IIP-60: Launching Llama Diversified Index (LDI)

@Llama is building a strong reputation in the DAO ecosystem as a Treasury Management service provider so I am very excited to see this proposal put forward. In my view, there is great potential for a long-term win-win relationship between Llama and Index Cooperative.

I am incredibly encouraged by the overlap between the two communities. There is a lot of cross-DAO engagement from contributors like @HelloShreyas, @Matthew_Graham, @verto0912 , @Kiba , @DOC , and others that I am assuredly missing.

I am sure there will be many iterations to this proposal, but I am strongly in favor of Llama becoming a Methodologist with the Index Cooperative.

Here are a few questions and comments on the details of this proposal:

1. Could you elaborate on what this means given that LDI does not exist yet?

2. How are the targets for each asset class within LDI being determined? It is very strange to me that Ether has 2x the target allocation as Bitcoin and Metaverse 2x the allocation of Web3 Infrastructure given that Bitcoin has ~2.5x Ether’s market capitalization and Web3 Instrstructure has ~5x the market cap of the Metaverse.

3. Has Llama considered changing the name to reflect that this product is intended to be a Treasury Management solution? For instance, is this product mostly intended for DAO treasuries and institutions or is it also intended to be a product for individual investors?

4. @Matthew_Graham @prairiefi @ElliottWatts Is this a product Index Cooperative should consider for our Community Treasury? If so, in what size?

5. I found it strange that PAY is the included in the proposal, but not DPI, MVI, or DATA. Why leverage PAY and not the others? Could Llama provide additional context on this consideration?

6. Comment on Intrinsic Productivity and “dogfooding” Index Coop products: DPI, MVI, and DATA would all greatly benefit from Intrinsic Productivity (IP) and this has been discussed at length at Index Cooperative. @Kiba suggested xSUSHI and yvYFI be used to Activate DPI Intrinsic Productivity, but those discussions were put on hold after disagreements in the Index Coop community. It seems like there is an opportunity to build out IP for those products first, and then incorporate those products in LDI. Thoughts?

7. Timeline: When is Llama hoping to launch this product by? Is Llama hoping or expecting to receive INDEX rewards from the Methodologist Program? I want to understand Llama’s expectations of the Index Cooperative relationship.

++ @AcceleratedCapital We intend to have an IIP within a few days that outlines our initial recommendation on productive stablecoins within the treasury and how the Operations Account and Investment Account would have different constraints. The Operations Account would focus on minimizing layers of smart contract risk, and the Investment Account would be more enterprising / have more latitude in search of total return, understanding it has a longer horizon. LDI could potentially be an investment account option, but not operations account with the way we’ve drafted the proposal. More to come, and we welcome the discussion.

I interpret a product like LDI as an off-the-shelf investment account, but may not be aligned to our exact goals even if it is a good solution for others. This is a discussion we’ve also had with SYI/PAY, and we can be supportive of the product even if it isn’t our predominant treasury diversification method.

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Hi @Thomas_Hepner

Thank you for the feedback. We will try to answer all of these questions as best we can.

Responses:

  1. Llama is already in discussions with various entities about LDI. Although these discussions are at early stages, Llama has identified investors willing to invest into LDI.
    Llama is excited and looking forward to working with Index Coop’s BD team to help grow LDI as we believe the initial capital is a good indication of product market fit.

  2. LDI is not a market cap weighted product. LDI contains tactical allocation and risk optimised return driven position sizing.

  3. The name of the product will include Llama for branding and marketing purposes. The Llama brand will be linked to the success of this product much the same way as DeFi Pulse is linked to the success of DPI. LDI is a Diversified product and is appealing to all types of investors. Llama believes partnering with Index Coop will further strength the branding around LDI and also broaden the reach of the product. There is no desire to change the name.

  4. NA

  5. PAY is a more complicated product relative to DPI, MVI or DATA and harder to replicate. PAY is an ERC20 token and all of the compounding benefits are built into the price - these are ideal qualities for inclusion in LDI. However, Llama can reassign the cash allocation within LDI to a different asset.
    Llama did look at including DPI, MVI and DATA. Our analysis indicated the risk optimised return analysis methodology leads to higher returns over time.

