IIP-55: Data Economy Index (DATA)

scaleweb3 · July 7, 2021, 2:33pm

Thanks for pointing this out!

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.

oneski22 · July 7, 2021, 4:24pm

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!

jledbetter · July 7, 2021, 4:38pm

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.

Kiba · July 7, 2021, 4:54pm

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

Thomas_Hepner · July 7, 2021, 5:19pm

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

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.

Kiba · July 7, 2021, 5:21pm

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?

Kiba · July 7, 2021, 5:27pm

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.

Thomas_Hepner · July 7, 2021, 5:59pm

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?

gregdocter · July 7, 2021, 11:08pm

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?”

gregdocter · July 8, 2021, 2:32pm

Adding some additional color for utmost clarity.

Those 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”

trx314 · July 8, 2021, 3:35pm

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!

verto0912 · July 8, 2021, 4:01pm

wait, so if this product reaches $100m in TVL you guys get 2% of INDEX supply as a one-off payment + an ongoing share of the streaming fee. oh and as soon as DATA is a $5m product, you get $300k. did I get that right?

corbpage · July 8, 2021, 4:31pm

I’m in strong support of this index and know institutional investors that would value a product like this.

This is the type of forward-thinking index that DeFi needs!

For my prior thoughts, see this post:

qlx · July 8, 2021, 4:39pm

I’d be interested to know the other tokens you’re thinking of here if you wouldn’t mind sharing.

scaleweb3 · July 8, 2021, 4:41pm

Thank you @Thomas_Hepner and @Kiba for your quality replies and revised proposals - I hadn’t seen the previous proposals yet but read through them and various comments.

A few unstructured notes:

Marketcaps in this nascent niche of crypto are dangerous as single KPI for index construction - especially with FILE & GRT being on the high-end of valuation (GRT is 1/20th FILE FDV & somewhat investable with a long-term view)
I would prefer to invest in $Data utilizing economic weight over market cap. But admittedly, I would personally not invest in this sector as projects have crazy FDV, tokens are partially heavily used for incentives, tokenomics are still in exploration, returns are not as easy to quantify as for some DeFi apps. Here, the IP could make a fundamental difference.
Kiba, I like the original composition more since I believe LINK, GRT, OCEAN, NMR are most investable and suited for this index - and because FILE isn’t included. Your considerations and matrix scoring system are understandable - though I’d slightly change the scoring and I like the introduction of capped max allocation.
As mel.eth also commented in one of the threads - the weighting is indeed what can make the difference and if “kept simple it will be more likely that someone will invest” - yet not too simplistic! I like the Matrix scoring system and the economic weight, and would myself consider market valuation, usage, liquidity but I’m afraid of overengineering… ultimately, I believe a ranking with x factors leading to a simple ranking with pre-defined weights could be the best solution at this point in time - before the competitive space becomes larger, valuations normalize & marketcap may indeed become a solid choice. e.g. 1. 35% 2. 25% 3. 15% 4. 10% 5. 7.5%, 6. 5%. 7/8/9. 2,5% …
I also thought of more interesting variations to DPI and believe there are also some takeaways for $DATA such as “more/min weight to smaller assets”, “Cut out projects that have been underperforming in their categories (usage &or price performance) or have extensive LM programs running”, “Include interest-bearing/revenue generating assets &or optimize IP”, “Use a different metric (northstar) for composition” (such as TTIs P/S)

More Oracle Providers could soon join the index. This might be a turnoff for LINK Marines investing and consequently hinder early adoption of existing holders. Is this the reason they are currently left out - or is it lack of adoption so far?

Thomas_Hepner · July 8, 2021, 4:44pm

Before I comment on any details, I will just emphasize that if the Index Cooperative does not believe the proposed incentive structure is fair and reasonable to both Index Cooperative and Titans of Data, we are absolutely open to negotiating a different structure. We certainly do not want the compensation structure to get in the way of a DG1 vote and further development of the index!

Now, onto the specifics!

This is close, but not quite correct. If the product reached $100m in TVL, it would unlock a total of 2% of INDEX as the product grew to $100m in TVL at $5m AUM (0.1%), $10m AUM (0.2%), $20m AUM (0.2%), $50m (0.5%), and $100m (1.0%).

Titans of Data believes this structure incentivizes us to maintain and develop the index over the long-term. INDEX rewards are only unlocked by reaching higher levels of AUM while still allowing the Index Cooperative to keep the majority of the long-term value creation.

