Drive More Liquidity to INDEX

[reganbozman]

INDEX has seen parabolic price movement over the past two weeks, going from $2 to north of $15 before stabilizing around $12.

However, there is minimal liquidity for $INDEX at the moment - a $25K buy right now on Uniswap would move the market more than 13%

If we want to make $INDEX more stable and attract larger buyers, we need to create deeper markets.

There are a few options here:

1/ The simple option is to conduct a liquidity mining scheme for the INDEX/ETH pool on Uniswap, similar to the one that we’ve been conducting for DPI/ETH (see here for recent discussions on liquidity mining).

However, this is not a great option given that there seems to be community consensus on turning $INDEX into a productive asset (likely by staking to serve as a risk backstop to $DPI). Hence, we want people to use their $INDEX for something other than providing liquidity on Uniswap.

2/ Another option is for the Index Coop itself to provide liquidity, which is what @setoshi proposed on the November 16 product/growth call. Specifically he proposed that the Index Coop do the following:
-Depositing $X in INDEX from its balance sheet
-Depositing $X in ETH (funded by selling $X in INDEX)

From my point of view this is not ideal for a few reasons:

• Potential tax consequences
• Selling $INDEX when we believe its price is going to increase
• Don’t think that the Index should start diversifying into ETH, would rather do it into stablecoins

3/ Index Coop provides liquidity by borrowing ETH (pledging its INDEX holdings as collateral). This avoids us having to sell INDEX (which we believe will go up in value) and prevents the Index Coop from holding ETH on its balance sheet (I believe it should diversify into USD if it wants to diversify).

I will work on getting some more details around what the structure of a loan might look like, but I think we could get relatively favorable terms from funds that are interested in acquiring INDEX if we agreed to pay the interest in INDEX for example.

Proposal

• The goal is to get the INDEX/ETH liquidity pool deep enough that a $25K buy only creates 1% slippage. I estimate this would require ~2650 ETH (the pool currently has 240 ETH). This is approx $1.25M.

• In order to accomplish this, the Index Coop borrows 3500 ETH for 90 days. The Index Coop also pledges ~$1.25M in Index into the pool.

Initial Poll To Gaguge Community Sentiment

• In favor of buying ETH to supply liquidity
• In favor of borrowing ETH to supply liquidity
• Not in favor of supplying INDEX/ETH liquidity

*I need to dig in a bit more as to what this would cost in interest. A secured loan on Compound is currently ~2% APY so approx 0.5% for 4 months, but INDEX is high-risk collateral

[Kiba]

Serious question: why do we care about INDEX secondary market?

The INDEX token has zero effect on the success of our protocol, it’s purely governance. Unless we do the INDEX backstop but that’s a long ways away even if it does get passed.

[reganbozman]

A 10x price run up in two weeks is not healthy and will likely lead to a big drawdown - INDEX liquidity will help smooth this out and create a healthier market

“INDEX token has zero effect on the success of our protocol”

^I don’t think this is true at all. If the price went to zero tomorrow, a lot of the community would leave (given that people are getting compensated in INDEX)

[Kiba]

Again, why do we care?

If someone in the community is here only for price then they aren’t part of the community, they are speculators. There is 0 material benefit to INDEX liquidity, buidlers are going to buidl regardless of price or reward. We need those people not passive investors.

[dylan]

I agree with the sentiment but this strikes me as a shade too idealistic. Speculators may play a big role in bringing these products to market through word of mouth, product evangelism and mindshare from INDEX value accumulation

[Kiba]

Agreed, I’m not saying speculators are all bad but we shouldn’t spending resources to attract a non-essential group. Currently easiest way to acquire INDEX is to actually contribute to it’s success which is beneficial to both parties.

If they are good speculators (and thus worthy additions to Index community) they will take the risk regardless. For example I dumped my DPI from mining for INDEX at $3 and more at $7 and had a ton of slippage but that didn’t stop me because I knew it was worth it and now look where we are, I’m up ~300% in a week even with slippage.

We have a really strong community, we need to keep that culture of conviction not let people slide in by throwing some cash. I’m not advocating blocking off new members just having a good immune system and incentivizing liquidity basically ruins our entire immune system. Give away all the INDEX we want for free to the right people but don’t pay people to join us, that’s a terrible model.

[s7rukk]

totally agree. If the demand goes up, LPs will come to supply and collect the tx-fees. Market will take care of this.

