IIP-22 Bankless BED Index

Why wouldnt we pay Bankless in index instead of giving them a huge cut of the streaming fees? Splitting fees seems to needlessly muddle the narrative of IC’s revenue stream and for what exactly? Coming up with the idea BED? Its a good idea but should it result in an endless revenue stream? We should just pay bankless in Index for advertising and let them access the streaming fees from there.

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On the point of streaming fees - my questions would be, to what capacity would bankless be involved in the ongoing maintenance of this product?
If the coop will be doing all the maintenance then I think it would be fair to just have a one-off payment, or set a time limit on bankless’s claim on streaming fees (e.g. they get a cut for the first year, after which all fees go to coop).

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@loc Or you set a yearly / quarterly reduction in % share. As a result Bankless are rewarded highly for promoting early adoption and user growth, but as the product becomes more established and other forms of marketing also promote it their earnings reduce. (Actually their $ earnings will continue to increase as AUM increases, but just less parabolically)

You could operate on a tender based threshold. After x months / years Companies, influencers, marketeers could pitch us their proposal to grow BED and win the branding rights for the product and the associated fee. Similar to how companies sponsor football stadiums etc. This would ensure that we always have a way to choose what’s best for the Index.

This also wouldn’t negatively impact on Bankless, as the incumbent, they would have the highest opportunity to retain the product as they have the expertise, the track record to pitch for.

Absolutely love the product still!

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I don’t support such a high ongoing fee split with Bankless.

Didn’t @LemonadeAlpha come up with the BED index anyway?

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I agree with you.
We should know what Bankless would do for BED’s growth.

I agree with general sentiment of why pay Bankless so much especially when it’s entirely Lemonade’s idea and they memes it into existence.

I think we shouldnt charge any fees for BED at all. If
the intentionn is to have BED be a constant fixed weight index this is actually a good candidate for a balancer pool for a few reasons:

  1. Why pay for methodologist to rebalance when balancer pool automatically rebalances and we earn fees for that instead of paying fees to Bankless
  2. BED takes practically no brain cells to do, it doesn’t change allocation, and it’s only 3 tokens so not the high gas savings you get by buying a broad index token like DPI. We aren’t adding any value, just making distribution easier. We already make fees from DPI component we should treat BED as a “loss leader”
  3. BED doesn’t have the same risks as running DPI on balancer. There is no possibility of a token going to 0 (except DPI but thats on us anyway) and you want “impermanent loss” because that’s what keeps it a fixed weight
  4. This increases liquidity for DPI instead of having it locked in a set contract
  5. Balancer pool is better value for our users! They earn swap fees from dex swaps and they don’t pay fees because smart contracts are automating the methodologist role so we don’t need to pay Bankless at all.

If BED gets passed I think Lemonade should get a fat bonus ($20k?) and Bankless can get INDEX for marketing like any other community contributor. They are providing marketing services, that is all, separate concerns between marketing and methodologist since methodology can be managed autonomously by smart contracts

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Love the idea of BED (and the Bankless crews’s content) but think the fee is potentially an issue to wide adoption. Happy to be proven wrong here, but I think the fee should be more like 0.15-0.25% Max. here.

When there’s a vote, I’ll vote FOR as this deepens the relationship between Bankless and the Coop, Bankless has great distribution, and on balance seems like a win which can be achieved with little engineering resource. Happy to be shown if I’m wrong on that last point @dylan.

I also think that if Bankless acts as a top of funnel driving buyers to BED, these folks could cross sell into other index products, MVI, SYI, etc.

Look forward to seeing more info re what Bankless will do to promote BED!

Semi-unrelated: If this partnership shows the general Bankless-Coop working relationship works well. I’d be open to a deeper partnership with Bankless - which I’d assume would be more $INDEX skin in the game in return for impressions and referrals.

@ryanseanadams @trustlessState @LemonadeAlpha

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I wanted to offer a quick take on the marketing fee to Bankless.

In TradFi, it is common for some funds to charge what is called a 12b-1 fee. This fee is paid by the fund out of fund assets to cover distribution expenses and shareholder service expenses. Here is a breakdown from a U.S. report on this fee class:

“Distribution fees" include fees paid for marketing and selling fund shares, such as compensating brokers and others who sell fund shares, and paying for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature.

Some 12b-1 plans also authorize and include “shareholder service fees,” which are fees paid to persons to respond to investor inquiries and provide investors with information about their investments.

I tried to find the industry average of the 12b-1 fee to total fund expense for comparison purposes. I was able to find a Motley Fool report (admittedly not the most academic of sources) that states that of the 1,571 funds that charged a 12b-1, the average 12b-1 fee was 0.31% and the average net expense ratio was 1.45%. Working through the math, that means for funds with a 12b-1, ~21.4% of the expense ratio is dedicated to the marketing fee.

