IIP-17 Token Terminal Index

iip: 17
title: Token Terminal Smart Beta Index
status: Proposed
author: TokenTerminal (@tokenterminal)
created: 2021-03-02

Simple Summary

A price to sales ratio (P/S) weighted smart beta index by Token Terminal (TTI). Token Terminal wishes to contribute to the Index Coop product offering by proposing a fundamentals-weighted index to complement the current market cap-weighted index provided by DeFi Pulse (DPI). Given the Index Coop’s mission to expand its product offering, we feel that our proposed index product would be well-aligned with the overall goals of the Index Coop community.


Token Terminal is a leading data analytics provider focused on the fundamentals of crypto protocols. We track metrics such as revenue and earnings to gauge the actual usage and performance of different crypto protocols. Over the past six months, we’ve witnessed increasing interest towards our chosen methodology and believe that a broadly available index product based on that same methodology could generate significant interest among the community.

Token Terminal could become a key member of the Index Coop community. The product roadmap for Token Terminal includes the addition of several new protocols and metrics, which means that over time, we would be able to provide indexes for several different products, should there exist demand for additional indexes.

Objective

Smart beta. In contrast to traditional market cap-based indexes, smart beta indexes employ alternative index construction rules with the aim of improving a portfolio’s risk-adjusted returns. These indexes seek to combine the benefits of passive investing and the advantages of active investing strategies.
Token Terminal smart beta index (TTI). The TTI uses a fundamentals-based ruleset for its index construction. Assets included in the TTI are chosen primarily based on their price to sales ratio.
The price to sales ratio compares a protocol’s market cap to its revenues. A low ratio could imply that the protocol is undervalued and vice versa. The price to sales ratio is an ideal valuation method especially for early-stage protocols, which often have little or no net income. Given the nascency of the crypto market, we believe that the price to sales ratio offers a highly accurate tool for relative analysis between different crypto protocols.

Size of opportunity

Our institutional clients have expressed an interest towards an index product that is easily understandable for investors coming from traditional finance. The value proposition of a P/S based index is that it optimizes for fairly valued and widely used protocols and thus lowers the threshold for institutional investors looking to gain exposure to decentralized finance (DeFi). We believe that the next cycle of crypto adoption will be driven more by fundamentals than the previous cycles.

Differentiation

Market cap-based indexes like the DPI offer a low-cost and easily accessible alternative for investors looking to diversify their cryptoasset exposure. We believe that the TTI could serve as a great fundamentals-based complement to the DPI and over time, especially as the crypto market and the asset universe expand, evolve to offer its investors differentiated exposure to revenue-generating and fairly valued crypto protocols.

Methodology

Index calculations

TTI uses a forward price to sales ratio that is calculated based on a protocol’s past 30-day average revenue. Formula for the forward price to sales ratio: fully diluted market cap / annualized revenue (calculated as a simple 30 day moving average * 365).

Token inclusion criteria

Eligible tokens are those that meet the following technical, market and safety requirements:

Technical requirements

  • The token must be available on the Ethereum blockchain.
  • The token must be listed on Token Terminal.
  • The token must not be considered a security by the corresponding authorities across different jurisdictions.
  • The token must be the native token of a protocol.

Market requirements

  • The token must have a capped supply or it must be possible to reasonably predict the token’s supply over the next five years.
  • The token must have sufficient liquidity for initial inclusion and rebalances.
  • The token’s economics must not have locking, minting or other patterns that would significantly disadvantage passive holders.

Safety requirements

  • The protocol must have been launched at least 90 days before inclusion.
  • The protocol must be recognised as having a high-quality product and team.
  • The protocol must have sufficient resources for future development.
  • The protocol must be actively developed and must not be insolvent.
  • The protocol must have conducted sufficient security audits and/or security professionals must have reviewed the protocol to determine that security best practices have been followed.

Index maintenance

TTI would be maintained monthly in two phases:

i) Determination phase
The determination phase takes place during the last week of the month. It is the phase when the changes needed for the next reconstitution are determined.

