[Discussion] Index Coop OTC Sale Next Steps

This document will lay out the current status of the Index Coop OTC Sale and outline next steps.

Background

In April of this year, the community passed IIP-32: Index Sale which laid out the mandate to raise $10 million through a direct sale of the INDEX token to select investors. The proposal was voted on to facilitate the execution of a strategic fundraise to diversify the Index Coop Treasury. The reason for this raise was two-fold.

  1. Derisk the IC protocol and balance sheet by acquiring stable assets. While our treasury governance token balance was high, the reality was that in order to ensure long-term survivability we needed protection against any prolonged market downturn. We needed confidence that routine operations (specifically contributor rewards) could continue uninterrupted through any market conditions.

  2. On-board value add partners who could evangelize Index Coop and help our protocol grow. The core thesis was that blue-chip investment funds would be able to leverage their significant connections throughout the ecosystem to support IC.

In both respects - the strategic raise was a massive success. We raised $7.75 million dollars in stable coins and today the impact of our investors continues to grow - whether that is their support in major protocol votes or the collaborations currently ongoing with many community members and various funds.

Additional Investors:

In early June, three major funds reached out to participate in the raise. Due to the fact that we were still $2.25 million short of our original target, and the high value add potential of the three funds, we agreed to continue conversations with these funds.

While all three had committed to participating in the sale by late June prior to our official announcement - their extensive legal and financial due diligence took significant time to complete. Alongside this, they worked with BDWG to identify custodial solutions. This entire process took just over two months. The process is currently wrapping up and they are ready to fund the contracts.

We are aiming to roll out those contracts over the next several weeks. Upon completion that will bring us to a total of $10 million raised in stable assets. This will mark the end of the mandate laid out in IIP-32.

Situation

I firmly believe that we should execute this deal. All three funds have strong reputations in the space and will be a big value add for our protocol. I believe that we should honor our commitment to these funds and allow them to participate in the OTC Sale at the previously agreed-upon deal price of $24.26 per token.

IIP-32 contains two key clauses:

In phase 1, the BD team led by @reganbozman and @bigsky7 will sell up to 10,000,000 USD worth of INDEX to strategic partners for ETH and/or stablecoins.

The BD team is nominally allocated 300,000 INDEX tokens to sell for ETH and/or stablecoins (USDC or DAI).

We have raised $7.75 of that $10 million. From this section of the IIP the mandate remains to raise an additional $2.25 million. However, the second clause complicates things. The allocation of INDEX sold during this raise exceeded the nominal amount laid out in this second section of the IIP ( 322,803 total INDEX was sold). Based on the above information, I see three potential ways forward.

  1. Continue to raise the remaining $2.25 million and accept capital from all three funds under the existing terms and conditions. This will exceed the nominal allocation.

  2. Do not raise the remaining $2.25 million, and not accept capital from all three funds. This will leave us short of the total $10 million laid out in the IIP.

  3. Work with the funds, community, and existing investors to build and propose a new IIP that will enable them to invest through an updated structure.

Each of these options has pros and cons. We will need informed community discussion and feedback to identify and execute the best option.

Who these investors are:

  • Sequoia Capital India

    • Sequoia helps daring founders build legendary companies, from idea to IPO and beyond. Sequoia Capital India operates in Southeast Asia and India where they actively partner with founders from a wide range of companies, across categories, including BYJUs, Carousell, Druva, Gojek, OYO Rooms, Tokopedia, Truecaller, Zilingo, Zomato and more.
    • In partnering with Sequoia, startups benefit from close to 50 years of tribal knowledge and lessons learned working with companies like Airbnb, Alibaba, Apple, Dropbox, Google, LinkedIn and Stripe early on.
  • White Star Capital (Neil) - $500 thousand

    • $50 million crypto fund (investors in Paraswap, Rally, Superfluid, Liquality, Alethea, Ledn, Multis, others)
    • Ability to bolster product integrations (Paraswap, Superfluid, Ledn, etc.), distribution partners (institutional tradfi + government LPs that can further distribution past the crypto-natives), upcoming liquid fund (liquidity provisioning)
  • Blockchain.com Ventures (Sam) - $750 thousand

    • Investors in Set, 0x, Aave, Zerion, Eco and many others. Portfolio includes many potential product integration partners with leading consumer on-ramps in various geos, such as Argentina, Brazil, Indonesia and the African continent
    • Over 76m wallets allows for material distribution of Index Coop products. Blockchain.com is a top 5 most visited crypto website and accounts for double digit % of all BTC transactions. Support in the exchange and wallet product would offer significant consumer exposure
    • Exploring a branded Index product would bring further distribution and product offerings, with a trusted and well recognised brand with almost a decade of operating experience. Blockchain.com is looking to bolster its DeFi offering and INDEX would be a perfect partner
    • Significant expertise in building and scaling crypto companies
    • Our internal DeFi fund has already been getting exposure to INDEX via providing liquidity in prior programmes. We’d look to expand this project in a more meaningful way going forward
    • Top tier legal, regulatory and security expertise which has enabled us to safely and compliantly secure billions of dollars of assets

Requirements for execution:

  • Update Engineering team when addresses have been collected from all parties
  • Deploy vesting contracts
  • Coordinate with Treasury for information tracking
  • Ensure that all stakeholders / community members / relevant WGs remain updated and aligned

Request for discussion:

I firmly believe that community comes first and we need to identify major ways to ensure that core contributors to the Coop have a major stake in protocol ownership. While this is not directly tied into that discussion - I believe we need to continue our fruitful discussion of how best to reward long-term community members alongside early investors.

