Finance Nest Community Updates - A Thread

Finance Nest November Update

@Matthew_Graham @ElliottWatts @prairiefi @Hammad1412 @Ahuja

During November the Finance Nest made a series of structural changes in preparation for Index Coop to start being more active with its financial capital. Finance Nest revised the protocol list for both the Operations and Investment Account and expects the initial deployment of capital to occur during December. Keeping with the commitments made to the community with the creation of the Finance Nest and funding received through IIP-098, the Finance Nest will be providing it’s very first Nest OKR report update for each respective pod.

The Finance.Nest governance forum account was born and published the very first Budget v Actual report along with the normal monthly financial reports and six IIPs. During November the Investment Account was created and Rari Capital was added to the list of approved protocols for the Operations Account, IIP-101. The Tetranode pool is currently offering some very appealing yields.

This month the Operations Account absorbed the funding council balance and began processing transactions at scale. The recent integration with parcelDAO allows all transfers to be made gas free. Multiple Working Groups are also starting to realise just how easy and cost effective Parcel is for direct transfers and as a result have set up their WG multi-sigs on the platform. Collectively, Index Coop has saved $0.423 ETH in gas cost savings. This is equivalent to ~$1,700 USD ($4,000 per ETH). We would like to recognise the efforts of TOC WG in kick starting the Parcel integrations, and @Hammad1412 and @ElliottWatts or running the integrations.

With the implementation of IIP-72 imminent, the Finance Nest submitted IIP-116 to redirect all composite products revenue directly to the Operations Account. This will enable all in-bound product revenue to be actively managed directly from the Operations Account. The intention is to have the Treasury as a pure INDEX token holding wallet and all non INDEX tokens to be transferred to either the Operations or Investment Account in time.

Finance Nest inherited the processing and ownership of the Contributor rewards process from TOCWG during October. During November, in response to community feedback, the Finance Nest conducted a survey amongst contributors. This led to the development of a guideline to better support WGL on how to go about managing Contributor rewards within their respective nest. Finance Nest will always seek to iterate and improve the process wherever possible.

On a positive note, the Contributor rewards are being distributed at record speed these days. The Finance nest is targeting a five working day turnaround from when WGL receives the Contributor Reward request form to when rewards are actually distributed. To date Finance Nest has met this OKR during October and November, two from two.

November also saw the birth of the Investment account with revised signer permissions to reflect some recent role changes, IIP-112, and an initial allocation of $5M USDC of funding was approved by the community with IIP-114… The nest also proposed and had approved IIP-115 that enables seven protocols to be added to the approved protocol list. Finance Nest expects both the Operations Account and the Investment Account to start deploying stable coins to earn a yield.

In addition to the above, the Finance Nest continues to ship financial reporting that is the envy of protocols across DeFi every month. Finance Nest is currently working through creating a number of Dune dashboards showing the performance of the Operations Account and displaying some initial financial metrics. In the lead up to Q1 2022, Finance Nest is actively working with a number of WG’s to develop an accurate budget which estimates the communities future forecasted spend, INDEX and non-INDEX requirements. This will enable the community to better manage financial assets and make informed financial decisions.

Links:

Note: The Accountability and Operations Account monthly reports which include OKRs will be added in due course.

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Thank you to @Hammad1412 and @ElliottWatts for getting Parcel going and the contributions out smoothly. Also Budget vs Actual report!

Looking forward to seeing good things resulting from IIP-114

Solid lift from the nest!

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Operations Account - November Update

Index Coop’s Ethereum Operations Account was created on the 25th July and didn’t become actively used 14th August when it received 1,750 ETH2x-FLI tokens for BED liquidity. Since then, we have come a long way including a few highlights here for the inaugural post:

  • Redirect FLI revenue: IIP-72
  • Authorizing stablecoin strategies: IIP-79
  • Updating signers: IIP-88, IIP-99
  • Transfer Funding Council assets to Operations Account: IIP-90
  • Authorize Rari Capital strategies: IIP-101
  • Create an Operations Account on Polygon: IIP-111
  • Redirect Simple Indices revenue: IIP-116
  • Adopting Parcel for payroll: Link

At November month-end, the Operations Account held the following:

Asset Quantity $ Price Value
INDEX 73,191.10 15.89 1,162,903.26
USDC 697,693.47 1.00 697,693.47
ETH 119.65 4,636.43 554,753.10
WETH 37.04 4,636.43 171,716.91
ETH2x-FLI 1,858.50 249.69 464,052.83
BTC2x-FLI 986.47 64.01 63,141.24
WBTC 0.16 57,117.09 9,186.56
BED:WETH UniV3 1 Link to pool 292,129.45

OKR Overview

  • Number of Operations Account Transactions: 33 (nonce 22 to 49)
  • Total Index Coop ERC-20 Transactions: 47
  • Number of Operations Account ERC-20 Transactions: 20
  • Number of Operation Account Time Sensitive Transactions: 9 (ETH2x & BTC2x sell transaction + BETA purchase)
  • Percentage of Time Sensitive Operation Account Transactions: 9/33 = 27.3%
  • Number of failed transaction due to insufficient signers: 0
  • Number of successful safety test transaction: 0
  • Number of incorrectly executed transaction: 0
  • Gas Spend during November: Operations Account total 0.7738 ETH, 0.2106 of which was covered by Parcel
  • Number of Days to Process Contributor Rewards: 5
  • Number of Contributor reward disputes per quarter: 1 to date
  • Number of Developer hours utilised by Contributor Reward process: 0

Time Sensitive Transaction Details

Time Sensitive Transaction Start Time Finish Time Duration (min) Transaction Summary
Nonce: 22 8:53:17 PM 9:07:59 PM 14 min 42 sec Swap ETH2xFLI for WETH
Nonce: 33 3:16:41 PM 3:21:56 PM 5 min 15 sec Swap WETH for BETA
Nonce: 34 3:24:58 PM 3:28:03 PM 3 min 5 sec Swap WETH for BETA
Nonce: 35 3:30:59 PM 3:34:06 PM 3 min 7 sec Failed Swap
Nonce: 36 3:38:06 PM 3:43:12 PM 5 min 6 sec Swap WETH for BETA
Nonce: 37 3:45:11 PM 3:47:13 PM 2 min 2 sec Swap ETH2xFLI for WETH
Nonce: 44 9:20:47 PM 9:28:30 PM 7 min 43 sec Swap ETH2xFLI for ETH
Nonce: 45 9:40:11 PM 9:45:45 PM 5 min 34 sec Swap ETH2xFLI for ETH
Nonce: 46 10:02:45 PM 10:04:41 PM 1 min 56 sec Swap BTC2xFLI for ETH

Link to Operations Account Signer Activity (signers, time to execution, gas used, gwei price)

Link to ERC-20 Transaction Recap for November for monitored Index Coop wallets.

One of the goals with the Operations account is to streamline payments activity to a core group, with an emphasis on strong controls and timely processing. We hope to continue to deliver on this element of the Operations Account, while continuing to improve transparency through reporting like this.