  • Price to sales ratio determination: TTI references Token Terminal’s price to sales ratio. The price to sales ratio is determined during the last week of the month and published before the monthly reconstitution.
  • Additions and deletions: The tokens being added and deleted from the index calculation are determined during the last week of the month and published before the monthly reconstitution.

ii) Reconstitution phase

  • The index components are adjusted, added and deleted as per the instructions published after the end of the determination phase.
  • New index weightings, additions and deletions are incorporated into the index during the monthly reconstitution, which will take place on the first business day of the month.

As assets tracked by the index grow, the reconstitution window will expand to more than one day to lower the reconstitution’s market impact.

Fees

The Token Terminal Index will have the following fees and fee split:

  • Streaming fee: 0.95%
  • Split: 70:30 (Coop:Token Terminal)

Author background and commitment

This proposal has been drafted by the founding team at Token Terminal. Token Terminal was launched at the end of 2019 with the aim to create institutional-grade analytics tools for cryptoasset investors.

Token Terminal wishes to contribute to the Index Coop in the role of a methodologist. The product roadmap for Token Terminal includes the addition of several new protocols and metrics, which means that over time, we would be able to provide indexes for several different products, should there exist demand for additional indexes. As a methodologist Token Terminal would:

  • Provide an initial but complete methodology for the proposed index.
  • Provide all necessary data for the maintenance of the proposed index.
  • Track and monitor the data provided for the maintenance of the proposed index.
  • Propose new assets to be added to the index product in accordance with the inclusion criteria.
  • Collaborate with the Index Coop in all aspects related to the proposed index.
  • Use its best efforts in marketing and distribution of the proposed index.
  • List the proposed index on Token Terminal’s website.
  • Update Token Terminal’s community (Twitter / Newsletter) on index products offered by the Index Coop.
  • Launch a dashboard (on Token Terminal’s new portal) that includes all index products offered by the Index Coop.
8 Likes

I appreciate all the hard work that was put in by the Token Terminal team on the TTI Index, but I strongly believe that this proposal in it current form, is not a great fit for the Index Coop for the reasons I outline below:

On TTI’s product positioning:

  1. The TTI is very similar in it’s composition to the DPI, which is the Index Coop’s flagship product. It seems to me that it would be counterproductive for IndexCoop to launch 2 competing products when our competition is already trying to do the same for months, unsuccessfully.
  2. The Index Coop has spent significant effort & funds (LM & other), to establish DPI as the dominant DeFi Index in the space. It will now have to spend more funds & effort on a similar product that could cannibalize the DPI, while we reduce the incentives on the DPI itself. It doesn’t seem to make sense from a strategy point of view.
  3. Launching 2 competing Indices, would be wrong signaling sent to partners of the Coop, indicating lack of commitment to either DPI & TTI, which can possibly hurt the traction of both indices.

On TTI’s substance:

  1. The TTI proposal clearly compares DPI’s performance and TTI’s ‘ideal’ performance. It is fairly trivial to design an algo that could beat any Index in the past. It’s just a matter of tweaking numbers in hindsight. This does not guarantee that in the future this algo will continue producing those results.
  2. Capitalization-weighted indices already factor in all the metrics that make a project more or less valuable in the eyes of investors, thus encapsulating P/S, as well as many other factors that go into price discovery information.
  3. I think that although P/S is a very interesting metric, the space is still not at the state of maturity that enables using it as a foundation to evaluate projects, especially considering that LM can be used to boost P/S numbers.
  4. Even with the above in mind, TTI’s performance is still assuming slippage-free trades, and the 5% limit to asset allocation is in no way a guarantee of that, especially if TTI hopes to get to any meaningful size. For comparison, DPI is at $120M, and 5% trades would be $6M!

To conclude, the Index Coop succeeded creating the leading index of the decentralized finance world. There is no need for a second similar product that will cannibalize our own AUM. Let’s use the Index Coop ressource to create new indices that will tackle new market verticals (MVI h/t to @DarkForestCapital @verto0912 , BED h/t to @LemonadeAlpha, the IndexCoop & Bankless crews, FLI…) and compete with other projects’ indexes instead of harming our flagship product.

