DPI as a productive asset

Thanks for the feedback @Sebastien @overanalyser . Interesting point brought up by @michael about a yVault like option that uses DPI as collateral and borrow stablecoins to farm. That’s something that could beat all the yields generated from just simply lending out the underlying. The stablecoin farms on Harvest and YFI are each earning over 10% APY atm. Beats 0.3% on aSNX right now. It keeps the original DPI as a “primitive” which is important for integrations, and doesn’t cannibalize with a second product

@richard @michael

I fully hope that others will build vaults (yearn, harvest etc) that use DPI as collateral, as that certainly makes holding DPI more attractive as a long term hold for DPI users.

However, any yield that we capture on the underlying assets will be on top of what ever other build on top of us.

If you hold MKR, you get the benefit of the MKR burn which reduces supply. If we take MKR in PDI and we place it in AAVE we get an extra 0.1% MKR per year. If someone then places the DPI into a future yPDI vault earning 6% then the holder get the benefit of 5% MKR burn, some 0.01% DPI increase due to the aMKR within DPI, and then 6% additional DPI from yDPI.

That is the beauty of composability, what value we capture is added to that provided by others. It’s not an either or proposition.

P.S. YFI staking or yYFI is pretty sustainable at 10% so that adds good chunk to the potential overall DPI income.

Yup I agree! I think it all comes down to timing and tradeoffs. Enabling lending out MKR first or getting added as collateral to lending.

Also would be amazing if the Coop runs the “yDPI” Set vs externally to bring more cash flow

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Agreed. But I’m happy to let YFI build the vaults for the moment. then we can concentrate on others. When we get bigger, and the yearn fees start to look pain full we can circle back. At the moment yearn has the key feature of price oracle into Maker so it’s very unlikely to get liquidated.

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I don’t see how Option 4 brings yield to the tokens if we aren’t staking to earn the cash flows. Don’t we automatically earn dividends on MKR and COMP just by holding them already and UNI doesn’t get dividends yet?

From a governance perspective, what’s our actual objective in voting? Increase long term prospectives of the protocols? Voting selfishly? A case stuff of Yearn and Curve might be helpful since that’s the only example I know of with one protocol having significant voting power over another major protocol. Maybe we partner with Gauntlet eventually.
If we are going to be activist investors we should be morally as well as financially activist. E.g. you could say YFI’s waifu memes goes against our own Code of Conduct (nearly unanimous approval) so are we violating our own Code by participating in their governance and not doing anything about that?

I think having two separate indexes DPI and DPIacc is a good idea but too complicated for now. Sticking to basic yield like yGov staking and putting a minor % of tokens into Aave/Compound seems reasonable until we figure out the operations, economics, and code around managing both at once. By that time hopefully the DPI market is mature enough that the two options actually brings in more capital by people that want higher yields and DPIacc being easier to integrate since DPI will already be established in other protocols.

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If we do eventually do a DPI/DPIacc split it would be interesting to consider only holding Synthetix assets in the vanilla DPI since we don’t plan on using the assets for anything. We would have 0 slippage, possibly get SNX back as a rebate on trading fees with their volume program, and maybe it would make it easier to build derivatives of DPI since the underlying is more liquid and all backed by onchain ChainLink oracle prices.

To add to the narrative, productive assets have a huge premium over those that are not (whether they are natively productive or can be integrated on others).

For example, WBTC (Set is one of the initial DAO members) didn’t get any traction the first year it launched in 2019. But after yield farming began and WBTC was accepted as collateral on lending protocols and farming protocols, it exploded in desirability because it allowed those holding BTC to get yield and thus make their asset productive (where otherwise it would be sitting on a cold wallet). Today, WBTC is $1.2B in market cap.

In addition, we are seeing the same thing with DAI, a decentralized stablecoin. The desirability of DAI is in its widespread integrations, adoption, and places it can generate yield.

Using this analogy, it is critical for DPI to grow widely it would need to be a productive asset either natively or through its integrations and usefulness in other protocols.

And the more productive we can make it, the better.

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For me governance rights are a soft power. They can help build (or destroy) our reputation.

If you look at the recent UNI vote. They were within ~1 M votes of passing the resolution to change the “quorum” (net votes for) and proposal thresholds. DPI contained ~500,000 UNI. If we had voted that proposal, it may have pushed it over the edge. [In reality we couldn’t vote it as we didn’t have time to organised coop governance, set up the smart contracts, and votes had to be delegated / self delegated before the proposal went live…].

My road to 1% suggested that we delegate votes for the moment while we focus internally. Then we start looking at how we can use our goverance power to help others.

Yes we can use our power selfishly, current CURVE voters are disincentive from allowing others to be whitelisted. https://twitter.com/bantg/status/1318862473819205635?s=20 . However, I would tend to argue that long term, anything that benefits the members of DPI benefits INDEX. TO be seen to act selfishly when involved in others governance impacts our reputation.