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Finance Nest December and January Update

Author: @ElliottWatts

F.Nest Members: @Matthew_Graham @prairiefi @Hammad1412 @Ahuja @Hammad1412 @Ahuja

General Update

During December and January Finance nest has been working tirelessly to ensure we are well prepared for the launch of Season 1 from a financial background, throughout December and early January F.Nest has been working with the Index Council to provide a holistic budget and outlook for 2022. This budget incorporates anticipated Nest spend (which will be updated once the proposal process has completed) cash flow predictions and working capital management coupled with a future outlook on potential revenue generated from existing and planned product launches. This will enable the community to better manage financial assets and make informed financial decisions. Finance will be continuing to work with Nests and supporting them throughout the proposal process and also providing guidance as we charter season 1.

In addition to this, we have started to make our stable coin holdings productive in line with IIP-114. We currently have two positions open one in Balancer boosted pools and the other within a USDC <> FEI rari fuse pool. We deployed $2.5m of capital and are expected to earn a yield of ~ 13/18% respectively. This post will be followed by our first iteration of the Investment account update.

IIP-72 has now been actioned by set (2nd February) for all FLI product streaming fees to be directed straight to the operations account. Coupled with this Finance Nest is awaiting action on submitted IIP-116 to redirect all composite products revenue directly to the Operations Account, this has passed IIP and is waiting implementation. This will enable all in-bound product revenue to be actively managed directly from the Operations Account. The intention is to have the Treasury as a pure INDEX token holding wallet and all non INDEX tokens to be transferred to either the Operations or Investment Account in time.

Finance nest also proposed the autonomy act IIP-123 (which passed with a 100% approval) this intends to provide more autonomy for our nest to act in the best interests of the organisation when it comes to stewardship of the DAO’s treasury. This allows us to work in a fast and effective manner. Currently, there is no approval list or standard approach to how/where community funds can be deployed. This IIP gives F.Nest the ability to create a whitelist of approved protocols the organisation can interact with, maintained in Github by this Nest. (We will be providing more details on this in the coming weeks).

Season 1 has started and Finance has proposed its key objectives and success metrics here. Our overarching mission is to provide the organisation with the appropriate tools and guidance empowering the community to turn a startup into a profitable DeFi Citadel. Season 1 sees core objectives of:

  1. Ensure accountability and productive spend to demonstrate impact
  2. Tokenomics and value accrual for INDEX token holders
  3. Ensure the financial profitability and sustainability of Index Coop
  4. Manage funds and ensure smooth disbursement of funds across Index Coop

You will be able to follow the journey through this thread where we will be posting updates on a monthly basis vs our success metrics within this thread

Liquidity provisioning

Throughout December and January the Finance nest has been working with the liquidity pod to process and implement a framework to allow us to provide liquidity to existing and new products. The first liquidity provision made was for $INDEX a total of $1.4m ETH/INDEX pair on UniV3, additional liquidity was provided to $GMI a last minute request due to funding issues with our partner resulting in a tight turnaround for launch. In addition we also provided $1m in liquidity across a number of products on Argent which will likely go live on their their platform shortly.

December and January saw cashflow problems due to unplanned liquidity provisioning and last minute requests, Finance has remained flexible and accommodating to ensure we meet the demands of the community. This has resulted in us working with DebtDAO to open up a line of credit, allowing us to have access to funds when we have working capital constraints, allowing unforeseen costs to be accommodated effectively without impacting other areas of the business.

Reporting

The Finance.Nest governance account is mainly used to publish financial reports and IIP’s. This was created in November to provide the organisation with one account they could look for to provide information on all things financial. In december we posted our Budget v Actual report along with our quarterly financial presentation a deep dive presented by @elliottwatts and @hammad1412. In addition to this monthly thread we will be aiming to maintain an up to date dashboard within the F.Nest notion page to track our success metrics and OKR’s for Season 1 .

The operations account has been very effective over the last few months with multiple Nests realising just how effective the account is, an example of this is how F.Nest have taken on the responsibility for processing contributor rewards, we are now down to a processing and payment time of less than 5 days, a significant improvement on the 10/15 day average a less than 3 months ago.

In addition to the above, the Finance Nest continues to ship financial reporting that is the envy of protocols across DeFi every month. We continue to improve the process providing useful insights to stakeholders across the space.

We look forward to showcasing what we can deliver as we work through Season 1. :rocket:

Links:

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Finance Nest February Update

Author: @Matthew_Graham
F.Nest Members: @ElliottWatts @prairiefi @Hammad1412 @Ahuja @Hammad1412


General Update

During February, Finance Nest was incredibly busy working with the Index Council and each Nest to review and compile the Season 1 budget. Finance Nest working with the Council, was able to present a Season 1 budget that represented a 10.72% reduction in spend relative to the Q4 2021 actual spend figures.

At the end of February, Index Coop’s actual total spend for the month was $572,529.81, with the forecast total spend being $728,070.45. Relative to January, this is a decrease of 11.41% in spend.

Finance Nest believes this forward looking reduction in cost base to be the right direction for the community. Looking forward to the mid-season budget review in May 2022, Finance Nest intends to advocate for a leaner, more efficient business. Proven growth initiatives are to be accelerated and those that are not performing as hoped are expected to be tapered or reworked into higher performing initiatives. We will be continuing to advocate for linking Pods / Nest objectives to growing the business. Finance believes Index Coop to be an on-chain business and this should be reflected in how we pursue growth and view spending.

With respect to the main Treasury wallet, all product holdings were transferred to the Operations Account where they are expected to be sold and used to provide Protocol Owned Liquidity (POL). At the end of February, in addition to the primary INDEX holding, the Treasury held $3,040,314 in USDC and <$500 of ETH2x-FLI. This USDC is expected to be transferred from the Treasury in March when the Season 1 budget is requested.

$265,413 of USDC was spent on contributor rewards for the month of February with a grand total of $314,796 of USDC being spent across the community. Only Core Hires are able to request their wages be paid in USDC and flexible contributors are to be remunerated in INDEX. Less than $50,000 of non contributor expenses were incurred during February.

IIP-134 Index Coop retrospective Airdrop was a controversial proposal. After much discussion amongst the community, the decision of the Council was to move the topic to Snapshot. Finance Nest provided the numbers supporting the proposal and drafted the proposal in line with the communities request. Finance Nest acted impartial and agnostic whilst preparing this proposal. Do note, it is a requirement Finance Nest facilitates providing financial input to ideas from all across the DAO in an impartial manner.

Liquidity

February was a busy month for POL, four liquidity pools were funded on Polygon which was largely funded from internal cash flow from product revenue. At the time of writing we are currently supporting the following liquidity positions $1.4M in INDEX:ETH, $1M via Argent/ZigZag, $413K in various FLI liquidity positions and $211K worth of DPI/USDT on loan to KuCoin.

We are experiencing some challenges in coordinating signers across multiple time zones whilst trying to deploy several products in short succession. Technical challenges with bridges and inability to use Exchange Issuance is resulting in increased signer contact time which is something we look to manage better going forward. Finance Nest acted to amend the signers on the Operations Account to boost the members from Product Nest and more importantly the cross discipline Liquidity Pod. We expect this update to enable smoother product launches going forward.

Reporting

The Finance.Nest governance account is mainly used to publish financial reports and IIP’s. This was created in November to provide the organisation with one account they could look for to provide information on all things financial. Links to the monthly reports are provided below. Going forward Finance Nest is to begin providing updates on the progress of the DSM program as part of the Core Hire package. We expected to see monthly updates be provided to the community.

