iip: TBA
title: Incentivise the Lending of DPI on Aave Arc Market with INDEX
status: Proposed
author: @Matthew_Graham @Metfanmike
created: 13-02-2022
Simple Summary
Index Coop is proposing to list DPI on the Aave Arc Market. To compliment this listing, we suggest that the Index Coop community provides INDEX incentives to attract institutional DPI lenders.
Index Coop will be required to write the associated code needed to administer the incentives.
Abstract
If a DPI listing is approved by FireBlocks, we are presented with an opportunity to offer INDEX incentives to lenders for depositing DPI into the Aave Arc Market. We are targeting a DPI lending market of $5M on the Aave Arc Market.
We propose targeting a 2% APY for a 90 day period. This is expected to cost 3,287.7 INDEX and assumes a spot price of $7.50. This is equivalent to 36.52 INDEX/day for 90 day duration.
Motivation
What is the Aave Arc Market ?
Aave Arc is a “permissioned” version of the software underlying V2 of the Aave protocol that employs an additional smart contract layer to only allow “whitelisted” or “permissioned” users to engage with the protocol.
Each Aave Arc deployment will launch with one or more “whitelister.” Only regulated entities that (a) employ KYC/KYB principles in accordance with FATF guidelines to identify and accept their clients; (b) have robust AML/CFT compliance programs; and (c) are currently in good standing with an active licence/registration in the entity’s operating jurisdiction will be accepted as “whitelisters” on deployments of the Aave Arc.
Further details can be found here.
Why should we incentivise DPI ?
With DPI listed on the Aave Arc Market, like other assets we expect some level of bootstrapping required to entice early adopters to use the platform. Currently, there is around $29M of TVL, and Aave is expected to commence Liquidity Mining on the Aave Arc Market.
Index Coop wants DPI to be the go-to DeFi collateral for institutional investors, and Aave Arc Markets is a KYC verified lending market targeting this demographic. Institutions, fund managers and family offices alike, once approved can deposit DPI into this market. Assets deposited into the Aave Arc Market are made productive in two main ways. The most obvious is through borrowing demand, and the other is through implementing more sophisticated trading strategies like a free carry trade.
Index Coop can use incentives to encourage permissioned users to deposit DPI into Aave Arc. As the first DeFi-themed asset to be listed on the market, Index Coop could establish a first-mover advantage. The best outcome is for high TVL of DPI deposited and a reduced need to list other DeFi-related assets. Following on from previous Aave Liquidity Mining proposals, only lending for high volatile assets like DPI will be supported. Further details around how Aave performs liquidity mining on Aave V2 Market can be found here.
How much will it cost ?
During the initial 90 day post listing of DPI, we are targeting $5M in TVL with an intended 2% APR from INDEX incentives. By comparison, there is $23M of DPI deposited in the Aave V2 Market. $5M was selected as it represents approx. 20% of the Aave V2 Market TVL, we see this growing over time as more institutions turn to Aave ARC. The typical Liquidity Mining proposal lasts 90 days on Aave and we used this for the purpose of this proposal. 2% APR is high relative to the 1.16% APR from stkAAVE incentives on the Aave V2 Market. However, we feel this is needed to draw new DPI into the Aave Arc Market.
| Target market size | $5M |
| Target vAPR in INDEX | 2% |
| Duration | 90 days |
| INDEX Price | $7.50 |
| QTY of INDEX | 3,287.7 |
| Distribution Rate | 36.52 INDEX/day |
How does it compare to other Liquidity Mining incentives ?
The below table compares the proposed INDEX and stkAAVE incentives on the Aave Arc Market. As TVL increases the vAPR from incentives reduces via a linear relationship. If $10M of DPI was deposited, then the lending vAPR would reduce to 1%, assuming all other variables are held constant.
Note: The multiplier column is a way to skew the distribution of incentives in favour of one asset over another. This has no effect on the DPI listing.
Voting
FOR:
DO provide INDEX incentives on lending DPI as outlined above.
AGAINST:
DO NOT provide INDEX incentives on lending DPI as outlined above.
Copyright
Copyright and related rights waived via CC0.