IIP-55: Data Economy Index (DATA)

Governance Proposal
1

IIP: 55
Title: Data Economy Index (DATA)
Status: Proposed
Authors: Thomas Hepner (@TenaciousTerrier), Kiba Gateaux (@kiba)
Created: 2021-07-06

Summary

  • Mission & Purpose: The Data Economy Index (DATA) is a digital asset index capturing the growth of on-chain data economies. The Data Economy Index tracks projects with significant economic activity providing data-based products or services.

  • Thesis: The Data Economy is disrupting the data monopolies built in Big Tech over the past two decades.

  • Draft Portfolio: The initial nine components of DATA are LINK (25%), RENFIL (25%), GRT (25%), BAT (11.6%), LPT (5.2%), OCEAN (2.5%), NMR (2.4%), OXT (2.1%), REPv2 (1.3%).

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  • Product Differentiation: DATA is designed to capture data economies off and across blockchains. The initial nine tokens within DATA have no overlap with our two existing index products, DPI and MVI.

  • Combined AUM of Components: The initial nine components of DATA represent approximately $17.9 billion in market value and have no overlap with the Index Cooperative’s two existing index products. For comparison, the components within MVI represent ~$4.1 billion in market value and the components within DPI represent ~$26.9 billion in market value.

  • Market Opportunity: DATA will have ~$100m in AUM if it captures the same market share of the Data Economy that DPI has of DeFi (~0.55%), and will have ~$20m in AUM if it captures the same market share that MVI has of the Metaverse (~0.11%).

  • Consensys & Filecoin Team Liquidity Support: Per @corbpage, the Filecoin team strongly supports the Data Economy Index and plans to provide liquidity support for renFIL ahead of the launch to minimize price impact and slippage during the rebalancing process.

  • Author Background & Commitment: Thomas Hepner (@TenaciousTerrier) and Kiba Gateaux (@Kiba) are members of a DAO, tentatively named Titans of Data, responsible for the ongoing maintenance and development of the Data Economy Index. Titans of Data will also have dedicated members responsible for sales, marketing, and investor relations in Korea and China. Titans of Data has connections who will help DATA get listed on top Korean exchanges.

Motivation

Decentralized finance (DeFi) is the first of many industries that will blossom on-chain. The Ethereum whitepaper outlined numerous data-intensive applications that the network would support including decentralized file storage, decentralized data feeds, cloud computing, prediction markets, and other on-chain data-based applications.

The Data Economy Index (DATA) is a digital asset index capturing the growth of on-chain data economies. The Data Economy Index tracks projects with significant economic activity providing data-based services or products.

The Index Cooperative now has two index products, DeFi Pulse Index (DPI) and Metaverse Index (MVI) that provide exposure to two on-chain industries, decentralized finance (DeFi) and the Metaverse.

It is time the Index Cooperative had an index for on-chain data economies.

Specification

Size of the Opportunity

As of today’s writing, the components in DPI have a combined market value of ~$26.9 billion and the components in MVI have a combined ~$4.1 billion of market value.

The initial 9 components of DATA represent approximately $17.9 billion in market value and have no overlap with our two existing index products. This suggests that DATA would be a highly differentiated product for the Coop with a significant, compelling market opportunity.

Moreover, the data economy is already deeply integrated into the workings of DeFi. For instance, Chainlink is the 800-pound gorilla in the room; it’s decentralized price oracles are used as infrastructure by most DeFi protocols, including Set Protocol to calculate NAV issuance.

Current Market Size

DATA has a realistic potential to capture between $20m and $100m AUM shortly after launch, while also creating a new revenue stream for the Index Cooperative that taps an exponentially expanding market.

DATA’s constituent tokens have a combined market value of $17.9 billion. DATA will have ~$20m in AUM if it captures the same share of the Data Economy that MVI has of the Metaverse (~0.11%) and ~$100m in AUM if it captures the same share that DPI has of DeFi (~0.55%).

Potential Market Size

A little over 2 years ago, on February 28th, 2019, DeFi Pulse only had 10 assets listed on their site. Total Valued Locked (TVL) was $317m and Maker’s dominance was ~90%! Bitcoin’s Lightning Network and Augur had the 4th and 5th most TVL respectively. Much has changed in just 2 years!

Data Economy is at the same stage of development that DeFi was at the beginning of 2019. Whereas DeFi is disrupting traditional banking and financial services, the Data Economy is disrupting the data monopolies built in Big Tech over the past 20 years.