Disclaimer: I work at Defi Pulse who is the methodologist behind the DPI, and the coming FLI

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So aside from the somewhat salty DeFi Pulse poster above, I would welcome the TTI index. I know numerous whales and countless small fish that all love their metrics, especially P/S which I believe is a data point that will only become more powerful as the space matures further.

This shouldn’t be a case of “We have DPI and therefore should shut down any competing product”, if TTI has the potential to be a better performing index to DPI and it has a unique methodology, IC should be all over it as it would be another best in class product. Why wouldn’t you want that? I think the above is letting their bias to DPI prevent an opportunity here, or at least this attitude will only do harm to growth in the future.

I think its interesting enough as an Index, has a great product backing it and can only be good at funneling more traffic into IC products. There are points above that are valid such as slippage but overall I think it’s nothing unmanageable.

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Hey Andrew, thanks for joining the discussion!

While I understand that these discussions can get pretty charged, we want to have a culture where people can share their ideas safely and be challenged on the substance of their arguments. Ad Hominem, or personal attacks, reduce the productivity of our debates, decrease empathy, and ultimately lead to a culture where we can’t be honest. You made some fine points in the rest of your post, so lets focus on those instead!

Nassim, and DFP by extension, is a valuable community member so should be respected as one. Let’s try to focus our discussions on the merits of an argument going forward.

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Hi @puniaviision - thanks! Always been a long time supporter of Set as you know, so I thought i’d start giving my thoughts to help you guys where I can, I guess any feedback is good at the end of the day.

Whilst I stand by the comment about his bias and how it’s more of a gatekeeping post as opposed to discussion nuturing, I agree maybe calling him salty was a tad far :smile: - dealing with Discord chats all the time will do that to you!

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I want to echo @puniaviision point. DeFi Pulse is a valuable and deeply respected partner. As a community we need to be open to new methodologists and products while also ensuring that we are not releasing competing products that dilute our existing market share.

@snasps is a valued and trusted community member who consistently enhances the quality of our dialogue as a community. We need to respect that contribution.

Index Coop is extremely open to adding new methodologists and approaches. But we need to ensure that we are not building overlapping products that dilute our existing products. I’m not convinced that this provides a meaningfully differentiated product- but I am also open to seeing how this conversation evolves.

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Yes yes valued and respected, I definitely got that.

I think an Index based on P/S data differentates to DPI as it is based around value investing in projects, and could act as a great asymmetric investment where the upside, that hasn’t been ‘priced in’, could be significant. DPI does not do this at all, it’s simply an index for giving great exposure to blue chip DeFi projects that will likely thrive in the long term, but there’s no element of finding value there.

I think IC should reflect on what you’re trying to be here if a broad overlap on DPI by sector is an issue. Is IC DeFi Pulse & friends or trying to be something more?

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@TokenTerminal It would be great to see the current composition of the index (maybe as of the end of February), just so we have the idea. And perhaps some of the expected additions in the next 2-3 months (you mentioned KeeperDAO, Perpetual, 1inch). This by no means constitutes the commitment to add these assets, but it’d be good to assess differentiation from DPI.

Hey @snasps, thanks for the post. I think we are catching up on this later today as well, but I wanted to share my thoughts in the public forum. I’ll just go point by point on your comments.

There have been extensive discussions, I feel, on the particular subject of cannibalisation. It’s still worth considering, but I’m comfortable that even if assets overlap, the weights are going to be rather different. This is due to rebalancing dynamic and I’ll comment on it later. I would also expect that the composition will diverge over time as DeFi Pulse and Token Terminal add different assets to the respective indices.

From a more strategic perspective, having just one DeFi index, for the space that could be worth trillions in the long-run, seems a bit short-sighted and perhaps a missed opportunity to me.

Liquidity mining and Coop’s support haven’t been discussed yet and both considerations should and will be incorporated into the streaming fee split. The way I see it, from the Coop’s perspective, having 2 indices with combined TVL of $200m is better than having 1 index with TVL of $150m, even if there’s some cannibalisation from one to the other. Fundamental investing is a rather significant area, and it’s perfectly suited to analysing DeFi, where projects have recurring revenue streams that we can put a multiple on. To add to this a bit, TradFi investors coming into the space are likely to be more comfortable with a fundamental index than a market-weighted index, which opens up a different target market for us.