We look forward to showcasing what we can deliver as we work through Season 1. :rocket:

Links

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Finance Nest March Update

F.Nest Members: @ElliottWatts @prairiefi @Ahuja @Hammad1412 @Matthew_Graham

General Update

During March, Finance Nest had a productive month. We released a new process for streamlining third party payments whilst supporting the ongoing launch of products and publishing the financial reporting content leading into the end of Q1 2022.

The new third party payment process consolidates weekly payments into a single distribution and enables those members of the community to know when partners will be paid. Further to this, Finance Nest is also exploring getting an Index Coop credit card via an intermediary. This will enable Index Coop to support direct debit like payments which will reduce the overall number of expense claims going forward as we seek to eliminate personal payments being made by contributors on behalf of Index Coop.

Stablecoin Runway Update

At the end of March, the Index Coop’s actual total spend for the month was $576,523.86 which is significantly less than the forecast total spend of $728,070.45. With a 0.69% increase in spend during March to February, Finance Nest views this variation as minor and highlights the variation between budgeted and actual spend has been consistent over the last two months.

Finance Nest will be preparing recommendations for the Council as part of the mid season review, that reflects the budget v actual learnings to date in effort to realign forward looking budget spend for the remainder of Season 1.

The USDC spend was down from $315K in February to $268K in March. This is largely due to contributors now being able to participate in receiving their monthly wage in the form of icETH. Of the $268K USDC spent in March, $235K was attributed to contributor rewards and this represents a reduction from $265K during February. During April contributors will be able to participate in a pre-sale of JPG.

During March $3,040,314 of USDC was transferred from the main treasury with $1,320,417 and $1,719,897 going to the Operations and Investment Account respectively. With the Operations Account holding around $1.6M unproductively, this alone is equivalent to 6 months runway based on March’s USDC burn rate which is more than enough for Season 1.

Across all Accounts, Finance Nest believes Index Coop to have around 33 months of runway using March’s spend rate. ($2M Operations Account, $6.7M Investment Account). Please note this excludes all revenue generated by Index Coop and overlooks the annualised >$700K of revenue generated from the Investment Account.

Investment Strategy Update

In preparation for launching LAYER1 on Balancer information now public, the use case for the BAL tokens being earned across both the Operations and Investment Account can be discussed more openly. The Operations and Investment Account holds a combined $4.4M Balancer Boosted Pool position (USDC, DAI, USDT) position. The strategy provides diversification away from the centrally controlled USDC and the yield was around 10.5% at month’s end without any boost. The pool has over $370M in TVL and is a strategic pool for Balancer. When Balancer V2 launched, Balancer offered the largest known bounty in the industry’s history and around 80% of the LTV in the Boosted Pool is actually deposited in Aave via Linear pools.

The BAL tokens are intended to be used to support growing Index Coop’s TVL. This is achieved by depositing the BAL into Balancer or Aura’s ve of vl contracts and then used to vote BAL and/or AURA token yield to Index Coop’s INDEX/product pools. Examples include LAYER1, an icETH Boosted yield pool or INDEX/ETH pool. This strategy is as much a growth strategy as it is an income generating strategy. Deploying Index Coop’s stables to earn yield is viewed very positively by the Balancer team and has been great for building goodwill. When other DAOs are doing token swaps for BAL or considering market acquisitions, Index Coop is farming and looking to build on top of Balancer.

In the coming weeks, Index Coop Business Development team may request Strategic Partner status and Finance Nest may request permission to interact with the veBAL contract from the Balancer Community or opt to deposit into the Aura contract when the protocol launches. The goodwill built through deploying assets and building the LAYER1 product on Balancer V2 puts Index Coop in good stead to attain BAL rewards from the Liquidity Mining committee gauge. This gauge is administered by an internal team at Balancer. A fantastic outcome would be for Index Coop to receive a long period of AURA and/or BAL rewards which would represent a huge cost savings for Index Coop.

We expect the Liquidity Mining (LM) rewards to lead to significant TVL to Index Coop. This is especially the case if the LM rewards are directed to an icETH pool. The yield on an icETH Boosted pool is expected to exceed the wstETH / ETH pool. The wstETH / ETH pool has over $400M in TVL and we expect the icETH Boosted Pool to outperform the returns of this pool. This strategy amongst and others are being developed by Finance Nest with help from liquidity pod and business development team. We intend to use the BAL / AURA holding to maximise AUM in Index Coop products.

Please do note, maintaining the investment account strategy requires very few man hours, perhaps as little as 5 hours per month. The strategy outlined above was developed with input from multiple contributors across the DAO on how best can we grow TVL whilst maintaining the runway. A yield strategy that extends the runway and supports Index Coop in growing TVL, is a very good strategy. The strategy has a great asymmetric return profile.

Liquidity

March was again, a busy month for Protocol Owned Liquidity (POL), icETH was launched and POL was deployed from both the Operations and Investment Account to support the launch.

Four FLI-P products were supported in March (iMATIC,iETH,iBTC + BTC2x) ~$600k reduced to ~$100k by month end. The partnership with Argent in collaboration with ZigZak exchange was supported with $1M of inventory. Sales there have shown promising results and the capital there is expected to be withdrawn beginning in April. A $130k of GMI:ETH position remains as well as ~$225k of DPI/USDT still remaining on loan to KuCoin.

Outside of supporting product liquidity IC is also supporting ~$700k of INDEX:ETH liquidity

We are experiencing some challenges in coordinating signers across multiple time zones whilst noting that some signers are less active than others. We have been working with Den who is an early stage community partnering with Index Coop to trial some new innovations built on top of Gnosis Safe. Den will be installing bots in the contributor discord which pings the respective channel whenever a transaction needs signing and providing a mobile messages service that messages each signer when a transaction requires signing. We hope to implement these initiatives during April.

We are still incurring a fairly onerous man hour tax when launching products as pools are seeded well in advance of exchange issuance functionality becoming available. In order to reduce the man hours in multisig transactions, we are exploring the option of transferring funds to a trusted individual who can then do all the transactions in under an hour relative to 3-4 people over a 8 hour period. There are trade-offs with security, but +20hours of signer time to launch a product is not ideal either. This idea, if advanced, will go to the council for feedback before being discussed more broadly within the community.

We are also looking to create a fresh mainnet Operations Account like Safe for managing active liquidity positions. This POL Operations “Sub” Account is intended to manage active POL positions.

Reporting

Finance Nest delivered all the financial reports relating to February’s end of month data. A couple were a little later than expected, which caused some OKRs to suffer. Finance Nest is looking to ensure more emphasis is placed on reaching the OKR objectives.

Payroll is functioning well, we had a couple hiccups with distributing funds that were promptly corrected. We continue to use Parcel for free token transfer transactions and have now found a rhythm for publishing data on the INDEX accruing to contributors via the DSM program. Finance Nest has commenced scoping out the cost of extending DSM for the remainder of the community and will be handing this data across to Community Nest early/mid April.

The next main area of focus post quarterly reporting is revisiting the revenue forecast for Index Coop and continuing to iterate on the financial model that was developed early Q1 2022.