Here’s what @corbpage, Head of Product at ConsenSys Codefi, has to say about the Data Economy Index proposal:

Marketing & Brand Awareness:

  • Expands Reach: DATA would represent another on-chain industry covered by Index Cooperative. This potentially expands the reach of the Index Cooperative’s brand as the premier on-chain asset manager to projects and communities currently outside of DeFi and NFTs.

  • Consensys & Filecoin Team Liquidity Support: Per @corbpage, the Filecoin team strongly supports the Data Economy Index and plans to provide liquidity support for renFIL ahead of the launch to minimize price impact and slippage during the rebalancing process.

  • The LINK Army: DATA would be the first product offered by the Index Cooperative that includes Chainlink (LINK). Chainlink’s official Twitter account has 331k followers; other prominent Twitter accounts include @ChainLinkGod (83k followers) and the @Crypto___Oracle (27k followers).

  • APAC: APAC is a largely untapped market for the Index Cooperative. DATA will have dedicated team members responsible for sales and marketing in the APAC region. DATA can establish a presence for the Index Cooperative in this key region and lead the way for other indices to build upon DATA’s success.

Product Differentiation

As already mentioned in the sections above, the Data Economy represents an entirely different market from DeFi and the Metaverse. DATA will be significantly differentiated as it is designed to capture data economies across blockchains. In other words, it is meant to be blockchain agnostic over the long-term. We believe that most of the value of DATA is derived from off-chain data assets. For example, the value of Numeraire (NMR) is tied to the predictive performance of the machine learning models submitted by independent data scientists to Numerai’s hedge fund. Because the value of data economy tokens are derived from off-chain data, we believe that DATA’s value over the long-run will be uncorrelated with Bitcoin, Ether, and the DeFi Pulse Index (DPI).

Proposed Methodology

Draft Portfolio

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DATA initializes a Token List with the following tokens:

  • Chainlink: LINK (25%)
  • Filecoin: renFIL (25%)
  • The Graph: GRT (25%)
  • Basic Attention Token: BAT (11.6%)
  • Livepeer: LPT (5.2%)
  • Ocean Protocol: OCEAN (2.5%)
  • Numeraire: NMR (2.4%)
  • Orchid Protocol: OXT (2.1%)
  • Augur: REPv2 (1.3%).

Token Inclusion Criteria

Selection of the DATA tokens is based upon the following criteria:

  • The token must be available on the Ethereum blockchain. This may be revised if the Set Protocol infrastructure becomes multi-chain.

  • The protocol provides data-based services or products.

  • Protocol must have organic network activity or usage. On-chain transaction volume, Total Value Locked (TVL), and/or revenue paid to service providers are all examples of metrics that can be used to demonstrate organic network activity.

  • Circulating market capitalization must be over $100m.

  • Protocol token must have sufficient DEX liquidity to support inclusion. If a token has insufficient liquidity, it will be removed from the index during the determination phase.

  • Protocol must have at least 3 months history of operation and its token must have at least 3 months of price and liquidity history.

  • An independent security audit should have been performed on the protocol and results reviewed by the product methodologist. In the case that no audit has been performed, the methodologist applies subjective judgement of the protocol based on assessment of the criteria above and communications with the team.

  • In the event of a security issue the methodologist will work with the project team to understand the issue and any effects to DATA holdings. The team is expected to provide users of the protocol with a reliable solution and adequate documentation to ensure transparency about any incidents.

Index Weight Calculation

DATA will use circulating market capitalization to determine the weight of each token included in the index.

The weight of each token within the index will be as follows:

image

Like the DeFi Pulse Index, the Data Economy Index caps each token’s respective weight at 25%. Excess weight for a given token will be redistributed to the remaining components of the Data Economy Index on a weighted basis. This same process will be repeated for every token exceeding the 25% allocation cap.

Index Maintenance

The index is maintained quarterly in two phases:

  • Determination Phase: During the determination phase, the tokens being added and deleted from the index calculation are determined during the final week of the quarter and published before quarterly rebalancing.

  • Rebalancing Phase: Following publication of the determination phase outcome, the index composition will change to the new weights during the first week of the following quarter.

Fees

Fees will be determined before the DG2 vote and subsequent product launch.

Author Background and Commitment

Thomas Hepner and Kiba Gateaux are members of a DAO, tentatively named Titans of Data, responsible for the ongoing maintenance and development of the Data Economy Index.

Thomas Hepner

You can reach Thomas on the Index Cooperative Governance Forum (@TenaciousTerrier), Twitter, and through his blog.

