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).
Business Analysis Team
Marketing Benefit
Score: Medium
Smart beta indices are a foundational piece of the TradFi ETF layer and it is exciting to implement the first one in DeFi. However, relative to bigger market tracking indices, smart betas are likely to attract less attention - partially due to their more targeted focus. Furthermore, Token Terminal is a great brand, but does not have the same brand equity as some of our other partners in either DeFi or CeFi. Though it is important to note that Token Terminal is also newer than most and so down the line this may change.
Market Size
Score: Medium
Token Terminal has already received interest from the institutions they work with for the TTI. In TradFi, smart beta products are large, but tend to be much smaller than the flagship market cap weighted indices. The DeFi ETF market today is much less mature than the TradFI market, with DPI just over the $100M mark and it is unlikely a smart beta product would reach that size until the flagship products become much bigger.
Methodologist Capacity
Score: High
Token Terminal is very much a long-term oriented brand that intends to build out a business that lasts. They have a beautiful product to display the indices that the Index Coop creates, along with any extra human or capital resources to help their indices become successful.
Throughout the governance process, their team has been capable of editing their methodology, responding expediently to any questions on the forum, and providing status updates on a quick cadence.
Unique
Score: High
Though everyone is quite familiar with the idea of smart-beta indices, there are no others like it on the market. The TTI is an incredibly unique index tracking a metric that Token Terminal is known for in the DeFi industry (P/S). This will be the first of its kind.
Fees Generated
Score: Medium
At 0.95 basis points and a 70/30 fee split, we expect the fee generation opportunity here to be following the same pattern as the DPI. In the short term, it will not be as big as the DPI and thus not produce as much in fees. However in the long term, because it is a smart beta product, the TTI will likely be able to justify a premium streaming fee even after other indices have reduced their respective fees. Any intrinsic productivity enabled for the DPI will likely have a large overlap with the TTI.
Product Development Team
Risk
Score: Low
As a vanilla index like the DPI and MVI, launching such a product presents no risk.
Difficulty
Score: Low
Infrastructure to build out normal index products are well developed and require no extra work. Launching this product will require minimal efforts on the engineering front. We expect most difficulty to come from rebalance operations.
Recommendation
Through the reasons outlined above, the Work Teams recommend voting YES. The TTI is a unique and interesting product that we think has a lot of growth potential over the longer term and a great partner to help support it. Our expectations are not as high in the short term, but we expect the TTI to be a foundational part of the landscape as the on-chain ETF industry evolves.
You can look at the rubric and grading here: Product Prioritization Chart - Google Sheets