Proposal to create the KeepKey Workstream

Summary

This proposal establishes and funds a new KeepKey workstream, and elects @PastaGhost and @MattHighlander as workstream leaders. The workstream will utilize a hybrid funding strategy, with 50% of the funding being contributed by KeepKey, and 50% of the funding being contributed by the ShapeShift DAO. The primary efforts of the workstream will be directed toward building applications to support KeepKey users as well as the ongoing maintenance of the KeepKey integrations in existing ShapeShift products. Revenues from KeepKey device sales will be shared equally with the ShapeShift DAO for the period of this workstream.

Abstract

As of Jan 1, 2022, KeepKey is now owned by @PastaGhost and @MattHighlander. Despite KeepKey now being independently owned and operated, the overwhelming number of KeepKey users are also ShapeShift users, as ShapeShift is currently the only deFi platform providing first-class KeepKey support. The total amount of assets in orbit currently held on KeepKey devices is quite large (~$2.3B as of March 2021), and so it is in the mutual interest of both KeepKey and ShapeShift to work to migrate those users to the v2 web application and provide a high-quality UX that promotes customer retention and trading activity across the platform. This document proposes a workstream, led by @PastaGhost and @MattHighlander, that will assemble and manage a joint engineering effort to build and maintain the KeepKey integration in the ShapeShift v2 platform and expand the product offerings in the KeepKey ecosystem. The ultimate goal of the workstream is to ensure that the ShapeShift platform is the number one place to use KeepKey devices and that KeepKey is the number one wallet to use on the ShapeShift platform.

This proposal seeks to fund the proposed KeepKey workstream for a six-month term, after which the viability of the workstream will be reassessed and its funding recalculated based on feedback from the ShapeShift DAO. The workstream will utilize a hybrid funding strategy, with 50% of the funding being contributed by KeepKey, and 50% of the funding being contributed by the ShapeShift DAO. The workstream will be operated as a profit-generating enterprise, and sales revenues will be shared equally between KeepKey and the ShapeShift DAO treasury for the duration of the workstream. The portion of generated revenues allocated to the ShapeShift DAO treasury is only of supplementary benefit to the ShapeShift DAO; the primary financial benefits of this workstream to the ShapeShift DAO are the potential earnings generated by increased user traffic and increased valuation of the FOX token as a result of the efforts of the workstream. With estimates of assets held on KeepKey devices exceeding 2.3 billion dollars, there is a large potential for KeepKey to be the ShapeShift DAO’s largest revenue generator if users successfully migrate to the new platform.

The KeepKey workstream shall be responsible for the following:

  • Maintenance of KeepKey integration on legacy and v2 platforms
  • Customer support for KeepKey issues raised through the ShapeShift support channels
  • Development of KeepKey related features requested by the engineering workstream in v2 web application
  • Technical support for the portions of future bounties accepted ShapeShift DAO involving KeepKey
  • Technical support for partners of the ShapeShift DAO building with KeepKey
  • Negotiate and organize opportunities with external partner organizations to the benefit of ShapeShift, KeepKey, or both. This includes, but is not limited to, adding native support for deFi platforms to KeepKey, adding support for new assets to KeepKey and its related products, or any other relevant bounties proposed by external partners.

Motivation

In order to maximize the success of the ShapeShift platform, users of the legacy ShapeShift web application need to be able to seamlessly migrate to the v2 application. Since the overwhelming majority of legacy ShapeShift’s assets in orbit were held on KeepKey devices, it follows that maximizing user migration to the v2 app requires that first-class support for KeepKey be provided by the new application. With KeepKey, we are able to tailor the hardware wallet UX to the needs of the ShapeShift user base in order to provide existing users of both ShapeShift and KeepKey with the best hardware wallet experience available online. Doing so is of mutual benefit to both KeepKey, by providing users with quality services that promote customer retention, and ShapeShift, by promoting KeepKey user activity on the platform and driving revenue to the ShapeShift DAO through the existing affiliate revenue programs.

Specification

Funding

150,000 USDC contributed by KeepKey
150,000 USDC contributed by ShapeShift DAO

Funds are to be transferred to a treasury service controlled by the workstream leaders.

