IIP-175: Launch the Money Market Index ($MMI)

IIP - 175: Launch the Money Market Index ($MMI)

IIP: 175

Title: Launch the Money Market Index ($MMI)

Status: Draft

Author(s): @allan.g , @MrMadila

Reviewers(s): @dev , @anthonyb.eth , @jordan.t

Created: 9 March 2023

1.0 Abstract

The Product team proposes that the Index Coop launch the Money Market Index ($MMI), a stablecoin-denominated yield product with the objective of providing diversified exposure to the top money market yields in DeFi. Underlying stablecoins will be distributed across variable-rate, peer-to-peer, and fixed-rate lending positions on Ethereum main net. $MMI will be built on Index Protocol with initial integrations to Morpho-Aave, Morpho-Compound, and Notional.

2.0 Market information

2.1 Target customer segments & user stories

User Stories:

  • As a token holder, I want easy access to an aggregate stablecoin APY so that I don’t have to manage positions across protocols myself
  • As a token holder, I want to distribute my stablecoins across multiple protocols so that I am not at risk of losing everything in one exploit
  • As a token holder, I want to hold multiple stablecoins so that I am not overexposed to a de-peg or regulatory risks
  • As a token holder, I want to access the most battle-tested stablecoin yields so that I can survive a bear market
  • As a token holder, I want stablecoin positions in the most established protocols to be rebalanced for me so that I can focus on bespoke strategies and yield opportunities

2.2 Market research

Aside from providing liquidity, lending is the largest stablecoin yield category in DeFi as well as one of the most established. The following protocols represent the five largest lending markets in terms of TVL on Ethereum main net for the stablecoins that meet all inclusion criteria for $MMI:

Source: DeFi Llama

These money market protocols provide critical liquidity for DeFi and also enable lower risk returns relative to the rest of the opportunities in the on-chain ecosystem. In order to protect lenders, borrowers must be overcollateralized in these protocols, and efficient liquidation mechanisms ensure that bad debt is highly improbable.

Market research has identified several customer types for $MMI:

  • DAO Treasuries: a survey of 12+ DAO Treasuries with an average size of $80m revealed strong preferences for low-risk, diversified stablecoin strategies offering a set-and-forget experience; pain points such as multi-sig coordination and continuous position maintenance motivated passive product requests.
  • Wallet Providers: multiple Wallet Providers have expressed a need for transparent stablecoin yield offerings that are accessible to their users; diversification in particular (of stablecoins, protocols, and strategies) offers a unique value proposition for new users that are less familiar with DeFi.
  • Agile Funds: 10+ on-chain Funds have validated that a single access point for general money market yields would be useful for idle capital as well as for sweep accounts; parking unused capital in a productive asset also allows Funds to focus on bespoke strategies and yield opportunities away from the most established protocols.
  • On-chain Retail: feedback from hundreds of individuals and existing users has been collected over time regarding stablecoin yield products and strategies; in general, On-chain Retail is more interested in higher risk, higher return opportunities, but many acknowledged the usefulness of a low-risk, low-return products, especially in bear market conditions.

2.3 Size of opportunity

2.4 Differentiation

The following products or services offer similar value propositions as $MMI to users:

$MMI is differentiated from these alternatives in that the low, flat streaming fee of 0.15% results in a competitive Net APR and the lowest effective fee on the market.

Stablecoin diversification and yield optimization via Morpho set $MMI apart from several alternatives. Protocol Owned Liquidity (POL) will be deployed for $MMI on DEXs, making it accessible to anyone with a simple swap through the DEX aggregator of their choice.

2.5 Marketing support / distribution / partnerships

At launch, $MMI will be accessible through:

  • the Index Coop App
  • Decentralized Exchanges (DEXs) via Protocol Owned Liquidity (POL)
  • DEX Aggregators (CoW Swap, Matcha, 1inch)
  • Argent | zkSync

Additional distribution partners may be onboarded before and after launch. Flash Mint support will be enabled through the Index Coop App and also made available through the Flash Mint SDK for external integrations.

$MMI should not be held by restricted persons according to this disclaimer.

