IIP-57: Launching iETH-FLI - The Ethereum Inverse Flexible Index

I think it would be great if we can route those COMP rewards to Index Coop to help offset the maintenance costs. I think we can revisit this in light of the streaming fee discussion. Seems like a nice way to improve the revenue stream from the product without increasing the streaming fee. Just an idea for discussion.

I would be a bit surprised if any FLI holder considers the COMP tokens as significant in determining if they would purchase the product or not. However, I think it would be very significant to either DeFi Pulse or Index Coop.

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Hey Matthew - really appreciate your point of view on product profitability and how we ought to handle costs. Couple things I’d like to mention that may be helpful for the conversation:

  • COMP rewards are indeed exchanged for the underlying asset and redeposited to our collateral position, which adds to AUM. This approach aligns with the broader product strategy of returning rewards / airdrops to token holders rather than claiming them on behalf of the Coop. Technically, as we collect streaming fees, we indirectly receive a fraction of the liquidated COMP as a share of total AUM. I’m sure the amount of indirect COMP rewards drawn from AUM is a lesser number than the total COMP rewards captured our collateral and debt positions in Compound, but I still think it’s worth mentioning

  • Today, all of the gas costs incurred during FLI rebalancing are realized by Set and not by the Coop. At some point in the future, rebalancing costs may be realized by the Coop as eng / technical operations responsibilities are transitioned from Set to the community, but we would need input from Set and the right WG leads for direction or a timeline there (if one even exists). Overall product profitability is what is most important to us though, so we’re totaling all gas costs regardless of who realizes them in this particular dashboard. I’m all for minimizing operational and maintenance costs though, and acknowledging who realizes which costs is not a blocker for pursuing profitability!

  • Outside of gas and Set eng costs, there are operational costs that the Coop is realizing (ex. contributor rewards for the Leverage Indices Pod, formerly known as the FLI Team) that ought to be considered also.

I agree though that the discussion around streaming fee split will have a big impact on how we offset all operational and maintenance costs, and I hope this provides some additional context for the discussion.

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Hey @bigsky7 thank you for the feedback provided in the message above.

Since there’s a lot to unpack, I’d like to start by going over a few metrics and data points regarding FLI products, before addressing your points:

Fee structure:

  • The FLI products current fee structure includes streaming fees and mint/redeem fees. These fees are split 60% to the Index Coop and 40% to DeFi Pulse.

Unique value proposition:

  • FLI products are unique in the space since they are the only onchain leveraged product that is transferable.

Revenue: (Source: @jdcook’s dashboard)

  • FLI products revenue account for over 50% of the coop’s daily revenue .

  • FLI products aggregate revenue for the past three months is over 350,000$

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I’d also like to highlight that the outstanding growth, and revenue of hundreds of thousands of dollars generated by the FLI products has happened organically, i.e.,with ZERO liquidity mining incentives from the coop.

Now let’s address the points you made in your message above:

1. The FLI-pod of subject matter experts working full time on maintaining FLI assets

This is super exciting. It’s made me very happy to see so much enthusiasm from the Leverage pod and I value the content they’ve been producing. It really shows that the Coop is thinking long term and, having the DAO as a partner for these assets, is the right way to go.

It is crucial to note that these are diminishing costs, meaning that, with every additional FLI product launched, the associated costs will not scale linearly.

I understand your point and realize that this set of experts could be driving a high cost to the coop today. But I do not doubt that, over time, the cost margin will diminish dramatically as more FLI products are launched and managed by the pod.

2. Rebalancing and maintenance gas costs

All the rebalancing and maintenance costs are paid for by Set, as far as I understand. Their engineering team has been excellent at building these contracts and has demonstrated resilience even through recent challenging market conditions. FLI products are thriving.

I’m personally very happy that Set has a significant stake in the coop and is well incentivized to keep doing outstanding work in the future.

To wrap up, I’d like to point out that, so far, more than 95% of the Index Coop’s revenues have been driven by Pulse.inc. We’re committed to continue the same path and help the coop maintain its market leadership in the space.

Considering the extended context, we believe that a 40% split for Pulse.inc for this product is appropriate to maintain the right incentives for the coop to continue its sustained growth.

Happy to elaborate further on any of the points above!

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@Jo_K thank you for the extended context here. My comment was not meant to question the value that DFP brings to Index Coop or the revenue generated by those products. I agree with all the points you laid out.

However, I am not sure if your post addresses my core question.

If we think of methodologists as primarily data providers - what data is being provided to these products outside of the initial specifications?

The role of the methodologist is incredibly important for market-basket style indices such as $DPI. These indices rely on complex analysis from the DFP team on a monthly basis. On top of that, the strength of these methodologies really rests on the trust and reputation of the methodologist.