Considering the DPI portion of the underlying BED assets generates revenue for the Coop, the effective streaming fee captured by Bankless is ~23% of the total fee (as identified by @LemonadeAlpha in the community discord). This is a little higher than the industry average, but generally in line. I would like to make sure that the Bankless team adequately markets the index to justify capture of what is essentially a 12b-1 fee. Given their platform reach and focus on investor/newcomer awareness, I fully expect they are capable of justifying the expense if our incentives are properly aligned.

@Kiba brings up a point that I thought of as well. This is essentially a very easy to replicate index. If DPI is successfully onboarded to centralized exchanges, anybody could build this portfolio with minimal costs. Differentiation is going to have to come from branding (which Bankless can help with) or investor benefit (which @Kiba alludes to with the balancer pool swap fee capture). Currently, the biggest benefit is that it is an easy buy-and-hold diversification product for the crypto space. There are plenty of 60/40 equity/fixed income mutual funds that capture AUM without being substantially differentiated from just buying SPY and AGG (passive ETF index funds), so I think it is possible to do this with adequate marketing.

One last thought: the more we could increase its composability throughout DeFi the better, since it would offer a new DeFi user a chance to get a diversified crypto portfolio that could also be used as collateral in DeFi. Partnerships could be important here.

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I think the main question for me is how do we classify Bankless, as a methodologist or a marketing/branding partner?

I view Bankless as a marketing/branding partner. The fee split for that, accounting for DPI fees, is fair. It would be great if we could somehow ensure the continuity of their commitment and support for as long as the fee is accruing to them.

However, Bankless would also receive the methodologist bounty introduced in the original Index Coop launch post. This I don’t agree with, because I don’t view them as a methodologist given the fixed composition of the index and little to no maintenance required.

On the product itself, I think Balancer v2 will also enable earning an income on a portion of assets in the pool? Balancer is a better fit for this product. But I don’t think that aligns with the Index Coop narrative. We have differentiated ourselves partially by avoiding the use of Balancer pools for index construction and instead building on top of the Set Protocol infrastructure. I think we should stick with this for BED as well.

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Can you explain this logic? Coop’s narrative is we have the best products on the market.
Screen Shot 2021-03-29 at 11.27.10 AM

There are very specific reasons why Balancer is a bad option for a product like DPI. I think I addressed all of these issues and why they are in fact advantages for BED.

We haven’t even been fully utilizing the power of Set Protocol as an asset management platform so i don’t know why we would hamstring ourselves to limiting ourselves to their platform if it’s not always the best option and we aren’t even going to use it properly

You are right. I suppose in my head that narrative has always been “we have the best products on the market built on top of Set Protocol’s architecture.

So, with Balancer, it’s obviously a different business model right. First, we get compensated with trading fees, not streaming fee. As a long-term, buy & hold product, I think BED is more aligned with the streaming fee model. It’s not meant to be traded. Imagine BED growing to $1bn and yet our revenue being based simply on trading fees. If there’s no streaming fee so how do we compensate our partners, Bankless in this case, in this scenario? I wonder if INDEX holders would be able to execute meta-governance for DPI held in BED if built on top of Set? I’m sure that’s not possible with Balancer.

Overall, while I think Balancer is a better fit for a fixed weight, 3-asset index, I’m not sure it’s a better fit for Index Coop.

DPI tokens are held in the DPI Set contract regardless of where the DPI token itself is. We can vote with all DPI underlying tokens whether people are LPing on uni/sushi/balancer, deposited in cream/aave, or even move DPI to L2 on loopring. DPI is an abstraction layer on top of all the underlying tokens we can do whatever we want with the actual AUM.

By having BED on Balancer that means BED token itself is a representation of an LP position. That doesn’t change whether the BED token is intended to be traded. ETH2x-FLI is intended to be traded yet is built on Set Protocol as an example. We are concerned about asset management of the underlying tokens, whatever does that most effectively for the use case is what we should use. The actual token we issue that represents the underlying assets can be used however the holder wishes and isn’t affected by whats going on behind the senes.

