IIP Voting Analysis

IIP Voting Analysis

Recently, INDEX holders voted on whether to add a new product to the Index Coop launch pipeline in IIP-7. IIP-7 was the most contested Index Improvement Proposal to date, and as such it gives us a chance to examine the existing governance dynamics in the Index Coop and reflect on how our system can be improved.

In this post:

  1. What are the desired characteristics of Index Coop governance?
  2. How does the existing governance structure behave?
  3. What changes, if any, can be made to generate more of the desired characteristics (or to mitigate the undesirable ones)?

Index Coop Stakeholders

One way to think about Index Coop stakeholders is in the following three categories:

  1. Day-to-day Index Coop maintainers / contributors (e.g. Growth Working Group, Index Coop Gold & Silver Owls)
  2. Index methodologists and 3rd party partners (e.g. Set Labs, DeFi Pulse, CoinShares)
  3. Token price speculators

Each stakeholder is critical to the health and success of the Index Coop.

  1. Index Coop contributors are the lifeblood of the organization, ensuring the evolving maintenance and growth needs of the Coop are met.
  2. Index methodologists & third parties bring industry expertise and DeFi integration. A key component of DeFi has been integrations and composability. It is hard to imagine Index Coop succeeding without the help of ecosystem partners.
  3. INDEX speculators (driven by whales) collectively assess the work and promise of the Index Coop. Over the long term they determine if the Index Coop is headed in a valuable and promising direction.

Q: What are the desired characteristics of Index Coop governance?

Each of the above stakeholders should be meaningfully represented in Index Coop decision making. That is, in principle, any two stakeholder collectives above should be able to move the Index Coop in opposition to, or ambivalence of the third stakeholder.

Q: How does the existing governance structure behave?

IIP-7 was a contested vote, with roughly 60% of voting INDEX tokens signaling FOR and roughly 40% signalling AGAINST. IIP-7 also had the highest participation of all IIPs with ~30% of circulating tokens participating in the vote. Set Labs and DeFi Pulse did not participate in IIP-7 voting using their vested share of tokens (more on this later).

If we separate the votes for IIP-7 between whales and non-whales we see a familiar story in decentralized governance:

An INDEX whale is defined as any address containing more than 10,000 INDEX tokens.

For IIP-7 INDEX whales accounted for ~80% of INDEX voting power, but comprised ~11% of voting addresses. Set Labs and DeFi Pulse did not vote with their vested INDEX stakes. If they did, they would represent an even larger voting block comprising ~300,000 INDEX voting tokens or ~45% of voting power.

Referring back to the desired governance characteristics above, Index Coop contributors, Index methodologists & third parties, and INDEX token speculators should each have a meaningful say in Index Coop decision making. The correlation is not certain, but based on the monthly reward distributions we suspect most Index Coop core contributors are not INDEX token whales. In the case of contested votes, the current governance structure strongly discounts the voice of Index Coop core contributors. There’s a case to be made here that a discount of this size is a shortcoming of the current governance system.

Q: What changes, if any, can be made to generate more of the desired characteristics (or to mitigate the undesirable ones)?

Quadratic Voting

Quadratic voting is a different accounting method used to count the voting power of a single vote. Basically, in the context of the Index Coop, when an INDEX holder casts a vote, their voting power would be calculated as the square root of their INDEX token holding. This can reduce the voting power of large token holders.

Here’s IIP-7 with quadratic voting applied:

Quadratic voting would

  • reduce INDEX whale voting power from ~80% to ~48% of the vote
  • increase INDEX minnow voting power from ~20% to ~52% of the vote

If Set Labs and DeFi Pulse were to vote with vested tokens they would comprise ~17% of the vote.

Quadratic voting is imperfect, especially in the context of DeFi and with anonymous voters. Large INDEX holders can increase their voting power by splitting INDEX tokens among many addresses and voting with each. However, quadratic voting is a low hanging fruit capable of mitigating some of the INDEX voting imbalances in the short term. It is fairly easy to implement and has already been deployed in DeFi projects such as Pickle Finance. It also will enable Set Labs to confidently voice it’s opinion in matters of Index governance without fear of dominating the vote.

Increase INDEX distribution to core contributors

Another way to increase the voice of Index Coop contributors is to distribute them more INDEX tokens. Dark Forest Capital is working on a proposal for this-- stay tuned for more details.

Continued Research & Experimentation

Over the long term, it seems sensible for the Index Coop to adopt a flexible approach to governance. Decentralized governance is hard and relatively new. Establishing an expectation that Index Coop governance should be continually improving may help move us towards more research and more experimentation with the understanding that better governance solutions are likely still out there to be found.

