[BIP:85] Profit Distribution Framework

TLDR: Following the success of the profit distribution trial proposed in [BIP:81], Beefy should adopt a permanent framework for the distribution of profits generated by the DAO’s activities, to properly incentivize users and contributors, and strengthen Beefy’s virtuous cycle of value creation.

Background

As we approach the end of 2024, Beefy’s financial position is moving from strength to strength. In 2024, we released our cowcentrated liquidity manager (CLM) product line, delivering it to a sustained c. $55 million TVL in just 6 months. CLM now accounts for around 50% of Beefy’s total revenue from yield farming strategies, a monumental achievement. In the same period, Beefy has overtaken Yearn to become the largest yield aggregator by TVL in DeFi. Finally, Beefy has also issued millions of dollars in incentives from grants, partner boosts and our profit distribution trial, bringing more value to users than ever before. And we’ve achieved all of this while maintaining record profitability.

As the bull market beckons, Beefy’s prospects have never looked better.

[BSP:02] previously sought input from the community on how profits should be distributed, citing concerns that bearish times are far superior to bullish times to reach sensible views on the use of profits. [BIP:81] outlined a framework for realizing profit distribution, and implemented a trial period to assess its viability. The aim was to arrive at a holistic approach that aligns the incentives of all key stakeholders within a single mechanism.

Though it is hard to detach Beefy’s recent exceptional performance from the improved market conditions, the core contributor team is satisfied that the profit distribution incentives have generated significant value. They have been used to target profitable opportunities, draw attention to new spaces and partners, organise liquidity in ways that favour the DAO’s interests, reward our tokenholders and users for their participation in the project, and incentivize and encourage participation from our contributors.

We therefore propose the immediate adoption of a permanent profit distribution program.

The Framework

This proposal proposes a permanent framework (the “Framework”) for the treatment of all of the DAO’s profits, which is comprised of three steps:

• Operating Runway - Beefy should first retain in treasury enough funds to ensure sufficient runway for the project, including any viable options for growth and investment to maintain competitiveness and expansion;

• Contributor Incentives - Beefy should utilize a portion of its earnings to incentivise long-term contributions to help grow the project, beyond just standard compensation for services performed;

• User Incentives - Beefy should utilize the remainder of its earnings to incentivise user activity, participation and the expansion of our flywheel.

As described in the trial proposal, the DAO now has processes in place to achieve sophisticated financial management, and is capable of specifying with precision what our costs and runway should be, by adapting our activities to meet the needs of the current time. This Framework therefore focuses on the addition of contributor and user incentives. Fuller discussion of these items is set out in the accompanying blog post (see Discussion below).

By way of a brief summary:

• Contributor Incentives aim to align the interest of contributors of the project by tying their compensation to profitability and the token price. Contributors take a set percentage of profits, use it to buy $BIFI or $mooBIFI from the market (creating additional demand), and then place it within vesting contracts to accrue linearly over the next quarter.

• User Incentives aim to align the interests of users and tokenholders by offering regular boost incentives, to both attract new users and reward existing participants. These can be distributed by core-directed incentives, holder-voted incentives or (ideally) a combination of the two.

During the trial, the process of having tokenholders vote on the direction of user incentives was explored, with some significant success. The trial increased participation, resulted in 5-11 additional boosts each week, and received positive feedback from various stakeholders, on account of it adding utility and yield prospects to the token’s value proposition.

With that said, core-directed user incentives have also provided important strategic firepower to target new opportunities on the horizon. During the trial, the core team utilised these incentives to target highly-profitable opportunities, support the launch of new chains and protocols, and direct liquidity to locations that are favourable for the progress of the DAO (e.g. to support new grant applications). The core team believes that allocating a proportion of user incentives for core-directed boosts remains in the best interests of the DAO.

Distribution Configuration

During the trial, an initial configuration for the distribution was put forward as a useful starting point, to examine the right balance between the different allocation opportunities. The core team is satisfied with the value delivered in each arm, and does not propose significant adjustments for the adoption of the permanent program. However, it is clear that the right allocation for a given moment will vary over time, and the DAO should therefore seek to revise the configuration of profit distributions gradually over time.

In light of the above, the following initial configurations are proposed for the permanent profit distribution program:

1. 50% of adjusted net income is retained in treasury as normal, to continue securing our runway;

2. 25% of adjusted net income is vested over the following quarter as long-term contributor incentives; and

3. 25% of adjusted net income is distributed over the following quarter as user incentives, divided into:

3.1. 12.5% of adjusted net income (or 50% of the user incentives allocation) being distributed by way of holder votes; and

3.2. 12.5% of adjusted net income (or 50% of the user incentives allocation) being distributed by way of the core team’s direction.

In addition, separate configuration points are proposed in relation to the votes for holder-directed user incentives.

Voting Configuration

During the 5 weeks of holder-directed votes, several different voting configurations were tested. These covered a range of different configurable options, including:

• Single-choice versus multi-choice voting;

• Open chain selection versus narrow chain selection;

• Open product nomination versus constrained product nomination;

• Vote-share allocations versus equal allocations;

• Maximum and minimum limits on total vote allocation per option; and

• Shutterised voting versus open voting.

In some cases (e.g. shutterised voting), the response from the community weighed resoundingly in one direction. One particularly prevalent piece of feedback was that 1-week voting epochs were considered aggressively short, and lead to some voters feeling excluded in practice from participation. In other cases (e.g. vote-shared allocations versus equal allocations), different cost-benefit positions do not point towards a clearly-preferrable system.

In light of this experimentation, the core team now proposes the following initial configuration for the permanent program’s voting arrangements:

• 3 x 1 month voting epochs each eligible quarter;

• Multi-choice voting;

• Open chain selection (save for Ethereum, due to higher costs);

• Open product nomination;

• Vote-share allocations, with associated minimum ($100 threshold) and maximum adjusted voting shares (20%); and

• Open (i.e. non-shutterised) voting.

The core team will observe the progress of votes, to see where adjustments may improve the process, and will propose further changes through the formal governance process if appropriate.

Q3 Profits

The recently-released Q3 quarterly financial report confirms profits of $75,257 in the third quarter of 2024. It is proposed that these profits are immediately put to use in accordance with the permanent Framework and program. This would mean:

• $37,628.50 retained in treasury;

• $18,814.25 used to repurchase $mooBIFI and vest the proceeds to contributors over the course of the next quarter;

• $9,407.125 used for core-directed user incentives; and

• $9,407.125 used for holder-voted user incentives.

Due to the lateness of this proposal within the fourth quarter, it is proposed that an accelerated timetable be adopted for the Q3 distribution. Under the accelerated timetable:

• two monthly holder-directed votes would take place for January and February 2025, with March 2025 being reserved for the start of any Q4 profit distribution;

• core-direct distributions would be used in January and February 2025, aiming wherever possible to keep an even cadence throughout that period; and

• regular 3-monthly distribution cycles would then begin from March 2025, running from the start of the third month of each quarter, to the end of the second month in the next quarter.

Proposal

Beefy should adopt the proposed permanent profit distribution Framework and program, starting with the profits from Q3 2024.

The permanent program should adopt the initial configurations described in this proposal for allocating profits and voting on holder-directed incentives.

The permanent program should apply immediately to the profits from Q3 2024 onwards, but on an accelerated 2-month timetable for Q3 only, to resume a regular quarterly cadence for Q4 from March 2025 onwards.