Budget

Position Monthly Expense 6-Month Total Expense
Leadership $4,638.33 $27,830.00
$4,638.33 $27,830.00
Sr. Firmware Engineer $16,666.67 $100,000.00
Sr. Software Engineer $13,333.33 $80,000.00
Jr. Software Engineer $3,200.00 $19,200.00
Discretionary Engineering Funds $5,000.00
Product/Marketing Manager $2,500.00 $15,000.00
Discretionary Marketing Funds $13,140.00
Support Agent $2,000.00 $12,000.00
Total $50,000.00 $300,000.00

Leadership Compensation

Leadership may not take any income directly from this workstream that exceeds minimum wage, with minimum wage being defined as $55,660 annually or $27,830 total over the duration of this proposal.

Benefits

The ShapeShift DAO treasury will receive direct monthly payments from KeepKey in the amount of 50% of the total KeepKey sales revenue. An itemized sales report will be made publicly available to all members of the ShapeShift DAO.

Drawbacks

It cannot be guaranteed that this Workstream proposal will be profitable for either KeepKey or the ShapeShift DAO. The profitability of the workstream depends directly on KeepKey sales revenue.

Vote:

YES - fund the KeepKey workstream with 150,000 USDC

NO - do not fund the KeepKey workstream

10 Likes

Hi Highlander,

Could you provide some details on the last few months of KeepKey sales and what the revenue is per keep key sale?

Do we have any records of what the sales were like when the KeepKey was held centrally previously and had money towards marketing the keepkey more broadly?

4 Likes

Sure, here is a snippet of 2021 sales (by quarter). For reference this proposal will cover 2 quarters.

quarter orders gross_sales discounts returns net_sales shipping taxes total_sales
Q1-21 1563 $209,695.00 -$62,152.60 -$6,725.89 $140,816.51 $11,868.18 $470.46 $153,155.15
Q2-21 1616 $117,731.00 -$43,169.75 -$11,004.07 $63,557.18 $13,615.19 $468.11 $77,640.48
Q3-21 596 $416,443.00 -$327,166.40 -$33,418.31 $55,858.29 $5,955.35 $121.94 $61,935.58
Q4-21 780 $44,023.00 -$6,105.90 -$5,570.71 $32,346.39 $6,352.55 $274.75 $38,973.69

Total 2021 Revenue: $292,578.37
Average Quarterly Revenue: $73,144.59

5 Likes

I find this part of the proposal rather concerning. The DAO could potentially invest heavily into this effort and not see returns from their efforts due to the workstream not continuing forward for a variety of reasons, but keepkey still seeing an ROI on the DAO’s investment. Additionally, KK could get acquired and the DAO wouldn’t participate in that event after having further developed and invested into the product.

Additionally, I think it would be useful for more data on sales or some narrative around the declining revenues from KK. If we go by the last quarter sales of the KK were 44K, the DAO is being asked for an expenditure of 75k/quarter, at the onset assuming sales don’t decline QoQ again, the DAO would be losing 50k USD per quarter on this venture with no guarantee of future upside if the workstream is terminated or KK is acquired.

3 Likes

Hi 0xean,

Thanks for the feedback.

The major difference between Q4-2021 and the previous quarters is evident in the application of discount codes. You can see that only $6,105.90 in discounts were applied during Q4, which is significantly lower in comparison to the previous quarters. Because ShapeShift was focused primarily on decentralizing and launching the ShapeShift DAO with increasing intensity toward the end of the year, it did not promote or prioritize KeepKey sales with equal effort throughout all of 2021. The effect of marketing efforts on KeepKey device sales is visible in the revenue data posted above, and from that data, it is clear that KeepKey sales are very sensitive to marketing campaigns and promotions as well as the crypto market conditions in general. It is also evident in many of the reviews available at various sources online that significant user-facing issues still exist, and it is likely that these are major contributing factors to KeepKey’s low sales volume relative to industry competitors. We intend to devote significant efforts on both of these fronts through the KeepKey workstream.

To address the first concern, it’s important for us to make clear that the intent of this proposal is not to seek investment from the ShapeShift DAO to support KeepKey, rather, we intend to establish a partnership through which we can work together in the mutual best interest of both parties for as long as it makes sense to do so. The greater objective of the workstream is to ensure both that existing KeepKey customers continue to use the KeepKey as their primary hardware wallet, and use ShapeShift as the primary interface through which they transact funds.

