Inverse Finance stands at a pivotal juncture, where the convergence of robust product innovations and a seasoned team ignites optimism for the organisation’s future trajectory. However, despite this optimism, it’s crucial to acknowledge the formidable challenges posed by budget limitations, liquidity constraints, and bad debt.
Over recent months r3gen Finance have provided consulting support to Inverse Finance across a range of domains. As this collaborative chapter draws to a close, we present this report as a culmination of our insights and recommendations to help inform Inverse Finance as it moves forward.
- Culture of resilience: Ever since its inception, Inverse Finance contributors have navigated substantial challenges with unwavering determination. This resilience has not only shaped the organisation’s identity but has also become a foundational pillar of its culture and is something that should be highly commended.
- Technical capabilities: The presence of highly skilled technical experts within the team has consistently yielded high-impact outcomes. Their prowess in the technical realm has enabled Inverse Finance to build and maintain an innovative product offering which is experiencing growing recognition and adoption within the market. This success is further magnified by the team’s flexible approach to product development which has helped them lean into what is working well and remain agile in an ever-evolving landscape.
- Network & connections: The establishment of positive and influential relationships with key figures within the DeFi space has reinforced Inverse Finance’s credibility and opened up new opportunities. These connections are likely to continue to support Inverse Finance’s success as the DAO continues to make meaningful partnerships and onboard important new users in the future.
- Product Positioning: Inverse Finance has a unique product offering and tokenomics design which makes it stand apart from competitors and enables it to well service a number of novel use cases and specific niches of DeFi customers.
- Operating Rhythm and Project Management: Presently Inverse Finance does not have a clear project or task management system. Actions and updates are typically identified and followed up via the weekly calls. We recommend that Inverse Finance seeks to implement a robust project management system on Notion (or equivalent) which will better allow tasks and projects to be tracked and delivered to conclusion. This will support accountability. With better task management in place, Inverse Finance’s weekly call could be restructured to better allow contributors to talk about “what was delivered last week” and “what key things am I working on this week”. This will likely lead to greater accountability, focus and impact within the DAO.
- Ownership of tooling: At times there is lack of clarity, or bottlenecks around the ownership of essential Inverse Finance infrastructure (i.e. social media accounts, Snapshot). We could encourage Risk WG to own a structured process to be undertaken to understand who has access to which account and then consolidate ownership under a shared Inverse Finance email or multisig, where applicable. This will give contributors increasing autonomy to act, reduce bottlenecks and minimise the risks associated with central points of control. We would also recommend Risk WG adopt a timely and structured process for revoking and replacing contributors access rights when they leave the DAO. This would reduce risk and enable a clear ownership and security of tooling going forward.
- Fostering a Culture of Feedback and Conflict Resolution: Inverse Finance contributors typically provide little feedback to one another and there are no robust feedback mechanisms or processes currently in place. Instituting processes to better cultivate a culture that encourages open and constructive feedback, as well as effective conflict resolution, will nurture a collaborative environment. This will empower team members to voice their opinions and address issues transparently. As a great proponent of a culture of feedback, and highly respected contributors we recommend 0x MT take a leadership role organising and faciliating the feedback sessions with Inverse Finance contributors.
- Strengthening Key Person Independencies: Inverse Finance has a number of key point person dependencies in PWG (MT) and TWG (Harry). If these contributors were to leave Inverse Finance, they would leave with crucial information needed to ensure the smooth running of the DAO. We recommend hiring/training individuals to be able to cover vital activity contained within these roles.
*** Governance enhancement:** Inverse Finance uses Governor Alpha governance design structure (then updated to Governor Mills). This, had led to a process whereby a broad range of items are required to be taken through governance (vs empower contributor or WG to make the decisions). This means that Inverse Finances governance structure is highly decentralised but at times labour intensive, slow and inflexible. There is no perfect system for governance, and the system selected usually comes with both positives and negatives (as does decentralisation <> centralization!). Nevertheless the necessity of contributors to draft, publish and pass proposals across a broad range of topics places a large operational burden on a busy team. As such, our recommendation is for Inverse Finance to explore the implementation of governance protocols such as Hat Protocol which would integrate with existing governance systems to better allow token holders to empower key decision making responsibilities to multisig or specific contributors. This would streamline the decision making process, whilst still giving $INV holders ultimate decision making responsibility within the DAO.
- Compensation & Vest: At present Inverse Finances compensation levels for contributors do not seem to correlate well with impact delivered by contributors. Our hope is this will be largely addressed through the new Season 1 WG & Budget. This issue is even more acute with contributor vests, where there is limited reasonings on valuations of current vest plans. Taking inputs from extensive consultation, workshop and discussion, r3gen drafted a comprehensive recommendation proposal for contributor vest overhaul proposal. This has been handed over to contributors to progress after the launch of Season 1. We recommended INV holders engage with and support a change to the contributor vest to ensure critical Inverse Finance contributors can be retained.
- Vesting & Fund Management: Inverse Finance makes extensive use of “funding allowance” and “direct token streams” to fund contributors and/or WG. This is in contrast to other DAOs that will have token holders approve spend to a multisig which will then manually distribute capital to support the DAOs operational needs. Whilst Inverse Finance’s current model could be argued to provide greater decentralisation, in practice we feel this introduces a level of rigidity and inflexibility in maintaining some of the DAOs operational needs. Whilst the Season 1 updates to the WG model partly address this (by making WG more like a service organisation retained for a 6 month contract) exploring alternative solutions for WG and contributor vesting and fund management such as Parcel, Utopia Labs, Liquifi and Hedgey could increase the flexibility and efficiency of fund management within the DAO; especially if done in parallel with the governance enhancements recommended above.