I disagree with this point. I think competition is good. Why not benchmark TTI to DPI, when talking about performance? Why not use DPI as the S&P 500 equivalent and TTI as a more fundamental, active index built for the purpose of outperforming the benchmark? It might succeed, it might not. But to reiterate from above, and I think this is crucial, having just one DeFi index for the space that could be worth trillions is not the best strategy imo.

Alright, so that covers the first section of your comments. Onto the TTI’s substance part.

I personally don’t think TTI is ideal performance or DPI is ideal performance. For me, it’s important to see that performance does diverge over time, providing investors with a different option to play the space. I agree that no claims should be made that one is superior to the other, because even if there’s data supporting such a claim, backtesting period is rather short and as we say in TradFi - past performance does not guarantee future results.

Maybe you can elaborate on this. Market cap index obviously captures the price, but in a very different way.

I, personally, strongly disagree here. I think I mentioned it in one of the other posts. P/S index is going to rebalance very differently from the market-cap weighted index. The sales component of the equation will not change significantly month-to-month. So when a token rallies, it’s P/S will increase leading to a smaller allocation in TTI. For DPI though, rallying token price will lead to a larger allocation. I think this mechanism will ensure diverging allocations between DPI and TTI, even if all the underlying tokens are the same! This is one of the main reasons I think TTI could be a nice addition.

I partially agree here. I spoke about this before and I really wish Token Terminal went beyond just one ratio to a combination of 2 or 3 ratios to arrive at a fundamental score. At the same time, I think P/S is well suited to DeFi at this stage of the lifecycle. I am a bit worried about it becoming too simple or obsolete in 12 or 18 months time and would love to hear Token Terminal’s thoughts on whether they would consider iterating on the methodology if the market dynamics call on it.

I would leave this to the business team & Token Terminal to consider and analyse following DG1. If this is an issue that can’t be resolved, I expect TTI to not progress to DG2 or the business team to recommend a NO vote to the community. I think this is not the reason to vote against TTI during DG1 to be honest.

I guess this covers it for me, but let’s keep the debate going and let’s keep hashing it out :+1:

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Hi all,

Good and understandable points made above. Personally, I agree with @verto0912’s point of view.

Besides being a different product than the TTI, DPI together with DeFi Pulse Website is a well-known brand that is already used as the DeFi benchmark. With such a strong brand and track record of AuM growth, I have no doubt that a new DeFi-themed index is not going to be a threat, but a complimentary well differentiated product.

I presume that if the IC doesn’t launch it, someone else will at some point. Personally, I’d rather see this exciting index on the IC’s product shelf, then elsewhere. As Verto pointed out, the market opportunity is huge. Hence, I don’t think that ring-fencing tactics are advisable at this early point, but growing the IC together should be our focus.

Looking at the Blackrock Europe website to use a TradFi analogy, I find more than 500 indexes (out of 2500+ products) with several variances of the same themes. And I am hoping that the IC will have many variances of DeFi-themed indexes in the future.

Thanks again to TT for putting this together and for choosing Index Coop as your partner.

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Thank you for the detailed reply @verto0912 although I agree with a lot of what you said, but looking from a Coop objective angle here my reservations still stand, maybe this angle was not clear so I will expand on it:

1- Coop (DPI) is mainly competing with 3 other Indices in the DeFi space, and a large number of other DeFi indices on CeFi exchanges like Binance, FTX, …

2- Coop was not the earliest player in the market, but managed to grow DPI in a record time, into the largest DeFi index in the space. This is a testament to both DPI’s product market fit but mostly to Coop’s stakeholders commitment & efforts.

3- The Indices space in general is a “winner takes most” market. Every sector/market/geography in today’s traditional index space has mostly 1 flagship Index that takes most of it’s space’s mindshare as well as AUM. This is what the DPI is becoming. Anytime publications or reports are mentioning the space, DPI is clearly being used as the space’s main indicator.