Kiba Gateaux

  • Prev. Full Stack Developer @ Consensys
  • Gold/Silver Owl :1st_place_medal::owl::2nd_place_medal: for the first three months of coop and April
  • Top degen score
  • Link marine since 2017
  • Originally proposed DATA Index in October 2020, original concept in June 2020

Korea/China Team

Titans of Data will have dedicated members responsible for sales, marketing, and investor relations in Korea and China. Titans of Data also has connections to top Korean exchanges to get DATA listed in the country.

Voting

Decision Gate 1: TBD

Decision Gate 2: TBD

Notes

  • 7/9/2021: Details under the Fees sections were removed to provide clarity that a DG1 vote is intended to signal if DATA is a product the Index Cooperative wants to launch.
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I’m very excited about this index. The tooling for web3, of which the data economy is the most mature sector, is still early despite growing usage. We need to have an offering in this space soon. As it grows, it will be valuable to be able to market ourselves as a consistent, early leader in providing data economy exposure.

Great work @Thomas_Hepner @Kiba

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I’m excited for this Index. Totally support this proposal.

Great work by the DATA team : @Thomas_Hepner & @Kiba

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I am in strong support of this proposal. Great works @Thomas_Hepner and @Kiba . This is what stands out to me.

  • The product is highly differentiated and there is no overlaps with our two existing products.

  • DATA can provide the Coop with a significant AUM opportunity (assuming similar market penetration to other IC products). As noted above, DATA could represent ~$100 million AUM opportunity if it captures the same market share as DPI and ~$20 million in AUM if it captures the same shares as MVI.

  • The index has strong support from industry leaders. Specifically, Consensys & the Filecoin team.

  • A dedicated APAC team, rigorous product inclusion methodology (with community feedback implemented), and… most importantly

Two members of the Coop that embody what it means to be a member of this community! Nice work again gents.

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I am incredibly excited about this product. I look forward to voting shortly – and will be voting yes. If there was a vote option for strong yes I would choose this. Great work @Thomas_Hepner Thomas and @Kiba !

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Great to see this progressing. I will vote yes and will purchase when the time comes.

Liking the draft portfolio :fire:

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Great work guys. A well-thought-out, solid proposal. I just have one concern and that is to do with the supply of filecoin… As you can see below (source = coingecko) the circulating supply vs max supply is very low and therefore the fully diluted value is many multiples of its current market cap.

image
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Some level of future dilution is common throughout crypto and therefore is perhaps “priced in”.

LINK = 44% distributed : FDV = $21B
GRT = 29% : FDV = $7B
BAT = ~100% : FDV = $1B

Blue chips in DPI for comparison:
UNI = 52% : FDV = $23B
AAVE = 80% : FDV = $5B
MKR = 90% : FDV = $2.9B
COMP = 54% : FDV = $4.8B
SNX = 69% : FDV = $2.6B
SUSHI = 84% : FDV = $2.3B
YFI = 97% (:crossed_fingers:, Andre :eyes:) : FDV = $1.4B

Back to my original point…
FIL = <5% distributed : FDV = yes, you read it above correctly! $114B!

To date, this has been my sole reason for caution when investing in FIL. (Great project/idea etc, just uncertainty about the future value of any investment)

So my questions are:

  1. Is this just a coingecko mis-print?
  2. If not is there a justifiable reason for such little distribution that is perhaps unique to FIL?
  3. Is, heaven forbid, the crypto market in general not taking into account fundamentals such as FDV, and we will all get royally rekt? :sweat_smile:
  4. Are the 95% of tokens not in circulation accounted for such that the FDV is not an accurate/appropriate metric?
  5. Have I missed something. IS FIL worth $114B and cryptoland is massively undervaluing all other protocols? :thinking:
  6. Other

Apart from all that I am strongly FOR and look forward to parting with my money in exchange for DATA tokens.

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Excellent, happy to see the progress on this product! I have 3 a few comments:

  • I share @MrMadila 's concern regarding FIL very high FDV… seems the upside potential might be pretty limited on this one
  • IP ideas have been discarded?
  • regarding the methodologists compensation draft, my first impression is that the token grant part seems very high… but would be nice to see the rational behind it, maybe compared to other products
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So this is an interesting point @MrMadila, but I think its important to understand the supply distribution schedule as well. Please be mindful that I could be wrong, however, this is what I have gathered.

  • Yes there is 2 billion FIL in supply, however, ~140 million has been distributed and ~27 million has been burnt

  • The FIL foundation (100mn tokens), Protocol labs team and Protocol labs (300mn tokens) have a 6 year vesting schedule (linear) and we are about to enter year 5.

