD 1.7k. Thus, to summarise, we have a total reduction in our ask by USD 10.7k. In effect, our budget ask now would be 32% lower than Q2.

Original budget ask: USD 58.3k
Less funds in Prime Rating treasury: (USD 9k)
Less further salary cuts: (USD 1.7k)

New ask: USD 47.6k (USDC 42k and D2D 18.7k)

Please find the details in this sheet. Look forward to your feedback.

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Thank you for all the input and apologies for the slow reply! I will try to outlay my perspective on this matter.

  • Ecosystem Workstream currently has 14 members that operate the Prime DAO - from Prime Launch Business Development team to the Prime Deals communications team. And the total cost for 14 active builders, that contribute to 80% of the DAOs operations, will be 50k USDC for 6 weeks of operations. So imo, the ask of 58k USDC to the Rating squad doesnā€™t justify the means.

The point has already been addressed by Lavi - yet I just want to echo my agreement. If we count contributor helping with Operations, Tech, BD and the actual rating (especially the latter is key for the product to function at all) our active contributor number would be much higher.

Having more contributors to the same amount of revenue generation is actually worse in my opinion. It means that 50 contributors are doing work that doesnā€™t represent the growth of the project - therefore, the spending increases without a proper revenue structure which leads most startups out of business for excessivespending and unclear product/market fit.
So before additional asks from the DAO, which will jeopardize the treasury health of the DAO, I heavily recommend the Rating team figure out how to sustain their team with a unique Business Model.

I disagree with this!

  1. In my mind Prime Rating requires an ecosystem to add meaningful value compared to traditional research/ rating agencies. Ecosystem are more costly to bootstrap as you have to attract, train and retain talent. Only now Iā€™d argue we actually have sufficient rater to cover all of the roles defined in the needed system design of Prime Rating (i.e. Governors, Reviewers, Raters). Prior a lot of these functions have been covered to detriment of the quality of the product (e.g. reduced quality, centralised) by the core team. I personally feel more bullish than ever on Prime Rating as we have managed to get critical mass thanks to amazing new raters that make this Prime Rating Ecosystem what it is today.

Unlike other products, prime rating is reliant on a healthy ecosystem to function and to develop the full extent of its value proposition (e.g. get a diversity of perspectives, uncover wider information). I think this stands in heavy contrast to other products such as the proposal inverter which represents a tool for a specific use case but does not rely for its functioning but only for its usage on a ecosystem.

In addition, given that we are working with often highly capable talent, the talent has usually substantial opportunities elsewhere which means that it is expensive. We had multiple raters poached by VC firms in the past and need to be mindful of this

  1. However, in all fairness:
    ā¦ I agree that we have to generate revenue asap to become self-sufficient! And this is the current focus of the team.

ā¦ I do think there are some things that can be done to lean down the operational costs further for the coming budget. For instance, reduce the scope (for instance by excluding refi ratings), limit the scope and number of protocols that can be rated and adjust the incentive design around the permissionless rating system which we are doing at present.

  1. To Mertā€™s comment - it seems to be addressed and clarified by Lavi and Mayank thus no further comments from my side.

Overall, I would say a 15k budget would kill off months of hard work that have been invested in building an ecosystem of raters and would represent a setback in the progress that has been done in building the product thus far.

Side comment: Given that the REP system seems unmaintained (i.e. some of my colleagues have literally zero REP despite contributing a considerable amount of time and attention to Prime) I also like to call into question the functioning of REP in deciding on the budget this way in the first place and ask for transparency on the mechanism of earning REP itself.

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Thank you for the clarifications ! @Lavi and @xm3van

First of all, I also agree that different products need different budgeting. And each product has its own phases of development in terms of development curve (some need more initial investment before reaching a certain stage). However, as a DAO (or any organization) to be able to invest heavily for a future return, the stakeholders should be persuaded that future returns will exceed the investment. Also, the investment decision should depend on the financial status of the organization. If we donā€™t do this feasibility calculation we are doomed to fail. From my perspective, Rating does not need that heavy investment in todayā€™s condition (not directly about the product but due to market conditions and treasury health). So, I think ,focusing on a revenue generation and more conservative development would be more beneficial for PrimeDAO.

Also, I agree with @xm3van that

Overall, I would say a 15k budget would kill off months of hard work that have been invested in building an ecosystem of raters and would represent a setback in the progress that has been done in building the product thus far.

However, killing the organization that has been supporting all of us would be much unfavourable compared to slowing Prime Ratings development. I believe Prime Rating can survive with this budget and generate considerable amount revenue and show its sustainability. Then, as a DAO member I would be more comfortable to invest heavily in it ( I believe others will resonate with that as well !).

For that matter I want to retain my vote as NO for this big of a proposal.