If you look at Lesher, his proposal for UNI delegation rights builds a reputation as a partner in DeFi and wanting others to succeed. Will he vote against his own interests? I don’t know. But if he votes in a way thay people don’t like they will remove delegation rights. https://gov.uniswap.org/t/leshner-will-protect-uniswap/7418

DPI will become a super delegate in many protocols. 1% of circulating tokens is a massive chunk. If we abuse it, then some DPI holders will prefer to redeem.

Synthetic products already exist and grow. But 100% ownership of the underlying tokens (or yielding versions) is a different proposition. They have different risk profiles and uses.

I don’t fully understand SNX and synthetics. I get the principle, but the execution doesn’t speak to me. My SNX is sitting in xSNXa for someone else to mange.

Another question is how would a INDEXcoop index containing synthetic assets differ from one generated by SNX? Or is it simply a white label deployment? (which is not bad thing).

Synths only track the price of the asset. So none of the good stuff of owning the underlying tokens, lending yields, using it natively in the protocol, governance etc. You trade against the oracle price (ChainLink in this case) vs the market. SNX also has a DeFi index product here

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Yea there are definitely tradeoffs like we wouldn’t have governance power with the synthetics but we could also theoretically have more money in a synthetic DPI than the summed marketcaps of all the underlying tokens since we aren’t constrained by token supply which means more fees to the treasury. We could supply infinite demand for the index without having to worry about the market being able to handle our movements and we still have the DPIacc that holds real tokens for governance power. It’s still possible to earn yields on synths if we wanted to e.g. sETH/ETH Uni pool and sBTC Curve pool as the most prominent examples.

Yea I agree that governance has a lot of power. My main concern is that if we don’t have an explicit goal/ideology around participating in protocol governance then we will waste a ton of time and energy in our own forums debating about votes in other protocols which doesn’t seem very productive. This is especially so when we have to contend with thousands of DPI holders who want their voice heard who don’t even hold INDEX. Sounds like a shit show imo and I’d rather avoid that headache until we have a clear framework.

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I’m still undecided on this. I think my main questions on prioritizing governance are:

  1. What are we prioritizing it over?
  2. How many hours of work will it take to implement for all the protocols mentioned (UNI, COMP, and AAVE)?
  3. What is our political agenda in governing these other protocols?

I don’t think all the additional overhead that comes after implementing this (governing how we govern) is worth distracting us from activities with higher growth returns.

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Could be interesting, but synths are actually constrained by SNX market cap, since SNX stakers mint the debt at 600% collateral ratio. Limits the size of a synthetic to current market cap of 400m / 6.

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Agreed. I see product improvements (upgrading to yield tokens, governance) as separate to growth initiatives (getting on lending protocols, derivatives, exchanges etc), and onboarding new methodologists which can happen concurrently.

Taking a stab at your questions:

  1. Over options 1, 2, 3 as we get more community consensus around how to pursue yield, and clarity from external integration partners. The mint/redemption fee may be higher priority, but that’s outside the scope of this thread
  2. Very low technical cost. 2-3 days for smart contract work. Then there’s sending it to audits etc
  3. Up to INDEX holders (DPI holders have no input). Imagine passive indexes would be very long term oriented. Could even delegate votes to an external party first. Short term can even be a marketing play to strengthen the Index brand

True forgot about that. At the moment its limited to SNX but I think they’ve already started allowing ETH to mint synths too so it’d be at least SNX + ETH marketcap but still constrained so I guess that takes away the main selling point in my argument

Thanks for answers on 1 + 2, that definitely clears it up.

On 3 - I don’t think that’s a sufficient answer. We have a very clear and strict methodology for DPI which helps guide us in many ways - selecting assets, explaining benefits to holders, and ensuring trust in platforms. Why would we not have the same thoroughness with how we manage the assets within DPI as we do in selecting them?

Of course we can do it but the more important question is why are doing it? What value do we expect to give these other communities, what do we expect in return, how do we decide which actions achieve these? Regardless if we are directly voting or delegating to another party we need to figure this out before hand so we know how to course correct if things don’t go well, or even to have a course to go on to begin with. With no expected value to us or others, metagovernance isn’t worth wasting the energy and resources.

This is also important because of conflict of interests. Let’s assume all index holders are honest players but what happens if a non-coop member makes a proposal for us to vote “yes” on X proposal on Y protocol when we have no framework to decide? It may benefit a subset of that protocols users (the poster included) but not all members and we have no way of really evaluating so we just default to supporting it because someone from their community told us to and we’ve actually made a big mistake.

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Not exactly sure if the implementation cost for Governance is the lowest. Governance is quite complicated.

I’d prefer DPI to be a productive asset by being able to gain some yield for some of the assets by depositing them on lending platforms.

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tbh I would wait a bit before adding additional smart contract risk. This space is very early and I expect few more exploits. Lets be secure first. Earning the reputation of being a safe, legit, secure product.

There is no need to degen for now.

Just my two gwei.

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cCOMP is currently sitting at 32% APY on Compound. I would love to see a way to whitelist protocols (like Compound or AAVE) where we could earn an extra APY on DPI.

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