[overanalyser]

I think a deeper market for INDEX would be good, as it reduces some of the volatility in the price. Granted hotting $15 grabbed some attention, but it also results in lots of people joining the discord demanding to know why the price has dropped 30%. Personally, while I’m still accumulating, I would prefer the price to be lower.

I certainly don’t want liquidity mining on the L2 pool as that will just pump the price to then dump when we stop. I see a few options:

• Put a significant chunk onto loopring with fixed prices, if the market spikes, they will be pulled into the market.
• Use a bonding curve to sell (/buy) INDEX at certain prices.
• Fund the Uniswap pair from INDEX reserves as @reganbozman suggests. There is currently about $500,000 total liquidity on Uniswap. So we could be looking doubling that would be $250,000 INDEX and $250,000 ETH.

Two additional suggestions, try and move the liquidity to a Balancer 75:25 pool, then we can add $375,000 INDEX and $125,000 ETH to double the liquidity. We could also benefit from BAL rewards.

Use the coop treasury of DPI streaming fees (and possibly Farming income) to buy ETH to fund the pool. Then we use INDEX to incentivise the Intrinsic income experiments.

We distribute more INDEX to stakers / DPI lock up and start to build the INDEX liquidity.

[jiecut]

Buying ETH to provide liquidity

What does this mean?

• Sell Index for ETH to pair with Index for ETH/INDEX

or

• Sell DPI from fees for ETH to pair with Index for ETH/INDEX liquidity

[neozaru]

Not rejecting all the ideas there, but don’t you think the secondary markets for $INDEX will become more a more liquid as more $INDEX tokens are being distributed ? It looks like the total supply is going to double during the next 6 months.
Also INDEX/USDC and INDEX/ETH pools feature decent APYs (50% ?) so more people are going to want to provide liquidity imho.

[reganbozman]

Hmm where do you see those 50% figures?

[reganbozman]

These are all good ideas - not opposed to a Balancer pool as it reduces our ETH exposure.

@overanalyser do you have any background materials that would help me understand this loopring idea?

[overanalyser]

Loopring is an order book Dex so we would effectively produce a (staggered) sell wall.

So we would transfer INDEX tokens to the loopring L2, and put them up for sale at fixed prices. x @$10, y @$15, z@$20( or fixed ETH prices)

As the price rises, people can purchase on loopring and move the tokens back to L1 and sell them.

The Coop would sell at known prices and we would increased INDEX on the market as the price goes up.

[Etienne]

I think that adding liquidity to $INDEX is a great idea because it allows many more people to get the token at a favorable price and their skin in the game, and thus grow our user base. It also important for large players of the ecosystem to start investing in the Coop - we need them to succeed.

[jiecut]

So selling INDEX to raise a treasury. Why would the DAO be raising money for? Doesn’t exactly make sense.

[overanalyser]

Effectively yes, we would be placing INDEX and ETH onto the market at the current price and letting the market forces work on them. At some point (6 months, 2 years?). We pull back the LP tokens and return it to coop treasury.

As we hope that the INDEX price will go up overlong term, we will loose out compared to holding them. But we do capture the LP fees. The only advantage is that a deeper market with allow larger trades / less likely to pump.

However, by funding the uniswap pool we reduce fees for other LPS, so we may see less LP from others.

There is ~5 million INDEX tokens in the treasury, and the plan will be to distribute the majority of them over the next 3 to 5 years to become fully decentralised. Other ways being considered are selling to pay centralised exchange listings, strategic sales to VC’s etc, staking rewards, and community involvement rewards.

[puniaviision]

I’m with Kiba here in that there doesn’t seem to be a huge need for more $INDEX liquidity. Larger players have been able to farm and slowly DCA in with the status quo.

[verto0912]

my 2 cents - i would prefer to seed a Balancer pool vs Uniswap, to capture BAL rewards and stream those back into Treasury.

[LemonadeAlpha]

Huh?

How is team incentivized if INDEX has no secondary market value? How does treasury accomplish anything?

I don’t care about trying to drive liquidity, personally. But this kind of blatant disregard for the token’s value is counterproductive, to say the least.

[Kiba]

You’re talking about extrinsic motivation (making money) and my belief (backed by a lot of research) is that intrinsic motivation is a far more effective and productive force. Token value is meaningless because it’s only used for governance and building the Coop. It shouldn’t have any value outside of the value that you personally hold for wanting to see the success of what we are building.

This is one of many reasons why I’m also against distributing dividends to INDEX holders.