  1. What feedback do you have? - a lot has changed since the original IIP and we want to ensure broad community alignment before moving forward (even it is decided that an IIP isn’t technically needed).

  2. If you have objections please help us find solutions to move this conversation forward so we can reach a fair solution for all parties.

  3. Next steps around the Index Community sale in light of this discussion? (One potential model is to award options to all early-contributors allowing them to purchase $100k worth of Index at the deal price of $24.26. These options could vest linearly over the next 18-months.)

17 Likes

I support the plan to execute the rest of the OTC sale. Blockchain.com Ventures is a great team and would provide a lot of value.

@BigSky7 - is there a descriptive plan on what the $10m raise will go towards and how the funds will be held?

6 Likes

I also support the completion of this fund raising and appreciate these investors’ credentials, brands and value add.

I’m open to 1. or 3. of the options you lay out @BigSky7, depending on what the community (including closed investors) thinks is reasonable.

Close it out!

2 Likes

Provided that there are no major objections from existing stakeholders option 1 for me. Complete our objective as per the original IIP, honour our agreements with the 3 high quality investors, and keep things simple.

For anyone else trying to do the maths in their head $2.25m @ $24.26 = 92,745 Index or 0.927% of total supply

So total % of total supply sold for $10m = ~4.16%

Community sale: makes sense to revisit and run again in parallel with the above.

Great work BD

6 Likes

Great job BD!
I think options 1 and 3 would bring more value to the IC (more VC networks and contributors who believe in the future of IC)

What are the criteria to be considered as “early-contributors”?

Hi all,

Brief thoughts for your consideration.

1- Investors assembled are world class

2- sale price per token should reflect current valuations, not historical valuations

3- strongly support community allocation

4- I would like to hear more about how the investors plan to contribute to the DAO’s growth. Im sure many owls would. They have substantial resources but this is a small cheque for all the funds listed.

To the bd team, terrific work on this - well done.

Hoot

I support the third option, if there is room for negotiations, I feel that the sale price of INDEX could be higher, $35 would be a more reasonable amount in my opinion.

I would also like to hear more about how the investors could potentially help the DAO moving forward. Blockchain.com seems to be the partner that could benefit us the most, perhaps a DPI listing as a condition?

2 Likes

Given Index Coop is a DAO this proposal produces many conflicts. My first suggestion would be to follow the recent Sushi Swap funding proposal which produced a huge amount of community participation and external coverage https: sushi-phantom-troupe-strategic-raise/4554

It’s a big thread but big picture this is the gist

  • Ultimately the community rejected the Strategic VC raise but was stronger for it. The level of debate on the initial structure, alternative structures proposed, value add of VC, VC pitch’s to community, use of funds was impressive.

  • Terms of initial proposal was a discount to market price. This didn’t fly with existing token holders as they wanted the same terms. Discussion moved to a community round and less VC’s. There was always an existential question - what is a community DAO structure, how do you reconcile that with VCs, surely everyone should be equal.

  • Do you really need the money and why diversify the token when the price is low ? This question definitely applies to Index Coop.

  • People were surprised at the breadth of the Sushi community. You actually had a huge range of players who had bought into the token because they were active users of sushi. This included a number of Investment Funds and Active Investors. Personally I think you need to have people who hold say DPI and MVI to actually hold the Index Token. To do this you need to widen the distribution of Index by giving people the ability to buy and hold it. You want your users of index products to participate in Governance.

**My Personal View ** If we are going to OTC more Index Tokens there should be an ability for the existing community to participate. If you restrict the ability to participate to early contributors then this will be a divisive issue going forward. The way you distinguish yourself from a VC project is ultimately the strength of the community and the DAO structure.

2 Likes

All the benefits from giving this massive discount to some random VCs are simply filler and future promisses that, from past experience, don’t end up materialising.

We don’t need to cater to VCs. We have all the leverage. Let them market buy like the rest of us. Maybe they could contribute and get paid like the rest of us? I’m willing to match their rewards if they do :wink:

4 Likes

I agree with DefiJesus. VCs always welcome, but on the same level playing field as everybody else. It is a slippery slope to give advantages to VCs. Bad optics too, for what should be a decentralized protocol.

6 Likes