We look forward to showcasing what we can deliver as we work through Season 1. :rocket:

Links:

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Finance Nest Update - April

F.Nest Members: @ElliottWatts @prairiefi @Hammad1412 @Matthew_Graham

Special Update

It is time to celebrate! @hammad1412 is now officially 100% Finance Nest. The team is excited to see Hammad take on a more involved role within the team.

General Update

Early in the month Finance Nest released Index Coop’s Q1 2022 Quarterly presentation and published a youtube clip running through the results to date. The actual results across the DAO leave a lot to be desired, TVL, Net Dollar Flows, Revenue and Trading Volume were all materially down on Q4 2021 numbers.

General operations have progressed smoothly. The contributor rewards and newly implemented third party payments processes have performed well. Financial reporting deliverables have all been published, we recognise there is room for improvement on more timely publication of these reports. Finance Nest has recently fielded a request from the council to provide updates on the status of our asset holdings weekly and for this to be distributed through fortnightly plannings and weekly sCoop publications. We would like to encourage anyone with an interest to join us on the Money Talks call, 4pm UTC+1 each Tuesday in the contributor discord.

Debit Card update

Finance nest is pleased to be able to offer the use of a fiat debit card which is linked to a gnosis safe. This wallet has signers from finance nest (Elliott and Hammad) and one third party being paymagic, it will be a 1 of 3 signer and will not contain more than 1 months expected expenditure. Paymagic will take a 3% transaction fee and will automatically withdraw from this account once payment has been made on the card. The DAO debit card will enable us to manage all subscriptions at the Coop from one card and minimise the expenses contributors have to front. This will be available during this month and an update post detailing how to gain access to the card will be shared in due course, initially we will have a trial run with a small low value subscription payments.

Coupled with the new debit card a new third party payment process was created to consolidate weekly payments into a single distribution, this enables those members of the community to provide regular payments to suppliers. This eradicates the amount of contributors having to pay out of their own pockets and request reimbursement, it allows for safe more efficent transfer of funds.

Changes Core Hires

With the commencement of Index Council v2, there were a number of amendments to Core Hires across the coop during April. Two Core Hires and one legacy Full Timer have since left the Coop. An exit package for one Core Hire was valued at $23,334, excluding April remuneration. In addition, one Core Hire received a raise which was administered at Nest level and one flexible contributor who is now part of the council started receiving a 50% allocation of Core Hire Band 6 (Council) remuneration which was administered at Council level.

Currently, there are a number of legacy Full Time vesting contracts that need to be reclaimed by the Treasury address (Set Labs) as a result of the recent migration to Core Hire. To this day, most legacy Full Timers are able to claim their vested tokens and we are solely reliant on trust that they do not claim vested tokens until such time as someone with access to the Treasury reclaims those contracts. We hope these vesting contracts are reclaimed in a timely manner by set employees, the request is 2 months old now.

Optimism Airdrop

Several members of the community on multisigs will have received Optimism tokens as part of their airdrop. The council is currently deciding if those beneficiaries are required to claim the tokens and transfer them to Index Coop. This will span all multisigs that held either community and product funds. Legacy working group, pod / nest level multisigs, treasury funds and product rebalancing multisigs are all expected to have received benefits from the airdrop.

Stablecoin Runway Update

Detailed below is the composition of payments made over the last 3 months.

Screenshot 2022-05-06 at 16.22.31

During March Index Coop spent $268,162 USDC and in April the spend was $280,924 USDC, a 4.76% increase from the previous month. USDC expenditure in April was higher for contributor rewards as less product was distributed, however, this was largely offset by USDC expenditure on expenses decreasing. Contributor rewards accounted for $250K of USDC expenditure. The launch of JPG gave contributors the opportunity to receive a portion of their pay in $JPG token.

At the end of April, the Index Coop’s actual total spend for the month was 628,666.14 which is significantly less than the forecast total spend of $724,250.38.

Finance Nest will be preparing recommendations for the Council as part of the mid season review, that reflects the budget v actual learnings to date in effort to realign forward looking budget spend for the remainder of Season 1.

The Operations Account holding around $1.7M unproductively, this alone is equivalent to nearly 6 months runway based on April’s USDC burn rate which is more than enough for Season 1.

Across all Accounts, Finance Nest believes Index Coop to have around 31 months of runway using April’s spend rate. ($1.7M Operations Account, $6.9M Investment Account). Please note this excludes all revenue generated by Index Coop and overlooks the annualized >$700K of revenue generated from the Investment Account.

Investment Strategy Update

In this month’s edition of the Fiance Nest update, we will be diving into the second investment theme held within the Investment Account. This theme has three distinct flavours of thinking in the strategy. The first is how to provide Protocol Owned Liquidity (POL) without price exposure, secondly generate Cash Flow for the DAO and third, is there any potential to align the strategy with more broader Business Development efforts to support growth initiatives within the DAO.

The strategy is fairly simple: deposit stablecoins into the FEI/DAI and FEI/USD Gelato G-Uni pools to earn swap fees. Then deposit the G-Uni pool token into Rari Fuse Pool 8 to earn >15% APY in TRIBE tokens. Borrow ETH, use 50% of it to acquire icETH and then provide icETH/ETH liquidity in the G-Uni pool. This liquidity supports the newly launched icETH product and reduces the reliance on external liquidity. The yield from icETH in the liquidity position exceeds the cost of borrowing ETH and the swap fees, which are highest post launch, provide additional yield which make the debt profitable with some buffer. Because the icETH/ETH liquidity is funded in ETH debt, the overall ETH position is not exposed to the price of ETH. The debt is 153 ETH and the rate at which ETH is being earned exceeds the cost of the debt. The strategy is expected to generate a fully hedge POL position, a first for Index Coop, an ROI of 2-3% in ETH on top of the 17%-18% TRIBE rewards APY.

Let’s go through the risks, what if FEI loses its peg. The chainlink oracle shows the peg to be rather tight and well held even when the ETH price was very volatile early in Q1. The stable coin is over collateralized and can be redeemed 1:1 with DAI via Tribe DAO’s front end. The peg is safe. Index Coop uses Gelato G-Uni pools to manage a number of POL positions, there is a very large portion of Uni v3’s overall liquidity in G-Uni pools, plus Gelato is a key partner of Index Coop. G-Uni pools are well battle tested and Gelato/Arrakis are a strategic partner. Rari Fuse Pool 8, a fork of Compound and recently exploited. Index Coop lost no funds due to the strategy being deployed. By depositing collateral that can not be borrowed, only the wallet address that deposited the capital can withdraw it and that means there is no re-entrancy risk. Rari Fuse pools have over a $1B in TVL, Pool 8 is the main most liquid pool and has Tribe DAOs own capital deployed within it. Tribe DAO who supports the Fuse pools is also a large investor in Index Coop, 100,000 INDEX and one of the largest DPI holders after completing a $10M purchase in 2020.

Why Rari > Compound/Aave, the >15% TRIBE rewards and the upside in SPICE tokens. By using the G-Uni token as collateral Index Coop is able to communicate to Gelato/Arrakis that Index Coop is using their smart contracts. This is great for Business Development, as are the other instances where Index Coop is using G-Uni pools. There is also the potential that when the SPICE token genesis occurs, the icETH POL position which incurs a small management fee that goes to Arrakis DAO will lead to Index Coop receiving a SPICE allocation. This SPICE allocation is considered desirable as it will then enable Index Coop to lock the token and direct SPICE rewards to Index Coop product/INDEX pools. This is a nice upside opportunity stacked on top of an already very rewarding strategy.