4- IndexCoop’s competitors are trying very hard to grow their product to get to this kind of place, by overly incentivising their LM programs, even at the expense of their treasuries/long term growth, because in my opinion they understand the value of early traction & network effects.

5- My above description is why I disagree with your points quoted above. First, DPI will include most “DeFi summer” tokens very soon (180 days since launch condition), making it even closer to whatever TTI will be. Second, and methodology differences aside, fundamentally, both DPI & TTI seem to be addressed at the same audience, i.e people who want a passive exposure to DeFi assets. In my opinion and mostly as a Coop member, possibly diluting your flagship product’s brand (and thus the Coop’s) and hindering the possibility of becoming one if not the winner in this space, in the hopes of getting some more AUM (that will probably need to be bootstrapped by treasury) still seems like not that great of a bargain, especially that there are almost unlimited other verticals that can still be tackled to bring in that extra AUM.

6- I can agree with this stance but very strongly disagree with the timing. Taking Coop’s best interest in mind, I would concentrate resources to clearly establish DPI as the market leader, enhancing its network effect, while welcoming any methodologist launching on other verticals that could bring new users & profiles to the Coop and thus create the leading index on each vertical!

Finally, and sorry for the long writeup, I also want to highlight one last point. Some of our competitors are very prolific in launching Indices, and this does not seem to have worked well for most of them, since it is confusing for users, denotes lack of commitment to products, and “seems” just opportunistic on project’s side, while also incentivising opportunistic behaviour by short term users just looking for LM rewards.

Sometimes in the Index space like in art, Less is more :slight_smile:

Disclaimer: I work at Defi Pulse who is the methodologist behind the DPI, and the coming FLI

1 Like

Hey All,

Thanks for the comments. It’s great to see such a lively discussion around the proposal. We’ve addressed many of the points in our previous comments, but would still want to highlight a few things:

1) Taking a zero-sum approach to new products could turn out to be counter-productive for Index Coop.

By extrapolating from the traditional markets, it’s quite natural to expect that there will be multiple fundamentals-based indexes launched in crypto in the near future. At Token Terminal, we’re dedicated to building a data analytics product whose sole focus is to surface the fundamentals part of the market. In our view, this approach makes us well-positioned to capture the mindshare of investors looking to invest in a fundamentals-based index. As we’ve stated before, we’re eager to partner up with the Index Coop for the long-term, but we of course need to be practical and look for other alternatives, should the proposal not pass.

2) A smart beta index is inherently more “dynamic” than a purely market cap-weighted index.

Thanks for a thorough commentary @verto0912. We very much agree with what you stated. One quick comment to address your point about the rapidly changing nature of the crypto market and “how the TTI could become obsolete over the next 12-18 months”. Firstly, we don’t really expect a revenue-based methodology to become obsolete over time as its component parts are so closely tied to the business success of the projects that comprise the index. Although, as we’ve stated in the proposal and in our earlier comments, the current methodology is optimised for the current state of the crypto market. It can and should be improved as the market conditions change, but only after careful consideration. For example, we do already track both the supply-side and protocol revenues separately for projects where such a revenue share exists. One potential way to evolve the methodology over time would be to use the Protocol Revenue Share (tokenholders’ share of total revenues) as a multiplier to increase the weighting of projects that have already proven out the defensibility of their revenues.

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Hey Nassim, great to have a call and discuss these points in greater detail.

Here are a couple of things that I think are worth sharing with the community:

  1. This is partially a question for @TokenTerminal - what is the target market for TTI and how is it different from the target market for DPI, if at all? And if there’s significant overlap, do we think that those potential customers that haven’t bought DPI will buy TTI instead? Like basically, if the target market is the same, will TTI move the dial for those people who chose not to buy DPI?

  2. On the subject of liquidity mining incentives, there’s an argument that incentivising TTI will drive liquidity away from DPI. This, in itself, is not problematic imo. However, it could open the door for our competitors, like DEFI5, to become the most liquid product. And if AUM follows liquidity, this could be a problem.