2.6 Marketing risks and weaknesses

  • Higher risk-adjusted returns are available outside of DeFi
  • Returns may be compressed at higher TVLs, especially Notional positions
  • Broad stablecoin exposure may not be desirable for all users
  • Broad protocol exposure may not be desirable for all users
  • An additional layer of smart contract risk may not be desirable for some users

3.0 Financials

3.1 Revenue

$MMI will have an annualized streaming fee of 0.15% or 15 bps. There will be no mint or redemption fee.

Any protocol incentives that may accrue to underlying positions will be claimed by the Index Coop.

3.2 Fee splits

The streaming fee will go 100% to Index Coop.

3.3 Product economics

Based on the financial forecast below, average monthly revenue for the first 12 months is expected to be $1,229 with a TVL of $12m at the end of year one. Costs associated with quarterly rebalancing are expected to be less significant than traditional composite products because ERC-4626 interactions do not have the same slippage concerns as DEX trades; more cost details will be provided as they become available.

3.4 Financial forecast

Financial forecast of monthly streaming fee revenue assuming $25M max NAV, 24 months to half max NAV, 1.0 growth coefficient, 0.15% streaming fee, and no underlying appreciation. Gas costs associated with rebalancing will be paid for by the Index Coop, and no liquidity mining rewards are planned for $MMI.

4.0 Specification

4.1 Product design


Stablecoins that pass the inclusion criteria will be equally weighted within the index; inclusion criteria are that stablecoins must be available on Ethereum main net, have a minimum market cap of $100m, and have an Overall Score of 2 or less according to the product indicative risk framework. As a result, $MMI’s stablecoin exposure at launch is expected to be 33.34% USDC / 33.33% USDT / 33.33% DAI.

Strategy and Protocol distribution is determined by comparing Base APYs using a 180d Moving Average; this measurement excludes incentives or non-stablecoin rewards in order to determine “real yield” per position. At launch, each stablecoin allocation will be split evenly between the two highest-yielding positions and must be distributed across two distinct protocols; this results in the following composition:

Based on this composition and 180 days of historical interest rate data, $MMI would have a Gross APY of 3.07%. It is worth noting that interest rate volatility for USDT positions is especially pronounced and that Notional positions are subject to interest rate slippage at scale, so an overall Net APY of 2-4% should be expected.

For context, Morpho attempts to match lending deposits with borrowers in a peer-to-peer (P2P) fashion, resulting in a higher lending rate for the depositor and a lower borrowing rate for the debtor relative to the underlying money market (i.e. Compound v2 or Aave v2). If a P2P borrower cannot be found for a given deposit, that deposit will “fall through” to the underlying money market protocol and earn the associated variable lending rate. In terms of matching lending deposits with P2P borrowers, Morpho has a success rate of 65.96% across Morpho-Compound and Morpho-Aave, so it is reasonable to assume that some portion of Morpho positions in $MMI will be earning variable rates derived from the underlying money market protocols. As a result, $MMI holders will effectively have exposure to three strategies: Fixed Lending, P2P Lending, and Variable Lending.

Additional Considerations:

  • Overall stablecoin exposure cannot exceed 50% for a single stablecoin at each rebalance
  • Overall protocol exposure cannot exceed 50% for a single protocol at each rebalance
  • Protocols must have a minimum of 180 days APY data in order to be considered

Token inclusion/exclusion criteria [if applicable]

  • stablecoins must be available on Ethereum main net

  • stablecoins must have a minimum market cap of $100 million

  • stablecoins must have an overall score of 2 or less according to the Product Indicitave Risk Framework

  • underlying protocols must have a minimum of $25 million in TVL

  • Underlying protocols must have an overall score of 1 or less according to the Product Indicitave Risk Framework

  • underlying protocols must be audited and reviewed by security professionals to determine that security best practices have been followed

  • underlying protocols must also be in operation for a minimum of six months in order for the decentralized finance community to arrive at a consensus regarding its safety

  • underlying protocols must be open source

  • underlying protocols must have a bug bounty program

Engineering lift

At time of writing, Index Protocol integrations with Notional, Compound v2, Morpho-Compound, and Morpho-Aave have been developed, tested, and audited as needed; ERC-4626 integrations will also be used for the first time in an Index Coop product. Additional development is required for several rebalancing-related peripheral contracts, and existing flash mint contracts may also need to be revised.