Please do note, maintaining the investment account strategy requires very few man hours, perhaps as little as 5 hours per month. During April there were no transactions after 7th April. The next steps in this strategy is to await the Arrakis DAO SPICE token launch and reconsider how best to structure this strategy to best suit Index Coop’s growth ambitions whilst remaining exposed to only stablecoins price movements. We may consider using the TRIBE tokens to acquire SPICE, USDC or xTRIBE to earn additional rewards. This decision point is sometime into the future.

The strategy outlined above was developed with input from multiple contributors across the DAO on how best can we grow TVL whilst maintaining the runway. A yield strategy that extends the runway and supports Index Coop in growing TVL, is a very good strategy. The strategy has a great asymmetric return profile.

Liquidity

April was again, a busy month for Protocol Owned Liquidity (POL), JGP was launched and POL was deployed from both the Operations Account to support the launch.

Detailed below is the current value of each position as at 5th May. Currently we have $2.93m of protocol owned liquidity.

Pair Total $ value as of May 5th Type
DPI:USDT $200k KuCoin CEX Order Book
GMI:ETH $100k 50/50 Full Range G-Uni Pool
JPG:ETH $80k 50/50 Full Range G-Uni Pool
JPG:ETH $90k Concentrated v3 (-/+25% Range)
iMATIC:MATIC $15k Full Range v3 Pool (Delta Neutral)
iETH:ETH $20k Full Range v3 Pool (Delta Neutral)
iBTC:BTC $25k Full Range v3 Pool (Delta Neutral)
BTC2x:BTC $40k Full Range v3 Pool (Delta Neutral)
iBTC $60k 1.5x Hedge to BTC2x POL ^
DPI, MVI, BED, DATA, GMI : USDC $750k ZigZag Order Book for Argent Partnership
JPG:ETH $90k ZigZag Order Book for Argent Partnership
icETH:ETH $290k ZigZag Order Book for Argent Partnership
icETH:ETH $140k ZigZag Order Book for Argent Partnership
icETH:ETH $430k Concentrated G-Uni Pool (Investment Account)
INDEX:ETH $600k Gamma Managed Pool
Total $2.93m

Outside of supporting product liquidity IC is also supporting ~$600k of INDEX:ETH liquidity

We are experiencing some challenges in coordinating signers across multiple time zones whilst noting that some signers are less active than others. We have been working with Den who is an early stage community partnering with Index Coop to trial some new innovations built on top of Gnosis Safe. Den will be installing bots in the contributor discord which pings the respective channel whenever a transaction needs signing and providing a mobile messages service that messages each signer when a transaction requires signing. Throughout April we have been trialing this and it has worked well to ensure signers are more active. Coupled with this we have recently implemented IIP-151 which removes inactive signers and replaces them with more active members of the community.

We are still incurring a fairly onerous man hour tax when launching products as pools are seeded well in advance of exchange issuance functionality becoming available. In order to reduce the man hours in multisig transactions, we are exploring the option of transferring funds to a trusted individual who can then do all the transactions in under an hour relative to 3-4 people over a 8 hour period. This has been discussed and approved by the council to become more operationally efficient.

We have also created a POL Operations “Sub” Account which is a clone of the main operations account. This is intended to manage active POL positions, separating the PoL from the main operations account allows for good management of active positions without disrupting the operations account transaction flow.

Reporting

During April, Finance Nest delivered the Quarterly and supporting Youtube presentation. The normal monthly reports were all published and we were able to submit both February and March Finance Nest updates. We still have room for improvement around reaching our cadence for report publishing, however with the ever expanding scope of analytics requested on the figures we are constantly improving and iterating. This months report will include more product specific analysis that takes into account PoL IL for profitability metrics.

We look forward to showcasing what we can deliver as we work through Season 1. !:rocket:

Links:

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Finance Nest Update - May

Authors: @Matthew_Graham, @ElliottWatts, @Hammad1412, @MrMadila and @prairiefi

General Update

Over the last month Finance Nest has moved the DAO forward in several key areas. The nest provided feedback to the council on Season 1’s performance, progressed the DAO towards being incorporated, provided an in depth review of the DAO’s stablecoin runway to the council for review and the DAO initiated a small veBAL position.

A glimpse into the stablecoin runway is shared below and a more detailed analysis is expected to follow shortly when the council has completed a review.

More generally, operations across the nest spanning contributor rewards, third party payments and the DAO credit card processes are all going smoothly. Our largest challenge is finding a way to accurately track the DAO Protocol Owned Liquidity (POL) positions. At this point in time neither the Liquidity Pod or Analytics teams or Finance Nest are able to identify an easy means of checking the USD value of all positions in one place. This is further complicated by capital being held in DAO and Personal wallets across multiple networks.

As a result of the complexities with POL reporting, we can be more punctual with our reporting and we note the stablecoin analysis runs past the end of month closing the books timeline into the financial reporting window for the month of May which has added further delays.

We would like to encourage anyone with an interest to join us on the Money Talks call, 4pm UTC+1 each Tuesday in the contributor discord.

Debit Card update

The DAO’s credit card has been in use for around a month now and several on-going payments have been migrated from current and past contributors to the credit card. For those that still have transactions yet to be migrated from personal accounts to the DAO, please do get in touch with us via the ops-expense-request channel in the contributor discord and tag @hammad1412.

We have seen great efficiencies within the organisation by doing this and it has unlocked the ability for the DAO to work with external providers we were once previously not able to work with due to restrictions around how fiat payments are made.

Incorporating Index Coop

Finance Nest continues to lead the Incorporation of Index Coop and is hopeful to deliver this within the next month. We have engaged with Walkers who are currently onboarding Index Coop as a client (there’s some delay due to background checks on ICC member signing on behalf of the Coop) we then need to review the bylaws prepared by Fried Frank, this is expected to be delivered this coming week. There then needs to be the creation of a new treasury multisig - owned and operated by the Index Foundation which will be distributed on behalf of the community. An IIP will be proposed to implement this change to the Treasury wallet multisig.

Changes Core Hires

During the month of May, we started the month without @ncitron and by the end of the month gained an additional four Core Hires. The DAO intends to hire two Senior Smart Contract developers between now and year’s end.

With the four Core Hires in May, stablecoin spend increased by 47.9K per month. When the stablecoin runway analysis is shared, we will be able to show the impact of adding additional Core Hires and more importantly, the impact of hiring two Senior Smart Contract engineers.

During May, four full time vesting contracts were clawed back into the DAOs treasury account. This led to ​​35,716.80 INDEX being received into the Treasury account. We thank the team at Set Labs for their support in making this happen.

Stablecoin Runway Update

Finance Nest invested a lot of time over the last month to model out the stablecoin runway with what we believe to be an appropriate level of detail without turning it into a science project.

The preliminary findings, which are based on the assumption the DAO funds all POL and rebalancing costs from Revenue and Revenue is not included in the stablecoin runway analysis, indicates the DAO’s existing stablecoin balance due will run out Q1 2024. Note, this assumes all stablecoins holdings are unproductive.

The chart below assumes yield is earned on the investment account in line with how the DAO is currently managing its finances and assumes the DAO hires two Smart Contract Engineers before year’s end. There are also other variables like wage inflation and discretionary stablecoin spend growth over time included in the model.

