IIP-125: Liquidity Pod - Funding Request H1 2022

IIP Number: 125

Title: Liquidity Pod - Funding Request H1 2022

Status: Proposed

Author(s): @overAnalyser @matthew_graham

Created: 14th January 2022

Simple Summary

The purpose of this proposal is to make available a dedicated $5M budget within the Operations Account to support the ongoing liquidity needs of INDEX and Index Coop products.

Abstract

With IIP-110 passing, the Liquidity Pod has “the authority to spend from the Operations Account to set and achieve liquidity goals for new products, existing products, and the INDEX token.” In this proposal we define the capital needs of the pod for H1 2022.

The Liquidity Pod will continue to use the RAPID decision making framework and OKRs to track the performance of the pod. Reports are to be provided monthly as we endeavor to keep the community informed of our actions and share our learnings.

Motivation

Managing the DEX liquidity of $INDEX and our products is a key part of our operations. If done correctly, it greatly improves the user experience when buying and holding our tokens.

To date, liquidity has been managed by either expenditure (liquidity mining) or the direct provision of liquidity,implemented on an individual basis via the IIP process. With the creation of a dedicated Liquidity Pod, Index Coop has already delegated authority to a select group to act in the communities best interest in a more streamlined manner, maximising operational efficiency.

The Liquidity Pod has the ability to make decisions relating to the liquidity of INDEX and Index Coop’s products. However, the pod needs a dedicated amount of capital and to know it will be made available whenever it is needed.

The current table below shows the status of past, current and pending deployments from the Operations Account at the Liquidity Pod’s request.

Product Type Value Deployed Notes
BED:ETH Long term (>90 day) $270 k NFT (Current $220 k)
ETH2-FLI:ETH (polygon) Seed (< 7 day) $250 k Already closed ($180 k)
INDEX:ETH Long term (> 90 day) $1,400,000 IIP-109
GMI:ETH Growth (~30 day) $400 k NFT Position 1 ($220 k) NFT Position 2 ($178 k)

Please note there are risks with deploying community capital to provide liquidity. Some of these risks are detailed below:

  • Price exposure to volatile assets (typically ETH, wBTC and our products)
  • Impermanent loss (IL) due to price divergence within an LP position - when using concentrated liquidity, this is greater than the less capital efficient full range DEX positions.
  • Price impact costs to issue / redeem products
  • Gas costs
  • Time costs to monitor and manage positions

It is worth noting that LP positions are considered a high risk asset allocation within the broader pool of community capital. Finance Nest will need to reflect this in how other community funds are managed.

Specification

Funding Request

The Liquidity Pod will be given dedicated funding to be held across the Index Coop Operation Accounts on the various networks that support INDEX and Index Coop product liquidity. The funds are to be administered by the Operations Account signers at the request of the Liquidity Pod.

The Operations Account provides the Liquidity Pod access to a safe operational multisig that will soon have the added benefit of crisis management funding needs. Liquidity Pod also gains the advantage of having a network of already established multi-sigs across the various networks Index Coop operates.

To support the ongoing liquidity needs of INDEX and Index Coop’s products, the Liquidity Pod requests $5M in initial capital to support ongoing operations. With $1.97M already deployed, this represents an additional $3.03M in funding.

Currently, the community holds around $838K of the $3.03M being requested. Rather than use stables to fund liquidity positions, Liquidity Pod will use future revenue to bridge the immediate funding gap. Index Coop earned on average $400K for each of the last four months of 2021. Liquidity Pod will draw on Index Coop’s revenue until the $5M of capital is made available. It is not ideal to use stable coins to fund the higher volatility liquidity positions, unless it is absolutely necessary. However for low volatility assets like PINT and PAY this remains a valid option as it could be considered a productive stable asset position.

Why $5M ?

