A simple product proposal. Part 1 (Name TBD) **Update**

Before I start, I would like to apologize to those who prefer the conventional essay/thesis style forum posts over the more conversational piece that is about to follow. At the age of 18, I found myself not at university but working at a bank. The last time I practiced essay writing, therefore, coincided with something equally important at the time; staring at a Nokia 3210 trying to beat every else’s best score on Snake.

The recent BED launch has provided much inspiration about how I am currently thinking about products. Mainly; which ones should I invest in and how much? Is a 33/33/33 BTC/ETH/DPI split right for me? Do I ignore the rekage of my previous attempts to LP profitably and ape into the ETH:BED v3? Or wait for it… it gets worse… continue to NOT manage my portfolio in any strategic way whatsoever, randomly dipping in and out of my BTC/ETH stash to buy and sell things I saw a random cartoon frog on Twitter memeing about last week.

So, after doxing myself as someone with a tradfi history and (hopefully) a defi future as someone who can’t even manage their own money, I have a question for you guys. Who amongst us rebalances their portfolio every month? Who avoids the degen on their shoulders and sticks to the game plan? Not touching their core holdings, DCA’ing, and generally managing risk?

Realizing I have a problem strategically managing my core portfolio, combined with the recent “BEDspiration” I’ve realized something. @thomashepner recently described not having LINK in our lineup as the “800-pound gorilla in the room”. And yet, before BED, we have made no inroads into managing the ~1 trillion dollar combined supermassive blackhole assets of which we orbit.

There’s no way to sex this up so I’m just going to say it…

A monthly rebalancing, market cap weighted, wBTC / ETH (72 / 28% @ 26th July 2021) index.

Weirdly as far as I can tell it just doesn’t exist. Not on Balancer, not sets v1. Nowhere. Is it so simple it’s been overlooked? You could LP it sure. But then you are selling the winner. Not that Balancer offer a monthly rebalancing pool anyway. Maybe you’re an ETH maxi and don’t care for BTC. Me? Personally? I’d like the hedge. Just without the faff.

I can’t help but think… How many people think and feel the same? Or should I say like me don’t think about it at all but would benefit from such a product?

Maybe keeping your whole BTC stash off the ETH chain is better risk management? Fair.

We have BED. Why need this? Also fair. But BED doesn’t solve my fixed weighting issue.

An extract from Hacking Growth by Sean Ellis & Morgan Brown…

“growth hacking isn’t just about how to get new customers. It’s about how to engage, activate, and win them over so they keep coming back for more. It’s about how to adapt nimbly to their ever-changing needs and desires and turn them not only into a growing source of revenue, but also passionate ambassadors and an engine of word-of-mouth growth for your brand and products.”

To me, the meaning of being the “BlackRock of crypto” means just that. Being the all dominant market behemoth. This isn’t a dig but to be clear, BlackRock is no small line-up boutique asset manager. To me, they are a warehouse. 3,500+ Products with almost every type of investment solution any investor could need. As our user base grows so too will our responsibility to cater to their increasing variety of needs and wants. Maybe not right now at this stage in the adoption cycle, but in the not too distant future, our customers will be far from a homogenous group. We have already embarked on some of these important distinctions. $BED is our new market-entrant friendly product. $DPI and $MVI, our simple buy-and-hold type investment solutions. The $FLI suit, our solution for traders and more complex investors.

In the same way Apple doesn’t just sell one iPhone. (Big, small, high-end, value & in-between. Not to mention a range of colours.) We too should offer a wide (as is sensible) selection of products to engage and activate our user base. To do so we will need to evolve and transcend our current boundaries over time. A handy Snake 2 metaphor if ever there was one.

Fees

TBD. Here are my thoughts on 2 approaches:

  1. 0bps - My inner socialist says such an index is cheap to make, inexpensive to maintain (liquidity provisions aside for now), and could arguably be a public good or perhaps even a slightly loss-leading product that promotes our brand bringing people into our ecosystem.
  2. 1,3,5, or 10bps - My inner Ayn Rand says it is a service after all and it’s only fair we are compensated accordingly. The large tradfi ETFs charge ~20bps. Recent DPI “persona” interviews by GWG indicate users are fee-insensitive.

Name

Also TBD.

  1. BEI: The obvious one. But. I already hate it. It’s literally two letters short of Beige.
  2. EBI: Bit better but still… Meh… Also currently BTC>ETH
  3. SMBHI: Super Massive Black Hole Index. Will likely only appeal to interstellar fans. (No bad thing obviously) Also jk, jk
  4. CORE: My personal fav. (Clashes with another ticker)
  5. That’s it. I’ve spent all my creativity on snake metaphors. Please help!

Iterations and further ideas for thought

  1. Obvious one first. A productive version. A risk “tranche” style range of ib/a/c/wBTC, st/c/aETH etc (See PAY for inspiration)
  2. A bit left field admittedly here… Countercyclical. (28 / 72% BTC / ETH)
  3. FLI 2x?

Thanks to all who have made it this far. Looking forward to hearing everybody’s thoughts and ideas.

7 Likes

I’d like to officially suggest this be called ‘Ay BEI BEI’

5 Likes

Loving this… let me know how I can help!!! :grimacing:

2 Likes

It would make a lot of sense for the Coop to have a basic, free product which serves as a gateway to other Coop products

Freemium description from Investopedia (Freemium Definition):

Under a freemium model, a business gives away services at no cost to the consumer as a way to establish the foundation for future transactions. By offering basic-level services for free, companies build relationships with customers, eventually offering them advanced services, add-ons, enhanced storage or usage limits, or an ad-free user experience for an extra cost.

Is BEI too similar to BED ? Or would BEI become a funnel to BED/DPI/MVI?