  • 10% of the total tokens was allocated to its ICO (2.5% of total supply) and SAFT (7.5% of total supply and had lockup of 6mo-3years).

  • The remaining 70% of tokens are distributed through storage mining (55%) and mining reserve (15%). The mining reserve will not be distributed unless voted on by the community.

  • The big question mark then becomes how is storage mining distributed. Im not going to claim to understand this, however I do know there is a burning mechanism attached to this distribution, so 55% will never be reached. To date ~27mn tokens have been burned. Spacegap - Dashboard for Proof of Space. Further, the distribution will occur over 20-30 years.

I am working on creating a supply distribution schedule, but the moral of the story is I think this assumption is misleading and the real supply inflation is much lower and does not makes sense to look at the FD market cap.

I will follow up shortly, but wanted to get this opinion out there. Moral of the story is, I am not sure the answer yet, but 2 billion supply seems like an improper number to use right now

Here are a list of resources I found that explain this in more detail.

https://spec.filecoin.io/systems/filecoin_token/token_allocation/

https://coinlist.co/filecoin

Storage Power Calc - Filecoin's cryptoeconomic constructions
Filfox - Filecoin explorer
Spacegap - Dashboard for Proof of Space

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Thanks for pointing this out! :100:

You shouldn’t (no, you cannot) package Filecoin in an index and sell it to people as part of a data economy index with so many outstanding tokens (+ MLM schemes running) and investor tokens unlocking and leading to negative price impact of File and the Index.

Only if the Filecoin team provides enough additional incentive aka a form of “anti-dilution” to upcoming unlocks and sell pressure, FILE could be included. I guess the required amount would be too high for Filecoin and rather exclude it. (Just to be clear, I believe the File team is extremely capable, Filecoin is a cool project but investing is impossible right now.)

Generally, I believe it would be a good idea to extend the token inclusion criteria with additional evaluations/KPIs specifically for index investment. (See MakerDao assessments for collateral onboarding): For example, add additional KPIs, analysis of token utility, current valuation, potential growth… besides the existing analyses of team, usage, market size, Index Marketing & Product Differentiation in the market.

Re: Data Economy Index

I believe data is the number 1 use case of public blockchain databases right after open finance and I would love to see a Data Economy Index as this is an underexplored niche with a number of quality live projects & huge growth potential.

Personally, I’d prefer a more narrow definition of niches and wouldn’t include Augur or Bat in a data economy index - rather focus on analytics/big data/oracles such as Link, Graph, Ocean and their closest competitors - but that is just my personal opinion.

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Strongly support adding DATA to our portfolio of products. @Kiba and @Thomas_Hepner are the perfect experts to launch this and will build a great DAO that I hope we have a long relationship with!

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I had this exact idea just last night. Thank you for taking the time to work through all of the details. I think the $DATA index will be crucial.

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Great point on FDV @MrMadila . @helmass laid out some of the facts on token supply emission/burn but we must also consider FIL usage. While there is relatively high inflation, storage miners have to buy FIL in order to increase their mining capacity so there is heavy and continuous buying pressure on the token as the network grows (and in order for it to grow).

That being said, in my opinion FIL and GRT are overpriced SF VC tokens but there is no objective way to measure this or factor it in. We somewhat addressed this with the original Economic Weight (see difference in NMR weighting) but the coop did not like this concept so it was removed. @scaleweb3 I assume this is the additional KPI you are looking for but that was voted against by community

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Welcome to the Index Coop community, @scaleweb3 - thank you for your detailed and thoughtful comment on mine and @Kiba’s proposal!

This is definitely mine and @Kiba’s viewpoint that DATA is the single largest simple index opportunity in crypto other than Open Finance / DeFi. We are glad to hear that you share our thesis :smiley:

To address your, @MrMadila , and @trx314 concerns in regards to Filecoin tokenomics, using an economic weighting would be a return to our original proposal as opposed to the simple market cap based weighting we are proposing in this IIP. While I would personally to invest in a DATA index product using an economic weighting, the Index Coop community strongly preferred a simple market cap based weighting.

@scaleweb3 Would you prefer to invest in a DATA index using an economic weight as opposed to a solely market cap based weight?

It is worth noting that the TTI was similar to DPI (both are DeFi sector indices), but was weighted using price-to-sales (P/S) instead of a market cap weighting currently employed by DPI. TTI failed to reach quorum during the DG2 vote.