  6. The LDI design utilises productive iterations wherever possible. Similar to the overall tactical allocation, this is by design and intended to be a feature of the product.

  7. Llama would like to have LDI trading within 6-8 weeks. Llama is looking forward to entering commercial discussions after DG1.

Llama would like to develop an open, transparent and mutually beneficial relationship with Index Coop community. Llama has strong working relationships across DeFi which will help support distribution efforts and integrating LDI into other protocols. Llama is also able to assist with rebalancing, integrations with Aave and Compound etc… which require developer lift. In a broader context, Llama is able to share the developer workload needed to support the product.

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@Llama Thank you for the thoughtful response to my questions. :smiley:

A few quick comments / questions:

Definitely agree that “Llama” should be included on the name. I was pondering if having the word “Treasury” in the product name was something Llama was considering for product positioning.

Did the return analysis consider if these products as is or their intrinsically productive versions?

Llama is hoping for a mid-September or early October launch? I would love to have LDI launched that quickly, but think this is extremely aggressive timing given that it is (1) dependent on launch of PAY, (2) engineering resources are constrained, (3) the community has not come to consensus on how to safely support yield generating products, and (4) LDI needs to be prioritized vs other products in the pipeline.

@overanalyser @puniaviision @dylan Any thoughts on feasibility of this timeline?

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Interesting proposal indeed team @Llama, thanks for putting it all together, well aware and respectful of the amount of work and focus this represents.

I will echo @qlx and @Thomas_Hepner in saying I also couldn’t help thinking how this methodology could integrate with existing and potentially forthcoming Index Coop products : MVI, DATA or even iRobot that we also have just submitted as an IIP.

For reference, iRobot is the formalization of a proposal we originally put up for discussion under the name PMI. Its goal is to help individuals, notably those with little experience / time or appetite for portfolio management, to automatically select and rebalance the components of a sector-agnostic token basket based on their risk-adjusted returns.

While the approach and the main target customer of LDI might be different, instead of opposing the 2 methodologies / products it seems worth reflecting how they could mutually benefit from each other - and more generally how this could be the case for Index Coop’s broader palette.

For example, the Robot Index uses the annualized Sortino ratio as key performance indicator, mainly for 2 reasons :

  • The Sharpe ratio does not differentiate harmful volatility from overall volatility - which we found out makes it a less accurate performance differentiator between crypto-assets.

  • With price histories of different lengths, to be more accurate it also makes sense to normalize the period of time over which the ratio is calculated.

Furthermore a quarterly rebalancing cadence seems to be quite long to capture the changes in market dynamics driving the evolution of these indicators.

Finally, my understanding (but please correct any mistake) is that the initial market cap weighting combined with the maximum 5% of total portfolio allocation per asset limit the effect of the final Sharpe ratio optimization.

Again, I’m not taking a deliberately critical stance here - which would probably be pointless - but rather trying to dig out any constructive and mutually beneficial synergies for the Coop.

For example, a backtest of the proposed sample composition against an option integrating productive assets whenever possible, MVI, DATA and iRobot would be quite interesting - happy to provide performance data from the last 3 months, or anything you may require for iRobot !

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I agree with your assessment that this is likely an aggressive timeline given the dependency on PAY, which is a complex product to launch that will require a lot of engineering work.

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I was lucky to give feedback on this product as it was being developed.

I think it could be a useful product for many treasuries, the BadgerDAO treasury certainly included. Per naming suggestions above maybe it gets called the Llama Indexed Treasury, or another play on words but I do think the clarity of the word treasury in the name is a good point.

The allocations to productive assets are in my mind quite important as mentioned above for cash flow reasons. I can even imagine a way in which the Index could be leveraged and assets within the pool rented out for utility purposes, a distant but relative example would be related to metaverse assets.

The questions in my mind are related to others above, how can we leverage and dogwood existing index products to create deeper liquidity and use cases?

It stands to reason that the model could perhaps shift allocations between the already existing index products and direct productive allocations. This may provide an interesting way to shift risk a bit more dynamically.

I look forward to reading further discussion on this!