Deployments and bridges

$MMI and its components will be deployed on Ethereum main net. There is no intrinsic dependency on cross-chain assets or bridging.

Index weight calculation

Stablecoins that pass the inclusion criteria will be equally weighted within the index. Protocol and Strategy distribution is determined by comparing Base APYs using a 180d Moving Average; this measurement excludes incentives or non-stablecoin rewards in order to determine “real yield” per position. Each stablecoin will be split evenly between the two highest-yielding positions.

Rebalancing approach

$MMI will be rebalanced on a quarterly basis, or every three months. The exact interval will align with Notional fCash maturity dates so that expired positions can be rolled forward into new positions.

Recomposition approach

Because Notional fCash positions expire upon maturity, they will need to be rolled forward into new fCash positions on a quarterly basis (or rebalanced into other non-Notional positions per the methodology). This process technically constitutes a recomposition since one token will be replaced by an entirely different token.


The $MMI Methodology as detailed above most be voted on and approved by $INDEX token holders before launch. Post-launch, the methodology will be maintained by the Internal Methodologist Committee (IMC); any material changes to the methodology will be communicated externally and subject to an $INDEX token vote.

4.2 On-Chain liquidity analysis of underlying tokens

Generally, $MMI will not be dependent on secondary market liquidity for the underlying positions because of the direct deposit and redemption model in place for ERC-4626 vaults. However, the size of each stablecoin market per protocol is relevant because lenders’ ability to withdraw funds is dependent upon supply and borrowing demand.

Stablecoin: USDC DAI USDT
Compound v2 $251m $276m $56m
Aave v2 $302m $73m $76m
Morpho $120m $31m $18m
Notional $20m $14m NA

However, Notional fCash assets are subject to liquidity conditions within the Notional AMM. In addition to the methodology, liquidity conditions for fCash assets will be evaluated at launch and at each rebalance to minimize interest rate slippage.

5.0 Product liquidity

Protocol Owned Liquidity (POL) will be deployed on Uniswap v3 by the Index Coop to provide an easy access point for small-to-medium sized trades.

Additional details regarding harmonic liquidity, L2 distribution, and seed capital requirements will be provided here before the product is launched.

6.0 ‌Author Background

The Product team is responsible for designing, developing, and deploying products for the Index Coop, as well as managing and maintaining products post-launch.

7.0 Disclaimers

Disclaimer: This content is for informational purposes only and should not be construed as legal, tax, investment, financial, or other advice. Each purchaser of an Index Coop product should consult with his or her own investment, legal and tax adviser/s before purchasing.

Disclaimer: Index Coop token products are not marketed or offered to persons or entities who: are citizens of, reside in, are located in, are incorporated in, or operate a registered office in the United States of America (collectively defined as ‘U.S. persons’). If you are a U.S. person, do not use Index Coop token products. Our website restricts trading of these tokens by U.S. persons. All website users, including U.S. Persons, must read our Terms of Service and List of Restricted Tokens. U.S. person(s) must comply with our Terms of Service and not use Index Coop tokens.

Revision history

  • added diversification requirement that one stablecoin must be allocated across two protocols and adjusted proposed composition and returns accordingly
  • updated financial forecast using a higher growth coefficient
  • added liquidity dependencies for Notional fCash positions


‌Copyright and related rights waived via CC0.


Thank you for this great proposal. I believe that something like this definitely makes sense and there is already demand for it today. I have just few questions regarding the product.

Stablecoins that pass the inclusion criteria will be equally weighted within the index…

Someone might argue that while this is the simplest approach, the risks for selected stablecoins are certainly not the same, and therefore the allocation should not be evenly distributed in this way. How would you justify this to a risk-averse user or treasury manager?