- Legal Framework and Compliance: Addressing legal considerations is crucial to ensure the organisation’s long-term stability, sustainability and adherence to regulatory requirements. Whilst we are not in a position to offer legal advice, conversations have been facilitated with legal partners who have recommended incorporation. We acknowledge there are some queries which remain to be answered, jurisdictional specifics, for example. It’s noteworthy that a number of similar organisations within the space have chosen to proceed with legal incorporation.
- Enhancing Financial Reporting: Implementing a well-defined financial reporting cadence will help inform critical decision making, and the wider community. Tools such as Integral and Tres provide great solutions for completing the on-chain bookkeeping required to generate high quality financial reports. Once set up these systems can automate a great deal of the financial reporting process, reducing the operational overhead of TWG. The ability of service providers to support in this endeavour is tied to Inverse Finances progress towards entity incorporation.
- Robust Budgeting cadence: Inverse Finance should prioritize a regular schedule for Working Group (WG) budget renewals to ensure smoother operations. We suggest adopting a 6-month cadence for these renewals. It’s important to note that the launch of Season 1 was significantly delayed (by over three months), primarily because Working Group Leads delays completing WG proposals promptly. The ability for WGs to delay renewal, and thus hold current compensation structure “as is’ represents a crucial issue with the existing system. The current structure lacks proper incentives for WG proposals to be submitted and shared with the community in a timely manner. We hope the new Seasonal structure will help rectify this issue whereby WG funding will automatically end after the 6 months of delivery has ended.
- Stakeholder engagement: We would encourage key stakeholders, delegates and token holders to engage and support Inverse Finance in a more consistent way. We have observed key bursts of activity from important stakeholders, which quickly drop away and disappear. Whilst valued and appreciated contribution, Inverse Finance would be better served by more consistent engagement that enables tighter integration with the existing strategy being executed by the core team. Creating channels and forums that would enable increased stakeholder engagement would likely create significant value and should be led by CWG or GWG.
- Focus on Strategy: Inverse Finance recently published a detailed strategy proposal to provide focus and clarity on the DAOs direction. This was a culmination of effort from key contributors. We would encourage the DAO to remain laser focused on executing this well thought through strategy and hold themselves accountable to the success metrics listed. This will ensure the vital benefits of a clearly articulated strategy can continue to unite the contributors around a shared vision and means for achieving success.
- Budget and Burn: We feel Inverse Finance overspends in certain areas, especially considering a backdrop of budget constraints. Inverse Finance is at an important crossroads and tough decisions on spend will need to be made to ensure the organisation’s long term sustainability and growth.
As pointed out in recent forum posts Inverse Finance must face up to the reality that the runway is shrinking fast. We recommend that budgets and overall spend be reduced. Whilst an extraordinarily sensitive topic we have provided a recommended budget for Season 1 below.
We have split our recommendations for overall spend across three core domains: Growth, Product and Support Services. This does not account for ad hoc spend, which typically represents only a small percentage of overall spend, and instead focused on recurring ongoing contributors costs.
The primary objective of this strategy is to reallocate resources to prioritise Product over Growth and Support Service functions. Additionally, it aims to address critical dependencies on key individuals within the contributor base.
Growth: The Growth function at Inverse Finance is experienced and deeply committed. However, in light of budget constraints we feel that there is not a sufficient return on investment for the current level of spend on growth. The Inverse Finance community is small and we feel Growth is best served by fostering new product innovations and by technology partnerships and integrations. For this reason we recommend either one full time person, or two part time people lead growth & community efforts at Inverse Finance; with a particular focus of this domain being oriented around executing a robust growth and marketing strategy. If adhoc video design work and graphics is required to support marketing, we recommend that this work be delivered by freelance contractors sourced from fiverr or upwork.
Product: We feel product is the crucial underpinning of Inverse Finance’s success and product innovation is the best route forward for success. We recommend an increased budget for the Product which can be used to recruit either additional part time person/s or onboarding a full time solidity dev who will be solely focused on Inverse Finance.
Support Services: We feel the support service functions play a crucial role ensuring the smooth operations and mitigating risks at Inverse Finance. However, due to budgetary constraints we would recommend shrinking spend in this area. Reducing hours and spend across RWG and AWG should increase the return on investment for these functions as they drop non-essential activity to focus on only those highest impact initiatives. Furthermore, to cover point person dependencies, we strongly recommend cross-training between Analytics, Risk and Treasury so if any one contributor leaves the knowledge on how to play the key aspect of their role do not totally leave the DAO.
Based on figures provided by TWG, If these changes were enacted as part of the Season 1 budget process we would see a ~$30,000 reduction in monthly burn and a runway extension of ~5 months.
As we wrap up this chapter with Inverse Finance, we extend our heartfelt best wishes to the DAO. While challenging decisions may lie ahead, it has been our privilege to support Inverse Finance during this period. We genuinely wish the DAO success and prosperity in its future endeavours!