Key Performance Indicator (KPI) options are synthetic tokens that will pay out more rewards if a project’s KPI reaches predetermined targets before a given expiry date. Every KPI option holder has an incentive to improve that KPI because their option will be worth more. This is intended to align individual token holder interests with the collective interests of the protocol.
Harvard Business Review article on incentive plans advocates that performance-based plans for an employee, or shareholder for this matter, create a dangerous environment and underperform in comparison to no explicit incentive as people become less interested in the collective benefit and more in the opportunistic personal gain.
Therefore, a coordination tool that brings the community together and outlines the roadmap for the project development has immediate potential to increase its focus and reputation.
We advocate to blockchain start-ups and established projects to further boost their credibility by bridging their roadmap objectives with quantifiable targets and to lock in the capital to confirm the long-term orientation.
This move is particularly powerful for projects with little marketing effort that are trying to break into the space and experience lack of credibility in the blockchain community. KPI option announcement signifies and promotes the long-term legitimacy of the decentralized project and attract consistent and reliable contributors, investors and potential collaborators.
Besides, to tackle the risk of discoordination and asymmetry of information we advise to utilize the KPI option to lock in the substantive amount of capital for a paramount long-term goal that punctuates the mission statement.
Weeding out pump and dump
The utilization of UMA KPI option signals to the knowledgeable shareholders an alignment of personal contributors’ goals with an overarching purpose. Meanwhile it further increases the transparency of the governance structure.
For instance, we note the lack of collateral and transparency in the following projects that remind highly-conscious users the consequences of its absence:
To conclude, our proposal and the design of The Long Short Pair (LSP) template reduces the incentives to cheat and eliminates projects that bring little benefit in the long-term to the blockchain ecosystem.
Implementation of KPI Options
- You should submit two UMA Improvement Proposals (UMIPs). The first should add your governance token as a supported collateral type. The second should define a methodology for how the UMA Optimistic Oracle should price your KPI options.
- Once these proposals are approved through UMA governance, you can launch your expiring KPI Options contract! This can be done in a few minutes by following the LSP deployment tutorial.
- After your expiring contract has been launched, you will be able to mint KPI tokens by locking collateral in the contract. Once minted, you can airdrop these KPI tokens in whatever manner and to whoever you wish.
- Upon contract expiry, the KPI Options will be redeemable for an amount determined by your KPI’s progress. Alternatively, your project could decide to “roll over” into new KPI options to attempt to compound your KPI’s growth