Strategy and Protocol distribution is determined by comparing Base APYs using a 180d Moving Average…

I am interested in how this will work in practice. Specifically, what is the process if someone mints new tokens? As was mentioned with P2P lending on Morpho, it is possible that there may not be counterparty to match with (around a 60% success rate), and the funds may be forfeited back to the originator. This is similar with Notional, where there can be significant slippage. So, if 50% is to be allocated on Morpho, it will be attempted, and if it doesn’t go through within a certain time, it will be deposited to the originator (Aave, Compound)? And the other 50% goes to Notional, but what if it causes significant slippage? Is there a controller that can evaluate this and potentially choose a different action? And how do you ensure that this alternative action remains within the general limits of the protocols?

As far as I know, Notional currently incentivizes LPs, but plans to reduce these incentives by 70% in Q2. Do you have any information on how they plan to address liquidity in the long term? My concern is that 50% of the allocation is invested in instruments that are only liquid through their vAMM, if there is enough liquidity at all times. Therefore, I would like to know how liquidity will be addressed by Notional and what assurance I have that there will always be liquidity available. (We are talking about regular amounts. Of course, it is possible that the MMI will outgrow Notional’s capacity, but that is a different topic)

Do you plan to monitor current strategies and will you have any alert system in place?

And the final question: What if an unexpected situation or a black swan event occurs? Is there an emergency mode in which resources can be quickly withdrawed from the protocol? Or how is the emergency situation addressed with this product?

I am looking forward to your response, and once again, thank you for this proposal.:clap:

1 Like

Great job to the authors @allan.g @MrMadila and reviewers for this proposal. The rationale looks great and I believe $MMI will be well received by the market.

I also had a chance to review your Product Risk Framework and appreciate putting the MMI through those assessments. :clap:

One question i have is the potential lending platform risks on Morpho, Euler, Aave, Compound-- do you foresee any liquidity and / or liquidation risk from these platforms and how you might account for them?


Hello everyone! Paul from Morpho Labs here.

@allan.g thank you for this very complete post.Excited to see Morpho’s lending pool optimiser being proposed in this forum post.

@m0xt here are some element of answers to your questions, let me know if this is clear enough

I am not sure what you mean by “originator”.
Actually, on Morpho-Aave/Compound, if no P2P match is found, then the liquidity will be put into Aave/Compound itself. This way, every deposit can be fully completed it is just that in the worse case scenario it will get the Aave/Compound APY, in average all or a part of the deposit will be matched P2P and benefit from additional efficiency and a better APY.

Morpho Labs team is happy to help answering any questions regarding the Morpho Protocol and its integration.


Hey there, Teddy from Notional here. Just want to clarify a few things:

  1. A 70% reduction in incentives is a goal, not a plan. We understand the importance of maintaining liquid fixed rate markets on Notional and I won’t vote in favor of a proposal to cut incentives without having reason to believe that we will retain sufficient liquidity.

  2. Our goal for the 70% reduction is for end of year 2023, not Q2 2023.

  3. We have several product improvements coming down the pipe which we believe will increase organic returns to LPs significantly. This is the key point - we believe that the coming upgrades will allow us to cut incentives without losing liquidity because the underlying returns will improve organically.

Ultimately, we can’t guarantee that there will always be X amount of liquidity on the protocol - no protocol can make that guarantee. But what we can say is that we understand the importance of liquidity, we are committed to ensuring sufficient liquidity, and we are making all possible improvements to the protocol to increase returns for LPs and make providing liquidity on Notional as attractive as possible.


Hey @allan.g!

This is an interesting proposal, and one I think that would benefit IC as well as stablecoin users.

You may recognize me from the IC forums- I used to contribute pretty frequently in 2020/2021 for IC :smiley:. I’m now working with the Fuji team, and the engine we are building (and most of which is already built) would be a perfect fit for what you are looking to offer with $MMI.

Fuji is a money market aggregator built using ERC-4626, and we have integrations supported with most of these money markets (including many others!). The way Fuji’s engine works, is we integrated functions into the ERC4626 vaults that you to easily rebalance positions across money markets so that vault users either get the most yield or lowest interest rate according to the strategy choice.

For example, a vault on Ethereum could support the AaveV3+CompoundV2 money markets, or add in additional ones if you choose to (e.g. Morpho, Euler, among others). According to defined thresholds, the vault could be rebalanced to the market with the highest yield on DAI. This allows you to take advantage of a disparity/arbitrage opportunity according to threshold between the money markets. Since Fuji is built using ERC4626, you could also easily harvest/compound any additional token rewards.