The model also shows the effect using a portion of the stablecoins to generate yield, selling some INDEX on market each month which is equivalent to directing $35k of revenue each month to extending the stablecoin runway. If both the Investment Account is productive and some revenue is put aside to extend the runway, the runway will extend by 4 months or roughly 20% without taking into consideration how the farmed assets could be used to support growing revenue which is excluded from the model.

Do note the below chart is preliminary and may change if we opt to amend the assumptions feeding into the model. We look forward to sharing a more detailed analysis on the forum soon.

During the month of May the DAO spent 299,113 USDC compared to 280,924 USDC in April and 268,162 USDC in March. USDC spending in May increased 6.47% relative to April. This is on top of a 4.76% increase in April relative to March. A breakdown of March through May’s USDC spend is shown below.

Description March USDC April USDC May USDC
Administrative Expense 3,801.953 17,251.89 2,132.10
Ads & Sponsorships 15,928.01 11,760.26 4,999.20
Contributor Rewards 234,990.40 250,073.20 238,492.90
Data & Software Licensing 0.00 1,838.98 11,891.94
ETH Gas Expense 405.70 0.00 0.00
Events 0.00 0.00 5,228.03
Exchange Listings 6,004.32 0.00 0.00
Legal 7,031.10 0.00 22,580.70
Audit Expense 0.00 0.00 13,787.97
Total 268,161.50 280,924.33 299,112.86

During the month of May, within the Operations Account the Balancer productive stablecoin holding was withdrawn and converted to DAI. At the end of May the Operation Account held 979,174.04 USDC and 317,003.23 DAI unproductively. The DAO is currently holding 4 to 5 months of unproductive runway. We expect funds to be sent from the Investment Account to the Operations account to bring this up to 6 to 7 months soon.

Financial Insights

The table below shows the DAO Contributors Rewards relative to total DAO expenses excluding methodologist fees and liquidity mining. The data indicates that 82.42% of the DAO expenses are Contributor Rewards during the month of May. A positive worth highlighting here, is the continual decline in nominal value of Contributor Reward spend. May experienced a 26.97% reduction in Contributor reward spend relative to April.

January February March April May
Contributor Rewards 644,201.08 543,485.68 573,949.79 578,331.50 422,335.56
Total Expenses 737,268.26 620,361.19 680,082.36 628,666.14 512,425.34
Ratio 87.38% 87.61% 84.39% 91.99% 82.42%

The largest reduction in contributor rewards was from the distribution of INDEX which fell from $302,375 in April to $127,480 in May. A portion of this may have been distributed in icETH with Index Coop now offering contributors the ability to receive payment in product.

In response to enabling contributors to receive payment in product, we observed $103,166 and $56,345 of icETH being requested during March and May respectively. Given stETH is trading at a discount to peg, there may be some contributors willing to hold the icETH until after the merge to benefit from the current 12% upside icETH is expected to generate when the stETH/ETH peg is retained.

The table below compares the DAO’s Contributor Reward spend relative to Streaming Fee Revenue. Even with Contributor Reward spend reducing, Revenue is contracting at a greater rate during May.

January February March April May
Contributor Rewards 644,201.08 543,485.68 573,949.79 578,331.50 422,335.56
Streaming Fees 332,759.47 270,202.45 274,801.84 286,840.39 177,229.50
Ratio 194% 201% 209% 202% 238%

Investment Strategy Update

The previous two monthly updates have been rather detailed with respect to the strategies deployed with the Investment Account. For the month of May, the Investment Account continued to progress these strategies with no funds being withdrawn. We did however claim our BAL rewards across both the Operations and Investment Account and consolidate the BAL holding in the Investment Account before later deploying it into the veBAL contract.

Finance Nest presented a proposal on the Balancer governance forum requesting the Investment Account be added to the veBAL whitelist enabling Index Coop to deposit funds from the Gnosis Safe smart contract into the veBAL contract. This proposal passed Balancer’s snapshot and the Investment Account was granted access to the veBAL contract.

After the proposal passed, we deposited the BAL plus some ETH into the BAL (80BAL/20wETH) pool on Balancer v2, receiving a BPT that was then deposited into the veBAL contract and locked for 1 year until the 1st June 2022. The veBAL positions was then used to vote BAL incentives to the bb-a-USD pool. Finance Nest did ask the council before voting which way to vote and the council elected to delegate responsibility to Finance Nest. The vote was made to maximise the ROI on the Coop’s investments. However, the holding is immaterial and in time it will grow playing into the strategy of using veBAL to bootstrap new Index Coop products as the primary motivation for pursuing this investment strategy.

Pivoting from the Balancer strategy to the TRIBE and icETH strategy. The update here is that very recently the TRIBE rewards stopped on Rari Fuse Pool 8. Whilst TRIBE tokens were being distributed, Index Coop managed to earn 279,494.156 TRIBE tokens which currently have spot price valuation of $58,693.77. This valuation reflects the recent fall in the TRIBE spot price from over 50 cents to 21 cents. We will be thinking through how best to use the TRIBE, initially the plan was to roll this into a SPICE position when Arrakis launches its token. However, with incentives finishing earlier than expected and do not want to have exposure to the price of any governance token in these volatile market conditions.

We intend to migrate the POL position from Rari to either Aave or Compound. Initial checks indicate Aave is offering better ROI for depositing stables borrowing ETH and providing icETH/ETH POL. We also need to rebalance the icETH liquidity and may migrate it to the lower 0.3% fee pool that is attracting most of the trading volume at the time or writing. Given the generous over collateralisation of the loan, we are looking to introduce a third strategy to diversify away from having just two strategies whilst also reducing the overall amount of our stablecoins being made productive noting the Operations Account will be needing funding in the coming months.

There are a number of other strategies being considered which will boost the ROI on the Investment Account and we look forward to sharing those at a later date when they are more mature.

Liquidity

May was as usual a busy month for POL (Protocol owned liquidity), with product launches, and POL reductions and re-allocations.

Detailed below is the current value of each position as at 5th May. Index Coop currently has ~$1m of product liquidity and ~$0.75m of INDEX:ETH liquidity.

Pair Total $ value May 31st Type
DPI:USDT $186k KuCoin CEX Order Book
GMI:ETH $100k 50/50 Full Range G-Uni Pool
JPG:ETH $50k 50/50 Full Range G-Uni Pool
JPG:ETH $60k Concentrated v3 (-/+25% Range)
iMATIC:MATIC2x:MATIC $20k Balancer Pool (Delta Neutral)
iETH:ETH2x:ETH $20k Balancer Pool (Delta Neutral)
iBTC:BTC2x:BTC $20k Balancer Pool (Delta Neutral)
DPI, MVI, BED, DATA, GMI , JPG $153k ZigZag Order Book for Argent Partnership
USDC $12k ZigZag Order Book for Argent Partnership
ETH $52k ZigZag Order Book for Argent Partnership
icETH $43k ZigZag Order Book for Argent Partnership
icETH:ETH $297k Concentrated G-Uni Pool
(Investment Account Allocation)
INDEX:ETH $760k Gamma Managed Pool
Total $1.77m

The Liquidity Pod is currently running small experiments with the FLI-P’s on polygon balancer pools to achieve hedged aka “delta neutral” LP positions that drastically reduce “IL” whilst still providing liquidity for the flexible leverage suit. Results so far have been promising, testing and analysis will continue before increasing allocations to this strategy.