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Super interesting proposal and seems complimentary to work done with existing DAOs at Llama such as ARCx. Happy to provide any feedback as an external stakeholder that may be interested in this product.

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Hi All,

Thank you for all the feedback on the proposal. :llama: :owl:

We would like to share some further feedback received on the proposal and request for an IIP number to be assigned along with creating a discord chat for LDI. Llama is excited to be working with Index Coop and looking forward to DG1. (@gregdocter and/or @Pepperoni_Joe)

As alluded to in the post above, there is capital awaiting the creation of LDI and we are keen to move quickly with the proposal. The last tweet on the thread linked below is particularly exciting, Let’s Do It.

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I think it’s premature to push this to DG1 given that PAY hasn’t gone through DG1 yet and this product is going to be behind PAY in the pipeline in terms of execution. With DATA, PAY and inverse FLI, I see our capacity to process more products right now as limited. See engineering and product constraints.

Further, we used to have a requirement/tradition for a community call before the DG1 vote. We have strayed from that recently and I would like to see it re-introduced.

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@verto0912 Would you like to see this for DATA ahead of DG2 given we did not do for DG1? Do you think the community would value that?

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Personally, I have found these calls very useful/valuable. Important questions get asked & answered.

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as @Pepperoni_Joe is offline for a bit, I reviewed against IIP-2 Index Addition Proposal Structure and have added the IIP #: 60.

Creating a discord channel next :+1:

[EDIT]: I have also added the-below to the header, @Llama please correct if I am mistaken

Requires: IIP-58: Launching Pulse Aggregate Yield (PAY)

Hi @gregdocter,

Can we please set up a community call for the 21st July at 9am PST time between the Llama community and the Index Coop Community.

If questions can be shared prior, that would be greatly appreciated and enable us to provide the most informative answers.

We would then like to have the DG1 vote scheduled to start later that same day on the 21st July.

Ideally we would like to include PAY but it can substituted out if required to accelerate the path to market.

Looking forward to working with the Index Coop. :owl: :llama:

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Happy to get a community call on the books! However, that :point_up: date (July 21) is in the past.

Could you choose a date in the future?

Ideally, there is enough lead time to collect questions and prep. For example, BED Community Call - Announcement & Request for Questions

oops

Is the 28th July okay ?

28th July is confirmed.

A slight modification to the time 10:00 PST ( 17:00 UTC).

LDI call (option 2)
Wednesday, July 28 · 6:00 – 7:00pm
Google Meet joining info
Video call link: https://meet.google.com/ijk-bcvj-ozq
Or dial: ‪(GB) +44 20 3937 2049‬ PIN: ‪969 810 742‬#
More phone numbers: https://tel.meet/ijk-bcvj-ozq?pin=6623073400554

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Thank you @Llama for the interesting proposal.

In consideration of the more fund-like nature of LDI (given its relatively generalised scope and stablecoin allocation), could you perhaps elaborate on the reason(s) why is Llama interested in launching LDI not simply as a Set Protocol Set but as an Index Coop Index instead?

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Great idea here @Llama!

I’ve been working with a few DAOs on treasury management and we’ve run into a few issues that might be helpful for you.

Liquidity of “productive assets” is a major hinderance as the size of the portfolio grows. For example ibBTC allocation of 15% and if your portfolio was $2.5m it’s a total value of $375,000 in holdings. A trade of $100,000 has a price impact of 1.51% vs wbtc which has .25% impact. Just the price impact alone could offset any gains in interest without the additional smart contract risk.

This only gets worse as your portfolio grows. I am a huge fan of productive assets but the pros and cons need to be weighed carefully especially when your adding unknown smart contract risk.

My thoughts around DAO treasury management should be centered around the DAO and its needs. Also with something as complex as a DAO choosing the simplest option is usually the best. Creating a portfolio around BED + MVI + DATA + PAY might have a bit more flexibility depending on the DAO’s needs.

Feddas

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Hi @gregdocter, @Pepperoni_Joe, @dylan,

Can a snapshot vote for LDI be scheduled for Monday 16th August along with any other particulars needed to advance LDI through the governance process.

Let’s Do It :llama: :owl:

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