Currently, a substantial amount of user funds are stored on KeepKey devices (~$2.3B as of March 2021); given that one of the ShapeShift DAO’s primary revenue streams is through affiliate programs where each eligible transaction made through the platform is monetized, there is a large opportunity to increase revenues to the DAO treasury should those users be retained and an equally large risk of lost revenues should those users decide to take their capital elsewhere. This is the primary upside to the ShapeShift DAO in this partnership, and the benefit to the ShapeShift DAO remains once the work has been done to ensure that the ShapeShift platform is the best place to use a KeepKey, even if the KeepKey workstream should be dissolved in the future. Sharing profits from device sales during the time that the workstream is active ensures that any short-term benefits from the increased development and marketing efforts from KeepKey are shared equally between the ShapeShift DAO and KeepKey as the workstream expenses are.

5 Likes

there is a large opportunity to increase revenues to the DAO treasury should those users be retained and an equally large risk of lost revenues should those users decide to take their capital elsewhere.

+1

I think this is a well thought out proposal and a huge win-win for KeepKey and ShapeShift DAO. I welcome ideas from the community on how this relationship could potentially be structured better, but can’t think of any improvements myself and support this proposal as is. Ty @Highlander and @mcchadwick for all the energy and resources you’ve personally invested into not only ensuring KeepKey’s survival, but making it great it again.

Funds are to be transferred to a treasury service controlled by the workstream leaders.

Are you guys planning on utilizing Colony for this?

Also an idea: Give holders of at least x FOX (and potentially other strategic tokens like RUNE or BANK) the ability to sign a message proving ownership of an eligible address and then receive a unique coupon code for $10 off of a KeepKey.

and another idea: when we implement a decentralized FOX rewards program to reward users that generate revenue for the DAO with FOX tokens, it would be cool to experiment with a promotion in which anyone who buys a new keepkey and connects it to app.shapeshift.com earns $10 of FOX, ideally on layer 2.

5 Likes

hey @mcchadwick & @Highlander appreciate this proposal, I agree that there is a large opportunity to increase revenues to the DAO if those users are retained and remain engaged with the Shapeshift platform.

Given the listed responsibilities, what partnerships will the workstream be prioritizing?

How will bounties proposed by external partners be assessed?

I can think of several approaches to maintain and/or increase retention, which leads me to ask how can I support with this effort?

4 Likes

From the discussion that occurred yesterday during the weekly governance call, I was asked to think about some ways that align future incentives to make this partnership more equitable.

Some potential options:

  1. Structure it as a venture debt type deal with a royalty. For every dollar the the SS DAO doesn’t recoup during the term of the work stream, the DAO is entitled to receive a X dollar royalty on each KK sale until Y is repaid.
  2. Create a vesting schedule for the DAO to retain a percentage of the KK company in perpetuity. Something like for every 6 months the work stream persists the DAO vests X% of the KK company in perpetuity.

Some additional questions:

  1. How does KK plan to attract the needed engineers?
  2. Will @PastaGhost be stepping down from the Engineering work-stream assuming the proposal passes?
  3. Is KK willing to provide more detailed financial information on the company? The sales numbers are helpful, but additional information is probably needed for the DAO to understand the health of the company and its stability.
4 Likes

Would KeepKey be open to renaming the devices if this merger passes? @willy mentioned a few ideas on how to use KeepKey as a method for onboarding new participants into the SS ecosystem. Similarly, the device name can be used as a marketing tool for the Fox Token. For instance, if it were called something like FoxKey…

1 Like

The existing stock of devices has “KeepKey” etched on the back so that’s probably not a viable option.

4 Likes

You guys are probably sick of me, but that is okay. Some other questions that I thought about this weekend

Some are probably best addressed by the KK team and some maybe by @jonisjon or @willyfox

  1. Is there a keepkey roadmap?
  2. In the current proposed deal structure what governing power does the Shapeshift DAO have over the workstream or KK as whole? This begs a larger question if token holders have no control, if this should actually be separated from the DAO and would better sit as an investment from the new vFOX treasury.
  3. How does KK plan to gain market share from the big two?
  4. There has been a lot of discussion about how valuable these users are, but this has all been based on gut feel without supporting data. I am assuming (and could be totally wrong) that legacy Shapeshift AG wasn’t able to monetize these users, if so, why do we think we will be able to now?
4 Likes

Please keep the thoughtful questions and feedback coming @0xean! I hope we can address your concerns and convince you that this is the right path, or better yet, come up with a superior proposal.

  1. Is there a keepkey roadmap?
    Will leave this up to @Highlander and @mcchadwick.

  2. In the current proposed deal structure what governing power does the Shapeshift DAO have over the workstream or KK as whole? This begs a larger question if token holders have no control, if this should actually be separated from the DAO and would better sit as an investment from the new vFOX treasury.
    ShapeShift DAO will have the same governing power over KeepKey workstream as it does other workstreams: the ability to revoke funding or replace a workstream leader. ShapeShift DAO would not have any governing ability over KeepKey’s legal entity.