Reporting

During May, Finance Nest delivered its standard financial reports being that of a long form monthly analysis of the Coop’s finances. We have received good feedback on the reports to date and are proud to be a leader in the space when it comes to transparency in DeFi. We are also working to prepare shareable investment decks to share with potential investors in the Index Coop.

We look forward to showcasing what we can deliver as we work through Season 1. :rocket:

Links:

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Title: Stablecoin Runway Analysis
Status: Discussion
Author(s): @Matthew_Graham, @ElliottWatts, @Hammad1412 and @prairiefi
Created: 15.06.2022


Simple Summary

Finance Nest has performed an analysis of the stable coin runway. The model is built to best reflect the current status of the DAOs finances. There are a number of variables considered in the model that span future Core Hires, amount of productive / unproductive stablecoin holdings, cost base inflation in both expenses and contributor wages.

We present some suggestions for discussion on how to improve/maintain the runway, but ultimately we want to encourage community discussion rather than present recommendations at this point in time. We recommend the next step be a community call where Finance Nest can answer questions and we can discuss other topics which feed into the community deciding what the runway should be. We would like to extend a very warm welcome to any investor, founder etc… to join us on the community call.

Runway Model - here - this is read only but feel free to save a copy and play around with the inputs and see how it impacts the runway.

Analysis

With all forward looking financial analysis there are limitations, there exists the need to make assumptions about the future market conditions along with the internal landscape of the Index Coop business. Within the model, we have incorporated the best available information to us at the time of publication, along with making broad high level assumptions. The assumptions are intended to be challenged and critiqued, scenarios detailed below serve the purpose of providing insight that we can utilise as a basis for further discussion. We have tried to include as many variables as we can where practical to support conversation around how best to optimise the DAOs financial runway.

Key Assumptions

Within this section we outline the key assumptions we have made within the model coupled with reasoning behind inclusion/exclusion coupled with details of thinking behind each assumption.

  • Product Revenue - Excluded from the model

The business until recently directed all revenue to Protocol Owned LIquidity (POL) and now also, uses revenue to cover rebalancing expenses. For the purpose of this analysis, revenue is assumed to cover the DAOs rebalancing costs and POL needs, and not feature in supporting the DAO’s runway.

The Return on Investment (ROI) on POL is very heavily skewed towards asset prices and market sentiment. During periods of volatility, asset price correlations converge to 1 and this has the effect of reducing the market value of POL considerably. Virtually all POL positions to date have been loss making and we don’t envisage the financial performance of POL decoupling from the broader asset market environment.

The DAO has a budget of $5m for POL, to date we have made available ~50% of this budget and we are a long way short of funding the full amount. Based upon current monthly revenue figures, we do not foresee within the next 12 months any change to how revenue is allocated. This combined with the need to fund product rebalancing costs means the DAO’s revenue is not contributing to the runway unless a conscious decision is made to redirect how capital is allocated.

  • Remuneration Structure - Remains as is

The current remuneration structure is reflected in the model. We have been informed that changes to core hire salaries and DSM could be implemented as part of the roll out of season 2. However these details are not yet known to Finance Nest. Once this is public knowledge we will be able to incorporate this into the model.

  • Wage Inflation - 8% Annually

Typically each year wages normally change to account for inflation and reflect the health of the overall business. The headline Consumer Price Index, a measure of inflation, was announced as 8.3% and 7.8% in the USA and UK respectively, during April 2022. This model assumes an annual inflation figure of 8% which is the rounded average of both economies. As the business is not currently economically viable, Finance Nest has opted to assume wage increase is likely to be inline with inflation and not above this.

  • Future Hires - 2 Senior Developers

As there are plans to hire additional headcount in the future, for the purpose of this analysis we have assumed Two Senior Developer hires. One hire is to replace @ncitron and the other is a new addition to the Engineering team. The model includes a July 2022 and December 2022 start date with an assumption that 25% of the Senior Developers wages are received in INDEX. Ie: remaining 75% being denominated in stablecoins. The Senior Developers are to receive Band 9 which is equivalent to a Base Salary of $350,000 before the Fixed and Variable component of the DSM program that is paid out in INDEX.

  • Investment Account Revenue - Included in Runway

The model includes revenue generated from the Investment Account within the runway calculation. We have built into the model the ability to adjust how many months of runway is held unproductive, we consider the impact of 6 months and 18 months. The ROI on the Investment Account is also a variable that can be changed to reflect the communities views. Having these parameters as variables enables different scenarios to be forecasted and the sensitivity of the changes to be easily understood. Initially we have assumed an ROI of around 12% on the Investment Account, which we believe to be conservative based upon past performance of the account.

  • Expenses - 1% MoM

The model uses April’s actual stablecoin spend on expenses as it was the highest of the last three months. Built into this we have also applied a 1% increase in spend each month. These other expenses, in addition to contributor rewards, over time are significant. We do however note the monthly expenses in stables are notably more variable than what this model implies. An average of previous months’ stablecoin spend on expenses would have yielded a lower initial spend, we opted for using the largest monthly spend figure to generate a more conservative model.

  • INDEX / Revenue - Used to Support Runway

The model calculated the effect of selling a dollar value of INDEX each month. This parameter is a manual parameter. The model also shows what dollar value of INDEX/assets must be sold on market INDEX to support the runway annually to maintain a 12 month unproductive stablecoin runway. This can also be thought of as a proxy for redirecting revenue from POL to the stablecoin runway.

Scenario Forecasting

For the purpose of providing a flavour for how different parameters affect the model, we included 4 scenarios as detailed below.

  • Scenario 1 - 100% Unproductive Stablecoins and No INDEX Selling

The most conservative estimate of the runway includes assuming the DAO does not deploy any of its stablecoins to generate yield or support growing the business in any way. Coupled with this there is no selling of any assets in an attempt to extend the runway. Under this scenario the DAO has a stablecoin runway of 21 months, February 2024. If the DAO was to perform a Series B raise with 12 months runway remaining, the raise would need to occur during Q1 2023, around February.

  • Scenario 2 - Productive Stablecoins and No INDEX Selling

This scenario assumes that the DAO holds 6 months of unproductive stablecoins and invests the balance to earn 12% ROI. In this scenario, no INDEX is sold to extend the runway and the stablecoin runway is extended by 2 months to 23 months, April 2024. The Series B raise would also be delayed until Q2 2023.

  • Scenario 3 - Productive Stablecoins and INDEX Selling

This scenario assumes that the DAO holds 6 months of unproductive stablecoins and invests the balance to earn 12% ROI. $35K of INDEX is sold each month to support extending the runway. With the addition of $35K of INDEX selling each month, the runway is extended by 2 months to 25 months, June 2024. The Series B raise would also be delayed until Q2/Q3 2023.

If $70K of INDEX was sold each month, the runway would extend to 27 months and would seek to commence the raise around late Q3 2023.