In addition, we are open to working together with the IC community to customize a vault (they will be permissionless later on) to support whichever money markets you want. We can support any variable money market (no fixed at the moment). On mainnet, we currently have integrations supporting 9 different money markets.

Happy to discuss things further with your team. If you would like to speak in more detail, you can find me on Telegram @ansteadm, or Twitter @The_Shark_7.


Hi Teddy, thanks for your responses.

It’s great that you understand the importance of liquidity and that you wouldn’t vote against reducing incentives if you didn’t believe in sufficient liquidity.
I don’t mean it in a negative way, but we don’t know how others will vote. Nor do we know how your upcoming improvements will increase motivation for LPs.

It would seem fair to me that before $MMI has $xM in Notional’s products, the community is aware of Notional’s roadmap and how these key issues will be addressed.

I would prefer to have more specific information rather than just general promises that these issues will be addressed.

It’s possible that others are okay with it and these questions are not important to them, and it’s just my ‘trust no one’ approach.:rofl:

1 Like

Thanks for your responses, Paul.

How long does it sit in Morpho looking for P2P match before it goes to Aave/Compound?

Do you think the market will be dynamic enough to respond to increased deposits? Or like are you afraid that it could significantly decrease the success rate of finding P2P matches?"

Ok great! I’m not sure what issues you are referring to though. As I stated previously, no protocol can guarantee that it will have X amount of liquidity at a future date, Notional included. It’s not a matter of trust.

I agree that Index shouldn’t allocate with the anticipation of liquidity being larger in the future based on what we say we will do. I think the prudent decision would be for Index to cap its allocation to Notional based on prevailing liquidity and increase or decrease that cap as observed liquidity changes. No trust required :slight_smile:


Hello @m0xt, here are my answers:

There is no waiting time, it sits on the pool while waiting for a match and exits when a match happens.

It depends on the state of each market. For example, if there are too many borrowers on a market in morpho-aave, they will borrow on aave and wait for a depositor. In that scenario, as a depositor, the supply of the index will be instantly matched P2P.
If at the opposite, there are more suppliers than borrowers, then index funds will have to wait on aave for a borrower to come (or a lender to leave to take his place) and create a P2P match. It is hard to anticipate how long it will take before the matching happens but if it does not happen right away, let s keep in mind that you are at least experiencing the aave rate.
Is it helpful?

Hey @m0xt - thank you for the constructive comments! I’ll try and address the points that @PaulFrambot and @twoodward haven’t covered.

This is a timely topic, especially considering the volatility over the past week. It’s an excellent question though and there are certainly many ways to “cut the cake”. One alternative would be to use a simple market cap weighting, but that would lead to a large allocation in USDT that doesn’t necessarily reflect the stablecoin composition across lending markets today. A TVL-driven approach that measures stablecoin allocation across the top DeFi lending protocols would lead to the largest allocation in USDC (which has its issues) and the second largest allocation in DAI (which is largely backed by USDC). There are other permutations that we considered, but rather than over-complicating the stablecoin allocation, we settled on an equal distribution for the stablecoins that met the inclusion criteria. Though some stablecoins are riskier than others, the returns across lending protocols tend to track accordingly.

Strategies inside of $MMI will certainly be monitored, and a public Dune dashboard will be built as well with the most meaningful metrics for tracking and transparency!

It is worth noting that $MMI will not be an actively managed product - the methodology and rebalancing parameters voted on by $INDEX token holders determine how the product will function. Any material alterations to the methodology or rebalancing process must be proposed by the Internal Methodologist Committee (IMC).

In the event of a time-sensitive situation, the IMC will publicly communicate any changes (here on the forum as well as across social channels) and propose a course of action. Via the optimistic governance model, $INDEX holders can object to any proposed changes before action is taken; otherwise, the proposal will be enacted in an effort to protect $MMI token holders.

Thank you again for the feedback - we truly appreciate it!

1 Like

Hey @paulx - thanks for the question!