  3. How does KK plan to gain market share from the big two?
    Curious to hear @highlander and @mcchadwick’s thoughts on this, but IMO KeepKey is already a contender on the hardware level. As far as UX on the hardware side go, KeepKey is already the best IMO. Some critical upgrades that are already underway, such as giving KeepKey users the ability to connect to dapps and interact with DeFi, will help close the gap between KeepKey and the top two wrt firmware parity. Features such as EIP-712 support, ‘verified contracts,’ and the ability to store more assets/chains on the firmware without the need to download/switch apps could make KeepKey the best.

However, I think the biggest long term gains will come from the synergy between KeepKey and ShapeShift’s open-source stacks and optimizing the developer experience for both. If we can be the easiest way for new assets and chains to get supported on both the hardware wallet, UI, and backend infra side, KeepKey could be the primary hardware wallet for a growing number of new chains and ShapeShift could be the primary interface. For example, I envision a future where the THORChain community and/or the communities of new assets that are added to THORChain ensure that the asset is supported on both KeepKey and ShapeShift prior to launch.

  1. There has been a lot of discussion about how valuable these users are, but this has all been based on gut feel without supporting data. I am assuming (and could be totally wrong) that legacy Shapeshift AG wasn’t able to monetize these users, if so, why do we think we will be able to now?

This is not a gut feel, but rather based on data that the majority of crypto held on wallets connected to ShapeShift is held on KeepKeys. Our current monetization strategies all depend on crypto volume/TVL, so investing in engaging and growing this segment is strategic.

In addition to device sales, legacy ShapeShift monetized KeepKey users in the same way that we monetized users of any wallet, which historically was via a spread on trade volume. ShapeShift DAO is already in a better position to monetize these users via affiliate revenues with yield protocols like Yearn (and soon Idle), affiliate revenues from validator staking (something KeepKey users historically have not been able to participate in, but soon will be), and trading once we integrate CowSwap.

3 Likes

Let me try and be more specific here. I understand there is data that show’s substantial assets tied to KK devices. What I haven’t seen is data that shows that these users interact with the platform in a way that lends itself to our current monetization strategies.

Assets in orbit doesn’t alone characterize this opportunity. It would be much more convincing if we had data to show that KK users are active traders, active user’s of defi, etc.

A straight buy and hold forever user on a keep key device doesn’t provide much opportunity for the DAO and currently we don’t know if these assets represent an active user.

To summarize, I don’t see data that shows these users are valuable to the DAO in terms of revenue. They may be, and it certainly sounds like many people think they are, but there isn’t convincing data of that fact (at least to me)

4 Likes

Unfortunately I don’t think we have any useful data on how much revenues came from each wallet type at legacy shapeshift. From the limited data we did have at legacy ShapeShift, you are right that keepkey users were generally less active, and more of hodlers than traders. However, due to the larger size of KeepKey users’ hodlings, I still have a feeling that they were still one of our strongest revenue drivers since ShapeShift implemented KYC. Regardless, “unlocking AIO” and giving keepkey users the ability to put their idle assets to work to generate yield, was one of the largest revenue opportunities that ShapeShift identified in early 2021 (prior to the decision to decentralize). I unfortunately don’t have access to the data that led to this decision, but I recall that identifying this opportunity was a major initiative taken by @CFOScott and his team who considered all of the relevant data available at the time.

IMO the most valuable thing the DAO can do in the long term is establish network effects of being the best bridge between users’ private keys and the growing universe of decentralized protocols. If we succeed in this, $150k will be a drop in the bucket. I think looking at short term potential revenues from KeepKey users, while valuable, kinda misses the forest for the trees. Not only do KeepKey users represent a large portion of our current network that would be detrimental to lose, but the ability to influence the KeepKey roadmap increases our ability to build the best network. In other words, I think our network is stronger with KeepKey involved, and I think $150k is a justifiable cost to not only maintain KeepKey’s involvement, but strengthen it.

Does the revenue directly generated by [insert workstream] cover their budget? No, but as a community we have agreed that the collective value generated by all workstreams will result in enough revenues in the near future to justify the investments. I feel the same way about the proposed KeepKey workstream.

Hope this context is helpful, and recognize that I’m just one community member (albeit with strong opinions). As always, very open to any ideas for how this can be structured better.