  • Scenario 4 - Productive Stablecoins and INDEX Selling To Maintain 12 month Runway

Scenario 4 is the most active approach which includes selling INDEX monthly in order to retain a 12 month runway target. The DAO has a choice to periodically sell INDEX to maintain the runway, or the more preferred scenario is to perform a Series B raise. This chart shows the minimum account balance profile the DAO needs to have in order to maintain a 12 month runway at any point in time post the inflection point in August 2023. This can be thought of as the annualised USD value of INDEX that would be sold on the market if the runway was supported by selling into the spot market.

Do note, as the DAO spends stablecoins to cover the DAO expenses, the productive stablecoins are made unproductive and transferred from the Investment Account to the Operations Account to maintain the unproductive runway. This rebalancing is modelled to occur on a monthly basis.

Comparing Scenario 1 through 4, we can see from the chart below the most conservative use of capital mode, effects of earning a modest yield on the Investment Account and Market Selling $1k of INDEX each day.

Core Hires

The chart below shows the effect of hiring four Band 4 Core Hires during May, a Senior Developer in both July and December 2022. Immediately after Noah left, the runway extended until August 2024, which is the right most arc shown in the image below…

With the 4 Core Hires in May, stablecoin spend increased from $232.6k to $280.5K per month and reduced the runway by 3 months to May 2024. We note some contributors receive products as part of the salary and this model assumes that this is paid from the USDC balance.

With the addition of 2 Senior Developers, 1 in July and 1 in December 2022, the runway reduces from May 2024 to February 2024 (Scenario 1). This is the leftmost arc shown in the chart below.

The red line represents Index Coop’s annualised USDC spend. Where this line intersects the arc is roughly when Index Coop will need to give consideration to performing a Series B raise. Based upon this simplified analysis, the model estimates this to be around March 2024 when the DAO has around $4.4m of USDC remaining. Do note this assumes no stablecoins are deployed productively and no INDEX is sold to offset the runway burn rate.

Productive v Unproductive Stablecoins

The chart below shows the difference between holding all unproductive stablecoins, 6 months of stablecoins unproductive and 18 months of stablecoins unproductive. The model assumes an ROI of 12% which we expect to be conservative and assumes all yield is sold to stablecoins to extend the runway. Currently, the assets being farmed are being utilised to build ownership in the Balancer and soon the Arrakis communities.

The 18 month unproductive stablecoin would extend the runway by less than 1 month and generate $187k of revenue for the DAO. A 6 month unproductive runway would extend the runway by 2 months and generate $717k of revenue. A 6 month unproductive runway combined with $35k of funds from either selling INDEX or from revenue scenario is estimated to generate $773k.

If the ROI was 15% on the Investment Account and the unproductive runway was 6 months the total revenue would be $921k over a 20 month period. Assuming $35k of INDEX is sold each month, the Investment Account would generate $996k over a 22 month period before all the assets are sold and held unproductively. This scenario is not shown in the chart above.

Potential Ways To Extend The Runway

Finance Nest views it is in the best interest of the DAO to delay the need for a future raise and provide the business with as much time as possible to find product market fit. To this end, the below lists out several initiatives the community could consider to extend the runway.

  • Offset Monthly stablecoin expenses with Selling INDEX

When Index Coop first launched grants and Working Groups, all third party payments were funded through the market selling of INDEX with the exception of the occasional private sale. The model assumes a certain amount of expenses are paid in stablecoins and it also shows how market selling INDEX extends the runway. If Index Coop was to fund USDC expenses (~$35k/month) from either revenue or selling INDEX, then the runway would be extended by 2 months. This represents around $1k per day and less than 1% of trading volume. This is a sensitive topic and something to be discussed as an option during a community call.

An alternative way to achieve this, or an additional initiative, is for the DAO to put aside $35k of revenue each month to support extending the runway. If both $35k of INDEX was sold on the market and $35k of revenue was put aside, then this would lead to the same outcome as selling $70k of INDEX each month.

  • Deploy Stablecoins To Earn A Yield

Unproductive capital has an opportunity cost and concentrated investments creates the potential for a large loss of funds. It is therefore rational to make funds productive amongst a variety of strategies. With a diversified portfolio, the DAO would only have systemic risk exposure to Gnosis Safe and Ethereum network itself. The diversification and sizing of positions, would eliminate risk concentration and would ring fence potential loss of funds via a smart contract exploit.

This option considers the DAO deploying stablecoins to earn a yield in a responsible manner by allocating a large portion of the funds to low risk holdings, Balancer, Aave, Uniswap or Compound in stablecoins. Spread the investments across several smart contracts to reduce risk exposure. This will maximise the utilisation of assets to be productive whilst having a spread of low risk investments achieving a lower ROI but investing in the safest names in DeFi. Index Coop intends to build products on Balancer and Aave, has built on Compound and uses Uniswap for POL.

An alternative philosophy would be to increase the unproductive holding which minimises Smart Contract risk to Gnosis Safe exposure. To balance out the overall risk profile, the risk profile within the Investment Account can be increased such that a reasonable yield on the entire stablecoin holding is achieved. This would be something similar to a barbell strategy, lowest possible risk and medium risk, to average out to an overall low risk.

  • Encourage Contributor To Be Rewarded With INDEX Over Stablecoins

The largest USDC spend is Contributor Rewards. If we are able to encourage contributors to receive their wage in INDEX we would be able to reduce the stablecoin burn rate. When discussing this idea amongst the Finance Nest, we were not able to find a means of delivering this that was a) easy to implement and b) not gameable. We considered a 15% incentive for contributors to receive INDEX and some minimum holding period. This would need monitoring which is easy enough, but policing it would be challenging. In other words, if contributors prefer stablecoins over INDEX, then paying more INDEX is likely to result in immediate dumping once the tokens are available, putting the same type or worse selling pressure on the token versus strategic sales of INDEX to raise stablecoins. If there is a strong community appetite for this option we can explore this further.

  • Series B Raise

A viable solution is to not pursue any of the measures above and move towards a Series B raise sooner. General thoughts around this topic is the DAO would move to initiate a raise with around 12 months of runway remaining and have the round closed with more than 9 months of runway remaining. With no ROI on the Investment Account, no spot selling of INDEX to fund expenses, the DAO would be looking to kick off a raise around May 2023. This assumes no growth to the existing headcount. Given the potential of a bear market, this would likely lead to selling a generous portion of equity which would need to be factored into any future tokenomics revamp and potential Series C raise if there was a need for further funding at a later date.

  • Adhoc INDEX OTC Deals

An alternative to conducting a rather large raise would be to participate in several smaller raises on adhoc basis over an extended time period. This would be linked to partners who wish to attain equity in the business and do contribute to growing the business prior to being able to purchase INDEX from the community. The opportunity here for the potential investor is to contribute to growing the business and be rewarded with the ability to buy into the business. It would be like validating the promises of an investor before exchanging INDEX for stablecoins. This represents a viable alternative to spot selling INDEX and can be performed on an adhoc basis.

Conclusion

This post intends to support conversation around how our stablecoins are utilised and also factor in how various actions impact the runway. We encourage comments on this post and look forward to crowdsourcing ideas from the community at large.

10 Likes

I think an open conversation about reduced comp and increased equity at certain thresholds would be beneficial.

4 Likes

Hi @bradwmorris,

I think in the not to distant future, some contributors from Finance Nest may publish a more opinion based forum post floating some ideas for community discussion. Skin in the game is key for aligning incentives.

1 Like