Incentive Rewards Schedule & Approach

Hydra was founded with the clear mandate to align member financial interests with their broader passion for DAOs in the web3 space. As such, a framework began forming around modifying distribution rights of members to reward those members that take on the granular work surrounding investment due diligence/portfolio management, internal operations, and incubations. This effort began by designating key initiatives that Hydra the organization wanted to achieve over Q1 of 2023. These goals were tracked and members weighed in on the completed projects of each team. These results are linked below in the “Resources Section”.

An incentive rewards team was stood up to begin exploring what a broader distribution schedule should look like. The initial mandate was to provide Hydra with a recommended initial structure and process for implementation. Both of these deliverables are detailed further below.

Tl;dr

We are voting on a distribution schedule for Hydra.

The Incentive Rewards team recommends the option listed in the “Hydra Shares Document” under the Resources section.

In addition, we propose buckets for each broader category. We hope to increase the weight Incubation receives over time from 5% this quarter to 15% by Q3 of this year.

Target Weights

Investment DD/Portfolio Management: 50% Operations (Internal facing teams working on Hydra Processes): 35% Incubations: 15%

Q1 Only Distribution

Investment DD/Portfolio Management: 50% Operations (Internal facing teams working on Hydra Processes): 45% Incubations: 5%

Q1 has less share rewards for incubation because we’ve done less incubating ldo

Resources

Modeling

https://discord.com/channels/1011571686476361750/1100779024470528030/1110313894003626095

The 3 models in the document are Vanilla, Q1 = 1% and Q1 = 1% + option pool.

Vanilla is straightforward with 23% of shares split equally over 16 quarters so 1.44% of shares per quarter.

Q1 = 1% is similar to Vanilla but the very first quarter is lowered to 1% and the leftover shares are split equally over the remaining 15 months.

Q1 = 1% + option pool has 6% of 23% reserved as an option pool (see below for more information) to be distributed in the harvesting period. The first quarter will distribute 1% of shares and the other 15 quarters will distribute the remaining 16% of shares equally over 15 months.

Note: We recommend scenario 3 with the option pool.

Weighting Exercise

https://discord.com/channels/1011571686476361750/1100779024470528030/1110313978292338828

Structure

The rewards (excluding the option pool) are split over 16 potential quarters which feels like a proper conservative approach. If Hydra should deploy faster the remaining quarters can be allocated as additional awards at Hydra’s conclusion or in the quarters leading up to that time.

For the 1st quarter of 2023, as introduced on the May the 11th Weekly Call, we propose that we distribute 1% of the supply as opposed to 1.44% (the even split amount). We believe it is important to walk before we run, and this amount feels correct when we factor in Hydra was still launching, incubations are still being framed out, and most of the work performed was the mock DD exercise.

A number of incentive rewards exercises were performed detailed in the “Copy of Hydra Working Groups 1/9/23” Google sheets linked above. The incentive rewards team felt this was valuable information. However, we believe that creating a bucketed system based on work type might help put up adjustable guard rails for rewards going forward. Our proposed buckets are the following:

Investment DD/Portfolio Management: 50% Operations (Internal facing teams working on Hydra Processes): 35% Incubations: 15%

Please note that Incubations were very early in Q1. We think that as Incubations ramp up we can increase Incubations weight from 5% to start, up by 5 percentage points each subsequent Quarter till the weights reflect those above. As such, for the Q1 distribution we propose the following breakdown:

Investment DD/Portfolio Management: 50% Operations (Internal facing teams working on Hydra Processes): 45% Incubations: 5%

Option Pool

We wanted to find a way to allocate an option reward pool that could be used in a number of creative ways. Ben is in favor of using these rewards to benefit deals that have the best returns on investment and the people that secured and helped make those investments a success. This should be clearer toward the end of Hydra’s investment cycle. We’ll aim to reward the deal leads, investment DAO support and incubators (if any) for specific deals that have performed well. We may also try and get feedback from the investment daos on how valuable they’ve found Hydra member’s contributions.

Implementation Process

Using the weighting exercises as a guide, we intend to allocate the rewards based on the voting exercise but within the buckets set out above. Effectively, we will take the sum of the points for each bucket, determine a percentage and then allocate that point total to each of those teams. These buckets and the points being allocated will be reviewed every six months to determine proper alignment between incentives and work performed.

We are working with Rishav to explore a tool SpaceX has created for distribution. However, we may opt to allow teams to determine how best to divvy up the points they have received based on their own approach. We hope to learn how teams prefer to distribute points and have the DAO members choose a methodology going forward. This will be the next focus for the Incentive Rewards team.