FLI products are going to be launched in waves. The next wave of FLI products could be as many as five at one time, the four mentioned here and MATIC2x-FLI-P. This is around $1.25M of the $3.03M. With DATA, LDI, PAY & PINT plus others in the pipeline that may also require liquidity the remaining balance is $445K per product. Some products require more than this and others less. After looking at various options, the Liquidity Pods feels the $5M request is sufficient funding in the short term before reassessing towards the end of H1 2022.

The Liquidity Pod at this point in time expects PCL to be an ongoing need of Index Coop’s and for funds to be rolled from one position into the next as we look forward to launching products more frequently during 2022. We are still actively determining how best to exit positions and will be doing a lot of work in this area going forward so we can optimise how the communities capital can be deployed.

To help communicate how LPs are determined and managed, the Liquidity Pod will be publishing guidelines to outline the remit and considerations driving Liquidity Pod decisions and fund management.

To make sure the community is well informed, the analysis and performance of the liquidity pod will be shared monthly on the governance forum. This shall provide the community with insights into how the liquidity pod is performing. Keeping with the new Nest and Pod model, Liquidity Pod will create and track performance with the use of OKRs.

Voting

For

Do make available $5M worth of capital to the Liquidity Pod for supporting on-chain liquidity deployments of INDEX and Index Coop products.

Against

Do Not make available $5M worth of capital to the Liquidity Pod for supporting on-chain liquidity deployments of INDEX and Index Coop products.

‌‌Copyright

Copyright and related rights waived via CC0.

13 Likes

FOR

thanks for pushing this budgeting process @overanalyser

4 Likes

@Matthew_Graham

Should proposed IIP-123 come to pass, will that obviate this IIP under consideration? Given your ties to Finance Nest as proposer here, would the process not be: LiquidPod makes request to GrowthNest, GrowthNest to FinanceNest, FinanceNest to ICC, ICC approves, FinanceNest executes transfer?

If this is effectively just making sure that the $5MM xfer happens regardless of IIP-123, I respect that, just looking for some process insight as 123 reps a major shift in how we fund the DAO. Thanks to all who are moving this forward.

For reference:

Great work @overanalyser, @Matthew_Graham & @jdcook and everyone else.

The liquidity pod have been a huge value add to the Coop. PWG loves you guys.

5 Likes

Hi @mel.eth,

This IIP is complementary to IIP 123. Liquidity is requesting a budget of funds put aside within the Operations Account to provide liquidity.

IIP-123 enables the following:

  • Crisis management which offers functionality to support this proposal
  • Ability for Finance Nest to request funds from the Treasury to the Operation Account to support this pod
  • Whitelist creates a clear list of what protocols and products that can be used from a security perspective

This proposal enables the following:

  • Liquidity Pod to have a designated amount of funding that can be relied on
  • If IIP-123 passes, then getting the funds from the Treasury is easier, but it is this IIP that reserves those funds for a specific application.

Liquidity Pod is a subset of Product Nest. In an ideal framework, Product Nest provides budget inputs to Finance Nest and Finance Nest prepares a budget for Index Council to review and approval.

Note: Index Council is only in trial stage and has no spend approval in its current construct.

8 Likes

Thanks for clarifying @Matthew_Graham ; any work in the background between Finance Nest and the Liquidity Pod on the sizing of this request? I would love to see something like a process-flow for funding requests in the new system - I’m left a little fuzzy in light of IIP-123 and it would be great to see a clear outline of how pods request funding like this and what happens in the background when they do. Super appreciated.

1 Like

@Mringz can this be scheduled for snapshot?

1 Like

cc: @mel.eth @sixtykeys

I handle DG1/DG2 style votes. Tagged the other Governance contributors to schedule.

2 Likes

Hey @overanalyser , is there a specific date you would like for this to go live on snapshot?
Here is a quick summary of the IIP process, for further guidance: Index Improvement Proposals (IIP) Overview - Index Coop Community Handbook

Hi

Can it be scheduled for Monday 24th cycle?

1 Like

An IIP number (125) has been assigned, and a snapshot vote has been queued to go live later today at 1800 UTC.
Snapshot here