On the other hand, exchange-traded products fit a very different area. Outside of the initial specifications, the role of the methodologist is limited. The primary data input is the price of ETH, leverage ratio, and recentering speed. They require no further management on the methodologist side while costing a significant amount to be maintained on our end ( I am aware that Set currently bears the cost here - but it should be noted that after our recent Treasury Diversification that expense can and should be handled in house by Index Coop.)

Over the coming months, I anticipate continuing to launch a suite of these products (i.e. 2xYFI 2xUNI etc…). The specifications for these products are minimal, while the cost to maintain is very high. If we want to continue to launch these products with DFP, we need to make sure the economics make sense for Index Coop. DFP earning 40% of the revenue for all future leveraged tokens is simply not sustainable for Index Coop. Especially when these products require minimal specifications or design from the methodologist.

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To add to Simon’s points a bit, I think focusing on revenues is just half of the picture.

  • Liquidity mining for DPI has been and continues to be a significant cost to the Coop.

  • Development of FLI contracts started in December, which arguably prevented work on other products as well as additional revenue options like intrinsic productivity. FLI products continue to take up a lot of engineering resources, blocking our ability to pursue other products and diversify revenues.

  • The fact that rebalancing and maintenance costs are paid by Set doesn’t mean they shouldn’t be considered. The Coop will eventually take those on. FLI products are expensive to maintain and I look forward to seeing some data on the exact numbers here.

Certainly agree that these products have been very successful but that success came at significant financial and engineering cost which should be reflected in the fee split.

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Just want to signal my agreement with @BigSky7 and @verto0912 on the fee split. I think they have articulated clearly the need to re-visit the fee split.

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Likewise, I agree with the comments from @verto0912 and @BigSky7.

While

While I would agree, that we should see costs vs AUM for the community contributors reduce for the Leveragesd product POD reduce as we launch more leveraged products, I think that there will be an even more rapid reduction in costs for Pulse.inc.

With regard to gas costs, my preference would be for all products to have gas costs taken from the streaming fee before the coop : methodologies split.

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Would support this going to DG1 while the fee split is discussed further.

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When was this discussed or decided? I don’t remember seeing this convo anywhere. From what I remember the COMP recycling decision was entirely made by Set/DFP without even notifying Coop until after product was launched.

For recentering gas fees I think they should be paid for by users. FLI is targeted at traders with advanced models, they are making a ton of money off trading FLI and can easily bear the cost increasing Coop profit on a not very (or at all) profitable product when factoring in all expenses to operate FLI including contributor payments.

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Hi @Jo_K is there a timeline to getting this to DG 1? How can we help get this over the line?

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hey @overanalyser @puniaviision i would like to signal for this to move to DG1 given that the contract structure outlined in the Methodologist Permissioning Alignment post are followed

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Apologies for wait @oneski22 :wink:

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@Pepperoni_Joe is taking over the process here so will flag to him! Given no date is specified for the DG1 vote, will let Pep Joe schedule for whenever works easiest for him.

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@Jo_K / @puniaviision - I can put this up for DG1 vote Monday 9th of August.

Please let me know if there are any changes in advance of that.

cc: @gregdocter

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@Jo_K & @puniaviision

Confirming IIP-57: Launching iETH-FLI - The Ethereum Inverse Flexible Index has been queued on snapshot.

@Jo_K & @puniaviision confirming that IIP-57 is now live on Snapshot.

https://snapshot.org/#/index-coop.eth/proposal/QmcFwGZmzTVR1wG548EDmm2jFDSdCeX6YeDqCgwYwjS9Fh

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Hey guys, providing an update here as we fire this bad boy back up.

Here is our rough thinking about the product.

Market:

Technical:
We will not be doing a PRD for this product as launching FLIs is quite standardized. Dev lift for the iETH will be minimal.

Fee:
We will be using the fee-split defined here: The New Path Forward for Index Coop's External Relationships - as the provisional fee split until negotiations play out.

@snasps will let us know if DFP Legal is okay with us doing the post-gas split manually to start off with.

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another FLI preparing for take-off!!

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Hey @Jo_K

I’m looking to understand how work in back office the iETH-FLI. I looked to your steps but I don’t understand, how selling the borrowed ETH will get you a short position ? And how this impact the price of the token set (iETH-FLI) ?

Thanks for your answer

hi Daze, I recommend you follow us on twitter &/or join our discord for asking these sort of questions & getting feedback in realtime. I recommend you read the Introducing Inverse ETH blog for a walkthrough of how this product work.s

I figured this would be a common question in current market conditions, so I tweeted it out yesterday https://twitter.com/indexcoop/status/1536345759909482496?s=20&t=rpd0BR43GmetOP6EUk14Bg

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