Because the positions inside of $MMI will be pure lending positions, they are not exposed to liquidation risk. However, third parties that borrow stablecoins from the same pools $MMI deposits are eligible for liquidation, which can indirectly affect $MMI holders. However, all of the protocols in scope - Compound, Aave, Morpho, and Notional - require borrowers to be overcollateralized and have strong protections and incentives to prevent bad debt from affecting depositors. I would be happy to find you more resources on this per protocol if that would be helpful!

One liquidity risk to consider is each pool’s utilization or the amount of deposited supply that is currently being borrowed. In general, if a pool that contains $MMI deposits has 100% utilization, withdraws or $MMI redemptions will not be possible (it’s worth noting that those deposits will still be earning very high interest based on the interest rate curves in play for that pool). One way $MMI mitigates that liquidity risk is by depositing to some of the largest stablecoin pools with low utilization rate volatility and where the index will make up a minority of the supply. See the proposal excerpt below for more info:

Liquidity conditions generally will be monitored post-launch and factored into future rebalances. Please let me know if this answers your question!


Hey Mark - great to see you on the forum again!

Thank you for bringing Fuji to our attention - it could certainly be a useful tool in our stablecoin suite (of which $MMI is the first product).

We’ll be in touch soon :pray:

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Thank you for the detailed response @allan.g, very helpful indeed . I think for Aave v2 the “optimal” utilization rate (as set by the protocol) is at 90% so it’s a fine line between capital efficiency and risk.

Over the weekend, as SVB was going down, I did notice max utilization across Aave and Compound for USDT (~99%) as people fled USDC, so that may be something to keep in mind as you move forward.

I also recently learned that Compound hard codes their USDC prices to $1 which will prevent liquidation from happening in a timely manner and could accrue bad debt in that market. See here: Compound v2 Docs | Open Price Feed

In any case, looking forward to your launch!


Love this initiative. I would suggest that Index Coop consider Flux Finance as an option. Flux is a special purpose lending marketplace enabling lending against only tokenized US Treasuries as collateral. The collateral is in the form of OUSG from Ondo. Adding fStables (i.e. stablecoins lent into Flux, such as fUSDC, fDAI, and fUSDT) would, in our opinion, decrease the risk, increase the yield, and provide important diversification to this proposed basket, including around the ultimate source of yield. Target yields for lenders at the target 90% utilization are currently OBFR - 50 bps, which is currently in excess of 4%.


Flux made a proposal to Maker to invest DAI into fDAI, and that proposal has additional details around the structure: MIP119: Onboard DAI Funds to the Flux Finance DAI Lending Pool - RFC - The Maker Forum

Hi, I am glad to see many comments here since the summer of 2022. I want to see MMI on the right track. 1. I would like to see a backtesting chart for one year, please. 2. What would happen if the Federal Reserve were to create a new digital dollar tomorrow? Would you be able to convert DAI, USDC, and USDT to the new digital dollar? However, everything looks good. I look forward to your launch!

Handle Twitter: @MarchantHedge

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I’ve always been here, just hiding in the shadows :ghost:!

Jokes aside, I was talking internally about a concept around MMI internally that could be of potential interest for your proposal- I know you are planning to have the tokens balanced (USDT, USDC, and DAI) split equally - 33% to each, but wanted to share a thought.

Would the IC community be interested in optimizing to the stablecoin which is able to provide the highest yield?

For example, if one stablecoin, DAI, has quite low yield, while USDC is able to provide significantly higher yield on a money market, would you be interested in rebalancing the DAI → USDC and placing those stables into a protocol that has the most attractive yield? Or focusing more on keeping them in separate"tranches"?

This is something that already works out of the box with our infrastructure, and just wanted to share.

Look forward to talking more in depth!

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Hey Mark!

We have opted to keep the equal weighting to minimise the risk to the product if one asset where to fail in isolation. Chasing yield would obviously throw this out of whack for a product where the main objective is wealth preservation not wealth creation…

We are working on other stablecoin products with different risk/reward profiles which may be better suited to this particular style though. I’ve DM’d you so looking forward to catch up ser :slight_smile:

Hi @nathan.allman, thanks for dropping in.

This is very interesting. Will keep it on the radar for potential future use cases in our stablecoin products.