My suggestion is we don’t make any fees at all on BED since it’s dead simple and has no IP as DPI does so will be highly competitive. Using Balancer I’m pretty sure we wouldn’t even be able to charge fees on BED directly, only getting fees from DPI within BED. I can deploy BED to Balancer right now with maybe $200 in gas fees and it would run more efficiently and effectively than paying bankless and IC to do it for me. So for any position >$2,000 the cost to enter an LP position on balancer will always be cheaper than the yearly fees paid on BED. As a user, whats the advantage of going with Coop’s BED for less profit and worse performance? I can get paid for better performance or i can pay for worse performance. Choice is pretty obvious

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These conversations tend to lean towards the technical aspects of launching/maintaining the index product (re the conversation around Balancer vs Set). Its important to keep the target user for this index front and center - it is your friend that just reached out to you on Twitter for the first time in a year and they are interested in crypto and they thought they could ask you because they see all of your crypto tweets… they want to know how to start investing in crypto and they say they have been keeping an eye on XRP because it is still “really cheap”. You don’t want to over-extend and overwhelm them, but you want to help them learn some basics and get some initial exposure. BED.

Best path is a direct Fiat → BED. Next best is Fiat → ETH → DEX → BED. Even the second of these options can be hard for new users. But by building a structured product (however simple it is) and partnering with one of the premier media/content creators for new crypto users we can start to imagine bringing more and more crypto newbies along this path.

If I am not mistaken, even before the BED meme the Bankless go-to-advice for new users was to get small exposure to Bitcoin and Ethereum and then keep researching and getting comfortable. This has been their path for new crypto users all along. A lot of their headspace has gone (and continues to go) to serving this very target user. I am not worried about the fee split with Bankless because, imo, we need them as a partner on this to get the marketing and distribution right - it is likely going to be even harder than DPI because once you are past crypto newbie this index might stop making sense for you… But the TAM is still huge, and creates a top-of-funnel for the rest of our Index products.

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I’m in agreement.

It’s a great product for new customers, and coming from three strong brands in DeFi.

We could use a balancer pools (others already have), but I think a set protocol fund fits our narrative against using AMM based funds and improves composability.

Yes it’s expensive compared to buying the three separately. But people are willing to pay for convenience and outsourcing the portfolio structure.

In short, it’s a good product for some customers.

We could charge less for it, but 0.8% is not bad value.

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I agree distribution is important and distribution is not affected at all by what the underlying management functionality is beneath the hood. BED will always be an ERC20 whether its built on set or balancer and will be listed on uni and purchasable with fiat in consumer apps either way. We aren’t sacrificing anything by choosing the better platform, in fact it has more benefits for everyone since it reduces fees, maintains the fixed weight of the methodology better, and increases DPI liquidity. The end product is exactly the same - an ERC20 that represents BTC/ETH/DPI - except with a balancer pool it actually maintains fixed weights instead of wildly fluctuating between monthly rebalances and pays user to hold it. How is that not a good thing for end user?

Pay Bankless referral fees or whatever incentive program, im not against that. If we really want to claim to be the best index creators then we need to practice that and not be ignorant maxis. All the anti-AMM arguments for DPI don’t apply here as i detailed in my original comment. Utilizing set and adding fees to BED is against being the best index creators.

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I want to voice that Set (as stakeholders in the coop) won’t be offended if Index Coop products aren’t built on Set Protocol. If building on Balancer (or any other protocol) results in a better final product we should do that.

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I’m noticing a lot of folks in this thread who were not on the 3/19/21 community call with Bankless, ya’ll might want to give this a watch!

Link here :movie_camera: Discord

We go into a number of the topics being discussed here.

p.s. For context, here is the forum post that came before the community call: BED Community Call - Announcement & Request for Questions

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hey @Kiba, a bunch more questions for you.

what’s your take on intrinsic productivity with Balancer via Set? Can we put ETH & BTC to use if it’s sitting in Balancer? Another question - can we change the underlying assets, if we wanted to add stETH or another type of productive ETH or BTC into BED? Basically, how much flexibility are we giving up if we launch this on Balancer?

Also, you say the end product is the same. I assume you mean that the BPT token representing the pool is the final product? Are there any current BPT-ETH pairs on Uniswap? Can that BPT token be given a name? How would wallets and other providers approach listing BPT tokens?

  • Yes the BED token is a BPT representing shares in the liquidity pool
  • Idk of BPT/ETH pairs on Uniswap but Sushiswap has all of PieDAO and CVPs tokens which are all BPTs listed on the dex and even on their onsen menu
  • Yes you can name BPT tokens whatever you want when you launch the pool
  • BPT are just ERC20s. We can get BED added to Balancer’s and CoinGecko’s tokenlists which should get viewable on most wallets
  • Intrinsic productivity has 2 options with Balancer: 1. Wait for Balancer v2 which has baked in asset management and should be out by the time BED goes through all governance stages. 2. We change token allocations in the pool from 33% ETH to 20% ETH + 13% stETH. This transition can be smoothed out if we use a smart pool (like LBPs) and it doesn’t require any action from BED holders.
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I think the intention here would be to use Set to maintain optionality for Uni LP tokens for the 3 corresponding pools.