Proposed Next Steps

  • Work on adding quadratic voting to snapshot
  • Create IIP to pilot quadratic voting for all IIPS for 3 months after implementation
  • Whitelist Set Labs and DeFi Pulse vesting contracts for voting on Index Coop’s snapshot strategy

While I agree in the principle behind quadratic voting (also in favor of larger INDEX allocations to contributors), I fear it will further hurt demand for INDEX, which affects our ability to deploy capital.

I think the majority of our posture has been adversarial towards INDEX speculators. If I’m on the outside looking in, I see that the Index Coop treasury accrues 100% of attributable fees, and if I’m a whale, now my edge in governance (if any) is going to be further eroded by this voting scheme.

But, I also think voting power is lower on the list of things most speculators desire.

If the quadratic voting were balanced out with some kind of value accrual via productivity or insurance, backstopped by INDEX staking, I think it would be net positive for demand, and would be supportive.

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Regarding the quadratic voting. A whale could setup multiple wallets to make him look like a couple of Minnows, right?

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I think quadratic voting is a good interim step to bring Set and DFP fully into the game, but we should look to adopt a delegate/council style model in future.

This model seems to overcome some of the limitations in that it enables community members to accrue voting power without the need to own tokens themselves. It’s democratic as the Coop can vote on members periodically and can change their delegation based on the proposed voting choice of council members. It’s more resistant to abuse as the members are normally elected based on their time with the project and community standing, a whale with multiple wallets can’t do anything if they’re not on the council!


Yup, that’s possible. Even if that happens though, the overall impact of quadratic voting is likely to be friendly towards smaller holders.

I think this is quite an exciting idea and is widespread in the crypto space (correct me if I’m wrong). Do you know what impact it might have on participation rates? I could imagine that the ability to delegate INDEX would increase participation which should be one of the aims. Perhaps we could pair this with a small incentive to delegate smaller stakes. Also, is there some research on this model?

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In my head I figured the setup would be a staking portal for governance that allows anyone to stake their tokens to a delegate. Delegates would have a profile which includes voting history and a brief pitch about themselves. Any staked index would be eligible for a reward (single digit APY), provided the user/delegate has voted a certain amount.

The good thing about this approach is that small holders can continue to vote themselves, or they can delegate and their rewards remain the same. In theory participation is then only limited by the number of people that don’t want to stake their $INDEX for rewards, although having said that not every holder will want to delegate and some may still not vote. There are lots of options here in terms of reward multipliers for longer lockup/participation. As Dylan rightly points out this is difficult and brand new so there is room to experiment.

The Spartan Council will be one to watch closely. I haven’t come across a specific research piece but find these articles to be helpful:

Melon DAO





From my personal POV as an Index Coop contributor, experimenting with quadratic voting seems great to test out.

I especially dig the fact that this proposal has built in time for a retro after 3 months :point_down:

And to DarkForest’s point, it perhaps is just an interim step. But still, that 3 months allows each constituency - Contributors, Partners, Speculators - to learn and inform whatever might come next, including a delegate/council model.


We likely have to invent a new solution that combines delegation with some sort of a quadratic voting structure. As it stands, we don’t have a distribution of voting power even among the “whales” so some effort to curb that is going to have to happen.

What worked with Compound and Uniswap is they had multiple investors that were distributed large sums of tokens which made delegation a necessary way to get a voting advantage.


Very much up for this.

To clarify my comments above, I don’t see quadratic voting and a council/delegates as mutually exclusive. Votes can still take place as they do today but with quadratic scaling, with the addition of an elected council acting as a final reviewer to reject anything malicious. It’s all very new and will be subject to some experimentation to find the right balance for our community. Kain from Synthetix wrote a great post on some of the trade-offs.

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To your point @puniaviision, Kain actually proposes quadratic voting to elect the council. In this case though, if the token is not distributed widely enough, whales could technically vote themselves in or collude to elect several representatives onto the council. Which, if the council is relatively small, say 5 people not 7, gets us back to where we started from.

Thanks for the contributions all. Good considerations to think on here. At its core I think there’s a tension between wanting the Index Coop to represent more diverse interests than INDEX whales when it comes to IIP votes, while balancing the value proposition of INDEX as (currently) purely a governance token. Increasing the utility of INDEX may help alleviate some of these concerns.

We’ll continue to solicit more feedback from known whales, as they are an important piece of the Index Coop community. Based on that feedback I’ll likely put together a formal IIP proposing piloting quadratic voting for 3 months that can be settled by a vote.


I think the quadratic voting proposal is a good one. I suspect that there could be some sibyl attacks with wallets getting split to have more weight. But such splits will be on chain, so we can always check

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I agree with @DarkForestCapital on adopting a council system. Although we might want to wait and see how Synthetix does with their council in the coming months since it is still a relatively new concept for DAOs.