My weakly-held view is that the market for crypto sector indices is currently too small to support multiple weighting methodologies (i.e. market cap, smart beta, etc.) for the same investment theme and we need to pick the theme that will capture the most AUM in the near to medium term. Based on the success of current Index Coop products in the market (i.e. DPI and MVI), I believe a market-cap based DATA index will capture the most AUM in the near term., but could definitely be persuaded to the contrary based on user/investor feedback.

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Thanks for the very thoughtful response. I’m curious what your thoughts are on our original proposal and the update. From what I can tell of you comments, you are a prime $DATA customer and you dislike almost all of the changes we made for the Coop and you would have preferred the original $DATA allocations?

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NEVER!!! Just not part of the initial IIP. Now that ConsenSys Codefi is onboard with DATA we can even use their platform for staking and yield farming that isn’t necessarily available in DeFi.

Next week Thomas and I are starting to put together longer term product development goals/vision so stay tuned.

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Please see remarks from me, @Kiba, and @helmass in the comments on this proposal.

No, they have not been discarded! We care deeply about Intrinsic Productivity (IP) and believe it will be fundamental to decentralized index products, especially DATA, moving forward. However, the timeline for implementing IP in DATA is beyond the scope of this proposal.

We are opting to forgo the Methodologist Program because it does not incentivize a long-term relationship between the Index Cooperative and Titans of Data.

For ongoing maintenance and development of DATA to be a profitable endeavor for both Titans of Data and the Index Cooperative, it needs to reach $100m+ in AUM. For context, it took DPI ~7 months to reach $100m AUM with massive INDEX liquidity mining incentives during a bull market. We are not in a bull market now and DATA is not likely to receive anywhere near the INDEX liquidity mining incentives that DPI had. The original Methodologist Program is already 7 months into its 18 month duration. These realities/conditions make the current incentive structure for External Methodologists (as opposed to Community Methodologists) uneconomical.

We structured the draft for the proposed methodologist compensation with the goals of (1) de-risking the launch of DATA for the Index Cooperative and (2) enabling both Titans of Data and Index Cooperative to share in the long-term upside potential.

Under our initial methodologist compensation proposal, Titans of Data would receive 0 INDEX unless DATA reached at least $5m in AUM and would earn a cumulative 2% of INDEX for making DATA a $100m AUM product. Assuming a 25x revenue multiplier on fee revenue (conservative for crypto space and fairly standard for SaaS companies6), DATA would be creating ~$16.6m in INDEX market cap for $6m worth of INDEX tokens at $30/INDEX (INDEX was ~$23 when we created the proposal).

We’re open to ideas for improvement. How would you change the initial compensation proposal to be fair and reasonable for both Index Cooperative and Titans of Data?

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Putting on the editor hat and looking at the Product Onboarding Process gitbook page

can you point me to the sections of this proposal…

On-chain liquidity analysis: Can existing on-chain liquidity support the proposed assets that are expected to be included in the index?

Liquidity commitment: Indexes will be accessed through secondary markets. Is the author willing to seed liquidity (ie. In Uniswap or Balancer)?

I’m looking at IIP-2 Index Addition Proposal Structure for reference.

I’d imagine the question in “liquidity commitment” is not exactly useful, but points to the question around “how is liquidity seeded for the product?”

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Adding some additional color for utmost clarity.

Those :point_up: are important pieces, so it’d be great to have those sections added/clarified prior to DG1 vote since

However, we have been lax in the past on what is necessary for a DG1 vote & DG1 is a sentiment check, so those are not blockers [edit] to the DG1 vote running.

For example

  • SMI Dg1 did NOT have “on-chain liquidity analysis”
  • BED Dg1 does have “on chain liquidity analysis”
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We’re open to ideas for improvement. How would you change the initial compensation proposal to be fair and reasonable for both Index Cooperative and Titans of Data?

I don’t know the right answer, I guess it will require people more knowledgeable than me on the past discussions regarding the methodologists compensation. If there is a group working on this, I would be happy to participate.

However I wanted to expose my concerns regarding this proposal (and potential future ones), it seems that the value going to the methodologists is very high relatively to the benefits for the Coop.
If we take the target of $100m AUM, we would have the following numbers after one year (assuming $23 price for INDEX):

  • net result for methodologists: 200000x23 + 285000 = 4885000 ($4.9m)
  • net result for Index Coop: -200000x23 + 665000 = -3935000 (-$3.9m)

With constant fees, it would take 6 more years (3.9m/665k) for the Coop to be profitable. And I am not even taking into account the running costs. It seems to me like a not very attractive investment.

Still, I like the product and it is great to hear that IP is still on the horizon!