Personally, I see some merit to the first question but less so to the second one. In terms of competitors, there really isn’t anything in the market that offers a similar product. If someone wanted broad DeFi exposure, where would they go? PIPT has CVP and NXM (25% and is limited to 8 assets) / DEFI5 is just 5 tokens / CC10 has 25% in LINK, some UMA and OmiseGo (I think they still use a version of the Balancer pool with 12? tokens limit (correct me if I’m wrong)). So, imo, if someone wants broad DeFi exposure, their choice is simple, either DPI or, if launched, TTI.

On the subject of differentiation, the latest weights I have for TTI (as of Feb 18th) show: 9.6% in BNT (BNT has been around for years so I don’t think it’s ever making it into DPI), 14% in Rarible (which I assume will never be in DPI since it’s not really DeFi per se) and consistently between 25% and 30% in SUSHI for the last several months. That’s more than 40% of differentiation between DPI and TTI, without even looking at the other token weights.

1 Like

Hey @verto0912 thanks for your comment.

As we’ve stated previously, we’re seeing increasing interest towards a fundamentals-based index from our institutional clients. We believe that the next cycle of crypto adoption will be driven more by fundamentals than the previous cycles, which should further increase the number of investors looking to invest based on fundamentals, rather than price alone.

Here are some of our prior comments, which highlight the complementary nature of the proposed TTI:

In contrast to traditional market cap-based indexes, smart beta indexes employ alternative index construction rules with the aim of improving a portfolio’s risk-adjusted returns. These indexes seek to combine the benefits of passive investing and the advantages of active investing strategies.

TTI offers meaningful methodological differentiation from DPI which should be attractive to investors looking to diversify their cryptoasset exposure. We believe that the TTI could serve as a great fundamentals-based complement to the DPI and over time, especially as the crypto market and the asset universe expand, evolve to offer its investors differentiated exposure to revenue-generating and fairly valued crypto protocols.

Similar to traditional finance, we believe that the crypto market will have multiple different products that aim to capture the inefficiencies of market cap-based indexes. As stated earlier, we believe that being able to offer complementary index products would make Index Coop more attractive for new investors and strengthen the long-term vision of the Coop. Again, as the crypto market continues to mature and more focus is given to protocol fundamentals, we believe that it’s inevitable that a similar smart beta product will be released, either from the Index Coop or some other actor.

Looking at the backdated asset weightings in the TTI, we can already see how a fundamentals-based index gradually starts to diverge from a market cap-based index over time. As the DeFi space grows and new assets are listed to Token Terminal, this differentiation should become more clear over time.

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Small note on this. BNT’s main problem is mostly its Uniswap liquidity. Most of it is either on CEXes or BancorDEX. This is not a DPI related/specific issue.

Hi guys. Thanks for all the work and thought put into this idea @TokenTerminal

Just a very quick note on the “cannibalisation” “issue”. It’s pretty clear that DPI is not and will not be the only DeFi index product on the market. Almost by default it would therefore be beneficial to Index to have a strong product line “in house” rather than just one running up against another “out of house”. I believe the market should be given the chance judge the different products on their merits and provide users with choice.

Given the smart beta play over market cap weighting it offers enough product diversity IMO. For me they more closely represent “active” and “passively” managed funds from tradfi. Personally I would invest in both DPI and TTI.

Timing wise for the coop, yes there are definitely more “vertical” options I believe we should be prioritising (MVI). However we must keep working with our partners such as TT and launch each product with as little unnecessary delay as possible as and when they are deemed ready to go live.

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Hey @snasps, great to talk this over in more detail this morning. Most of the points have been comprehensively covered above but just to summarise my notes from our call for transparency:

  • If Index space is winner takes most I see that winner as being Index Coop which means we can achieve it through multiple products
  • Understand the concerns around having a flagship product and making sure it’s unassailable from competitors, but if you look at the data we are running at $90m unincentivised AUM compared to around $30m incentivised, which demonstrates strong PMF for DPI. With the likely level of incentives that will be put toward TTI being similar to where DPI is at currently, I don’t see there being a risk of holders rushing to dump DPI for TTI just for the Index rewards. You also touched on how much competitors are incentivising just to get 1/10th the market cap of DPI, so again that doesn’t seem like a concern. If TTI launches and doesn’t get much traction, the IC isn’t going to start throwing money at it
  • The products are as far apart as two sector indices can get in terms of their methodology with market cap holding larger projects and TTI selling them. If we aren’t going to launch TTI now then what is the line in the sand where it becomes acceptable in your eyes? I think for more sophisticated investors they will be able to weigh the pros/cons and choose appropriately to express the desire to be long DeFi
  • We don’t just get another product with TTI, we get another credible partner, with a well respected dashboard providing useful data to the community
  • If we don’t launch with TT they may go elsewhere which will be a great loss to IC. In tradfi space there are four different places to pick up an S&P500 fund, I think there is ample room under the IC umbrella to have 2 funds focused on DeFi but using different rebalance methodology

I think there is value in considering how we continue to maintain DPI’s position as dominant in the index space more widely, and it’s great to have you and others join the DFP team and get stuck into the Index Coop community on a regular basis.

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Hey everyone,
It’s been awesome to see the vigorous discussion going on in here. Token Terminal has expressed they’re ready to take TTI to the next step with the DG1 vote.

DG1 voting for TTI will be scheduled to begin later today.

Hello @DarkForestCapital thank you for your point above and for the opportunity to exchange ideas. Here are my thoughts on some of those:

The Index space is a “winner takes most” and not the Index provider space. This is very different.
The shotgun approach has proven not to work with some of our competitors (who even had a significant headstart), as it is confusing to users, and can be interpreted as lack of commitment to your products, which ultimately ends up undermining all of those. Should the Coop no longer manage “the largest” Index in the space, even if with a larger total AUM, that could still be a net loss longer term, by conceding the place of “the winner”

Although this is correct, I think we should not underestimate the effect of liquidity on AUM, especially for large holders, who usually size their positions according to available liquidity.

When I look at the two products, I try to evaluate the audience the product is adressed to, rather than look at the actual methodology. The two products are clearly targeted at people looking to capture wide DeFi market upside, so I can argue they are competing for users. This competition, although keeps users in the IndexCoop’s universe, might (no matter how tiny the possibility), create an outcome where the Coop ends up not maintaining the largest index in the space anymore, which will be a big loss for the Coop.
To answer the question, when I am sure that the Coop has the dominant Index in the space, I would actually start supporting other similar experiments. In the meantime, there is an unlimited number of other verticals that can be tackled to bring “fresh” AUM & users!

We should also consider the possibility that this product gets launched elsewhere. Coupled with liquidity mining incentives, it takes away a share of DPI users, creating “an outcome where the Coop ends up not maintaining the largest index in the space anymore, which will be a big loss for the Coop.” This scenario has a higher probability than the one you are describing, in my opinion.

I would also like to reiterate my point above. This leads me to believe that it is rather unlikely that we will lose much liquidity to competitors.

I totally agree that this is a possibility @verto0912 and indeed this is something I have considered.
My thinking around this particular scenario would be the following, and please feel free to challenge my (weakly held) game theory assumptions here :stuck_out_tongue:

1- Given the scales involved right now at least, I assume it’s not TTI (whether in or outside the Coop) that seems to be the possible challenger to DPI, but rather other competitor’s products that are much larger at T=0.

2- In such a scenario, yet another product on competitor’s offering would fragment the space which assuming all things equal would increase/cement Coop’s lead. (Also assuming here that it chips in at everyone).

3- It would at least not be using up coop ressource & effort which would be obviously be diverted from DPI, as well as other verticals that can be grown to draw new AUM & users, but it would rather be limiting competitor’s ability to compete with the Coop on existing & new verticals.

Again I am in no way giving (here) any judgments on the validity of the product itself, just its positioning, timing & convergence with coop goals.

Last thought since you mentioned those, I think DEFI5/CC10/DEGEN and DEFI+L/DEFI+S/DEFI++ are imho the main argument against the “shotgun approach” taken by competitors. The more similar products you add, the more you, extend yourself, your ressources, and end up confusing your users and ultimately limit your ability to set the standard. Again imo less is more here!

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