Yes, Titans of Data will only receive 0.1% of INDEX supply (10,000 INDEX) for reaching $5m in AUM. For context, MVI has been 1.6% of the Index Coop’s revenue over the past 3 months (currently ~$5.5m AUM), so if it were part of the Methodologist Program it would be earning about ~670 INDEX per month, meaning that if it had gone live on the first day of the Methodologist Program, and retained its revenue share relative to other products, it would earn ~12,000 INDEX total.

Titans of Data is not participating in the Community Methodologist Program so @Kiba and I will not earn the $5k + 0.15%/INDEX over 2 years.

If we went the Community Methodologist route, and DATA failed to surpass $5m in AUM, Kiba and I would collectively make $240k and 30,000 INDEX ($690k at $23/INDEX) without providing any long-term value to the Coop. Under our proposed structure, if DATA fails to surpass $5m in AUM, we get 0 INDEX. If DATA surpasses $5m AUM, but fails to reach $10m AUM, Titans of Data only receives 10,000 INDEX.

We believe our proposed structure is significantly less financially risky for the Index Cooperative than the Community Methodologist Program.

As External Methodologists, we are assuming a far greater degree of risk than Community Methodologists, and therefore we believe we should share in greater upside than the Community Methodologist Program provides.

scaleweb3 · July 8, 2021, 4:56pm

@Thomas_Hepner mentioned that “34 separate projects were considered for inclusion in the Data Economy Index by sourcing from CoinMarketCap’s AI & Big Data, Oracles, Storage, IoT, Prediction Markets, and Distributed Computing categories.”

I believe the following projects are solid but there are valid reasons why they’re not yet included, e.g. too low marketcap, liquidity, usage (& partially token models are really not at a point where owning them makes a lot of sense - except you want to use the apps…)

Oracles: Band, API3, DIA
Data & Analytics: Covalent, Parsiq

PS: Ocean Protocol is quite advanced and exposure is relatively low in the $Data Index

Thomas_Hepner · July 8, 2021, 5:10pm

I do not think this is the correct way of thinking about investing in product development and expansion. If it were, we never have launched DPI as it is currently costing the Coop $9m/year just in liquidity mining rewards - I definitely do not agree with this conclusion!

Index Cooperative is a startup in rapid growth mode. If we launch a product that reaches $100m in AUM that is a strong sign of product market fit, and that AUM will grow much higher over time, and generate far higher revenues for the Coop.

Streaming fees are a form of subscription revenue. Software-as-a-service companies (SaaS) based on subscription models at our stage of development conservatively are valued by markets at 25x+ multiple of revenue. Extrapolating Index Coop’s June 2021 revenue, we are annualizing ~$2.3m in revenue, so INDEX is trading at ~23x revenue (using circulating supply) and ~117x revenue (using FDV).

At $100m in AUM and 70% of the streaming fee, the Index Cooperative would have a product generating $665k of annual revenue. Using INDEX current revenue multipliers, that would be adding ~$15m in circulating market cap or $79m to FDV.

As an INDEX holder, if the Index Coop had a different opportunity to pay 200,000 INDEX (~$4.6m at $23/INDEX) to grow FDV market cap by ~$79m (~30% of current FDV), I’d vote for it without hesitation.

trx314 · July 8, 2021, 6:25pm

LM program is not comparable, and its cost could be engaged for DATA anyway (or not, but I think this is another discussion). What should be compared instead are the other products launches and the associated Methodologist compensations.

We believe our proposed structure is significantly less financially risky for the Index Cooperative than the Community Methodologist Program.

Actually I think it makes sense for the Coop to assume these risks: as a “large” organization compared to the methodologists, it should be more exposed to the the risks of failure, but get a larger part of the rewards in case of success.

As an INDEX holder, if the Index Coop had a different opportunity to pay 200,000 INDEX (~$4.6m at $23/INDEX) to grow FDV market cap by ~$79m (~30% of current FDV), I’d vote for it without hesitation.

I would first check if there was not another way to reach the same results at a lower cost!

Kiba · July 8, 2021, 7:09pm

LM is comparable since it drives DPI AUM which drives DFP methodologist rewards. The Coop is spending INDEX to pay even more INDEX to DFP. Without DPI LM, DPI revenue would significantly reduce, leading to lower INDEX to DFP. LM is effectively a indirect methodologist reward to DFP and must be incorporated.

When has the coop ever been pro-risk? I’ll wait.