There has been a lot of discussion on enabling intrinsic productivity in $DPI. Overanalyser has written a number of thoughtful posts (see A simplified approach to Intrinsic Productivity and What is intrinsic productivity?). There has not been significant progress on the topic however, as the Index Coop has decided to prioritize other product areas.
Current Blockers to Intrinsic Productivity
Most discussions around intrinsic productivity have not led to meaningful progress because most solutions are relatively complex. They generally require new smart contracts and audits, or manual approaches which have some risk.
xToken: A Simple Solution to Intrinsic Productivity
I propose that we adopt an incremental approach to integrating intrinsic productivity into $DPI by leveraging xToken’s infrastructure. xToken has built ERC20 wrappers around a number of staking tokens that abstracts away the complexity of us having to build our own smart contracts around staking.
There have been prior discussions around leveraging xToken infrastructure for use in DPI, but there have been concerns that the infrastructure is relatively untested and liquidity is limited. However, xToken AUM and liquidity has increased significantly in the past month as they’ve introduced XTK, their governance token.
xToken has been live on mainnet for over six months with no hacks, has undergone a number of security audits, and has more than $20M in AUM. More importantly, there may be tax benefits for DPI holders if staking is done automatically vs a solution that involves manually generating yield through farming.
Adding xKNCa to DPI
I’m proposing that DPI substitute replace KNC with xKNCa. This would require no development work from the Coop and would immediately start generating a 10% yield on the KNC that $DPI holds.
Why start with KNC?
- It’s a relatively small portion of $DPI
- It’s a relatively simple staking contract and there is loads of liquidity - you can always convert xKNCa back to KNC
As a reminder on how Kyber staking works, KNC holders need to stake their tokens in the KyberDAO and vote in governance proposals in order to earn their share of staking and voting rewards. DPI does not currently vote with its KNC and so its KNC holdings are getting diluted approximately 10% annually.
xKNCa is a wrapper around KNC that always voters in favor of increasing staking rewards - this lets KNC holders put their tokens to work without having to check on governance proposals and spend gas voting. You can view the old xKNCa contract on Etherscan (xKNCa recently underwent a migration in anticipation of Kyber v3 for more detail on past performance.
Kyber’s CEO has endorsed xKNC
Given that KNC is a relatively small portion of DPI, this move will not have a tremendous impact on DPI price in the immediate term. However, it has limited downside risk and will immediately demonstrate that the Index Coop is serious about maximizing benefits for DPI holders. My hope is that the first of many steps towards making the underlying assets of DPI productive.
Disclosure: I’ve been working with the xToken team on their go-to-market strategy and hold advisory shares. That said, I have been a user of their products for more than six months (way before I started working with them) and I have real skin in the game, holding 10%+ of my portfolio in xAAVE and xSNX