2 Likes

Just a quick revisit here, after some recent re-thinking… Taking a look at the largest Indexes out there in the tradfi world I still believe there is a market here we are missing that could potentially be relatively easy to tap into.

A quick look at the top 2 largest tradfi crypto products shows the following.

Bitwise 10 Crypto Index Fund

  • AUM: ~$1B :eyes:
  • Methodology: Market cap, monthly rebalance
  • Holdings:
  • Expense ratio (Streaming fee): 2.5%
  • NAV: Historic average = somewhere between 10% premium and wtaf (seriously, take a look on the link^)
  • Not permissionless: Imagine taking 2-5 business days to mint DPI! Using… PAPERWORK?!

Grayscale® Digital Large Cap Fund

Index Coop Crypto Index (ICCI)

As you can see there is much of these products we can easily create and maintain with the potential to attract demonstratively large TVL.

Illustrative example:

  • 62.5% WBTC
  • 32.5% ETH
  • 2% LINK
  • 2% UNI
  • 1% MATIC

@ 0.95%, market cap weighted, monthly rebal

Capturing just 1% of this market segment would net $15m TVL equating to $142,500 revenue pa.

I believe the business case here is pretty simple. PMF and TAM are evident. We can easily compete on fees, competency, performance and trade-ability. Not to mention its flippening proof.

How many small institutional investors are currently underserved due to being locked out of these substandard products? How many large institutional investors are unhappy or avoiding them due to their poor performance?

From a growth perspective, I believe products such as these can act as a gateway to our additional product lineup over time. If we look beyond what we would hold in our own personal wallets, to me there is clearly demand out there waiting to be supplied…

6 Likes

Though I agree there might be a fit with an overall crypto index, I question if we are not cutting it a bit close for a beginner index in terms of BED? Imo that is supposed to be the low fee, easy to recommend index bringing broad exposure to crypto. Sure I get it does not give the exact exposure you might want, but ultimately no Index will fit everyone and is it really that far away from what you propose that it doesn’t just accomplish the same thing?

Great idea IMHO, especially when you factor in that the two firms above have already done the hard work for us in discovering the potential level of demand and TAM, and in showing us what NOT to do when it comes to expense ratio, lack of being permissionless, etc.

Coming in as suggested with a lower stream fee and a similar allocation gets us our own “slice of the pie” if (politely) for no reason other than we’re cheaper than the other guys. Taking a step further, better performance from a better product brings even more investors.

I think it gives us another entry point for a beginner index, and while it does stray close to BED, I think we have to keep in mind that a beginner investor isn’t going to look at BED and go “oh, it carries DPI/wETH/wBTC, well let’s take a look at DPI and see if it has the other things I’m looking for…*looks at DPI…oh, DPI has the other things I’m looking for, let’s do it.” Most beginners are going to look at what they see that weighting and allocation to be, and make a decision on whether or not it has what they’re looking for right then and there; there just doesn’t seem to be a strong desire to go digging any further.

It’s also worth noting, if we were to try to take market share from the above two indices by marketing BED as a direct, better, competitor, we have to be able to take people through our ideology and thought process as to how it does so, especially at a 0.25% stream fee to their 2.5% when the two products don’t look the same to your Average Joe. Why not keep it simple, create our own product (this) and market accordingly? That being said, BEI/CORE/ICCI/insertnamehere then becomes a funnel to BED/DPI/MVI as these beginners become more knowledgeable and comfortable.

Love it @MrMadila, and I’d love to help if you need it!

2 Likes

Reminds me of one of my favorite quotes from Jeff Bezos: “Your margin is my opportunity.

It is also limited to accredited investors, individuals with >$1m net worth, so it excludes nearly 9 out of 10 people in the United States, the richest country on earth, let alone people from the rest of the world.

Index Cooperative can do much better.

4 Likes

First, appreciate your work on the idea and proposal, interesting to see your observation that this doesn’t exist elsewhere.

My view:

  1. BTC and ETH are by far the two easiest cryptoassets to get exposure to due to liquidity, availability across all CEXs and DEXs and ecosystems.
    1.1. Because of this, I see less of a value prop in a market cap weighted BTC/ETH index compared to, for example, ICs flagship product - DPI. While everyone can cheaply and easily get exposure to BTC/ETH by buying directly, it is much harder and more expensive to get exposure to a DeFi basket by buying all of the underlying tokens (not to mention maintaining and rebalancing 10+ tokens).

  2. Most people in crypto already have BTC and/or ETH (also related to point 1).
    2.1. This reduces the TAM for the suggested index;

  3. Furthermore, being a market cap-weighted index gives the same utility as holding BTC and ETH directly and starting with amounts proportional to their current market caps.
    3.1. Their market caps will correlate 1:1 with their prices other than for issuance/inflation, which is close in both. (currently ~1.77% in BTC and variable in ETH due to EIP-1559 but around 2.2%).

  4. Finally, as has already been mentioned in other replies, a BTC/ETH index is a little too close in terms of offering and target market to $BED in my opinion.
    4.1. Given that the BED index is a new offering from IC still finding PMF and large adoption, and that it is targeted to a similar cohort of purchasers, I think that the BTC/ETH index is not differentiated enough and may be slightly competitive.

For products to make sense we also have to consider the costs of bootstrapping liquidity (be it via LM, partners, etc), the human capital dedicated creating, launching and maintaining the product, marketing and BD efforts as well as opportunity cost.


Because of all this, in my view, a BTC/ETH market cap-weighted index would not be the best new product to pursue for the IC.

I’d be more in favor of a general market cap-weighted crypto index in the direction of those mentioned by @MrMadila above.

2 Likes