3 Likes

Thanks @willy for the additional info. As always appreciate the differing perspectives and discussions.

3 Likes

This is a great discussion with excellent questions, so I have to throw in my 0.02 FOX here.

As the longest term keepkey firmware dev at Shapeshift, I have to say that the historic sales numbers from 2021 are a poor view of the potential of kk.

Shapeshift acquired keepkey during a buying spree prior to the first crypto peak in 2017. From late 2018 onward, Shapeshift had other priorities and essentially kept kk on life support. KK was given anemic support but not allowed to end-of-life for 3 years despite the retaining industry accolades, mentions and remaining the main hardware wallet for Shapeshift. This was extremely frustrating for me as a dev. I’m not criticizing Shapeshift management, they had a many decisions to make.

The current owners of KK, who I know well, are highly dedicated to making it successful and will no doubt provide far better product support since that is their main focus, unlike the last 3 years. The hardware is still viable and has vast potential, IMO.

As they say, past performance is no guarantee of future returns, that goes for the upside too. My experience leads me to believe the late 2021 numbers are rock bottom in terms of potential.

5 Likes

It’s important to realize that the proposed arrangement is not an investment into KeepKey by the ShapeShift DAO any more than it is an investment into the ShapeShift DAO by KeepKey. What is being proposed is a co-funded collaboration on the segments of work that benefit both KeepKey and the ShapeShift DAO. The idea is that the output of the work performed through the workstream will benefit both parties after the workstream is discontinued.

  1. How does KK plan to attract the needed engineers?
  • We will be reaching out to former employees with relevant subject matter expertise, advertising the open positions internally within the DAO, and launching a traditional external recruitment effort.
  1. Will @PastaGhost be stepping down from the Engineering work-stream assuming the proposal passes?
  • No.
    1. Is KK willing to provide more detailed financial information on the company? The sales numbers are helpful, but additional information is probably needed for the DAO to understand the health of the company and its stability.
  • Probably not. We don’t necessarily believe this is appropriate given the proposed partnership arrangement.
3 Likes

I have spent and traded upwards of $30,000.00 using my KeepKey as my main and only wallet. The only other wallet and service I use are BitPay to spend my funds when needed. Needless to say, I love this device and the security it offers me.

3 Likes
  1. Is there a keepkey roadmap?
  • Yes, we have internal roadmap documents and will release them prior to the Wednesday AMA session.
  1. In the current proposed deal structure what governing power does the Shapeshift DAO have over the workstream or KK as whole? This begs a larger question if token holders have no control, if this should actually be separated from the DAO and would better sit as an investment from the new vFOX treasury.
  • In terms of direct governing power, none. If you review the responsibilities section of this workstream, our goal is to support the platform engineering effort. By providing a dedicated team to assist the efforts of the engineering workstream, KeepKey is investing its own funds into an effort that is aligned with the direction of the ShapeShift DAO.
  1. How does KK plan to gain market share from the big two?
  • We will discuss this in detail during the Wednesday AMA session.
  1. There has been a lot of discussion about how valuable these users are, but this has all been based on gut feel without supporting data. I am assuming (and could be totally wrong) that legacy Shapeshift AG wasn’t able to monetize these users, if so, why do we think we will be able to now?
  • What supports the assumption that ShapeShift AG was not able to monetize these users? ShapeShift AG did not make revenue data public, however, it was known to employees that during the 2017 bull run, ShapeShift was earning tens of millions in monthly trading revenue. We do have KeepKey sales data during this time, the highest-grossing quarter of which is shown below.
month orders gross_sales discounts returns net_sales shipping taxes total_sales
Dec 2017 1100 $1,900,680.00 -$650,923.00 -$11,175.50 $1,238,580.00 $34,187.40 $391.23 $1,273,160.00
Nov 2017 344 $789,826.00 -$239,649.00 -$6,948.00 $543,229.00 $12,638.00 $54.15 $555,921.00
Oct 2017 312 $569,731.00 -$180,255.00 -$1,254.00 $388,222.00 $10,796.80 $35.20 $399,054.00
  • Without a specific line of reasoning supporting the assumption that KeepKey users are unlikely to trade on the ShapeShift platform (currently the only trading platform providing full KeepKey support), it seems from the figures cited above that there was at least some monetization of KeepKey users’ trading activity.
4 Likes

Thank you everyone for your feedback on the proposal; we are moving the motion to ideation and will continue the discussion there.

5 Likes