[BIP:81] Profit Distribution Trial

TLDR: Beefy should trial a new framework to distribute profits generated by the DAO’s activities, as a way to properly incentivize users and contributors, and strengthen Beefy’s virtuous cycle of value creation.

Background

At the end of the first half of 2024, Beefy is in a strong position. We have now overtaken Yearn as the largest yield aggregator by TVL in DeFi. We released our cowcentrated liquidity manager (CLM), and reached $50 million TVL in just over two months. And our second quarter financial report shows that we had our most successful quarter since records began, earning $357,905 in Adjusted Net Income. Things are going well.

[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. This proposal is the spiritual successor to that one, and proposes the trial of a new framework for the distribution of our profits. The aim is to arrive at a holistic approach that aligns the incentives of all the key stakeholders within a single mechanism.

Solution

This proposal puts forward a framework (the “Framework”) of three steps:

1. 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;

2. 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; and

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

As the DAO now has processes in place to achieve sophisticated financial management, Beefy is capable of specifying with precision what our costs and runway should be, and adapting our activities to meet the needs of the current time. And as we currently have sufficient runway, the first step of the Framework is already being taken care of.

The trial therefore proposes to introduce 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 boosted returns, to both attract new users and reward existing participants. This would operate as a permanent incentive program, carrying on from the existing incentive program for Arbitrum LTIPP which has proven immensely successful. Each epoch, a fixed pot of funds will be split across 10-50 (or so) products in small boosts that last the duration of the epoch. The core team will handle the process, with input and feedback from the community.

Long term, if the new Framework is successful, the aim will be to fully automate these processes and to place control of the direction of user incentives into the hands of tokenholders, through regular votes on the Beefy Snapshot space.

Trial

The new Framework will be trialed for one quarter (i.e. 13 weeks) using the $357,905 of Net Adjusted Income from the second quarter. The trial will be a proof of concept, allowing contributors to build out the necessary infrastructure and demonstrate the value proposition. At the end of the quarter, the DAO will discuss and vote on a proposal for a permanent program based on the trial (and adjusted for feedback).

It is proposed that the following configurations be applied to the Framework for the trial period, for testing and experimentation:

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 a quarter as long-term contributor incentives; and

3. 25% of adjusted net income is distributed weekly in equal value for the quarter as user incentives (i.e. c. $6,883 per week).

The core team will report on the performance of this configuration after the trial, and the optimal configuration will be discussed and agreed upon before any permanent vote takes place. There will be no commitment to continue the Framework after the trial if the DAO or contributor team does not support it. If adopted, it’s foreseeable that the above configuration will change over time to react to market conditions. This would be done by new governance proposals to change the configuration from the next quarter onwards.

This proposal was published in draft on the Beefy Discord server, and discussed extensively before posting. Though there has been lots of feedback about potential ways to develop and improve the mechanism moving forwards, this initial draft has received general support and approval from much of the community. With a view to improving as we go, the proposal is now being posted to keep up momentum. We must avoid the great becoming the enemy of the good!

Proposal

Beefy should run a trial of the proposed Framework for the next 13 weeks using profits from Q2 2024, and adopting the following trial configuration:

1. 50% of adjusted net earnings should be retained in treasury;

2. 25% of adjusted net earnings should be vested for 13 weeks as contributor incentives; and

3. 25% of adjusted net earnings should be distributed for 13 weeks through a user incentive program.

At the end of the trial, Beefy’s core team should report back and provide a recommendation on the next steps for its proposed Framework. Any final Framework should be put to a subsequent full vote before being introduced on a permanent basis.