IIP XX: DAO Revolution Index (DAOs)

IIP: [to be assigned]

Title: DAO Revolution Index (DAOs) - or alternatively: (DRI)

Status: Proposed

Author(s): Stefen Deleveaux (@stefdelev), Luuk Weber (@luukDAO), @Lavi (reviewer)

Discussions-to: https://gov.indexcoop.com/t/discussion-iip-xx-dao-revolution-index-daos/2974 Created: 10/18/2021

Simple Summary

Mission & Purpose: (DAOs) is a digital asset index capturing and supporting the growth of decentralized autonomous organizations and open value networks. The DAO Revolution Index tracks leading DAOs with significant on-chain activity organizing a set of valuable assets.

Thesis: DAOs are revolutionizing organizations by lowering cost of coordination and opening up information and opportunity - becoming vacuums of talent and value. The value network created by DAOs will out-coordinate traditional organizations and grow to a multi-trillion dollar industry and, more importantly, define the future of human coordination.

Draft Portfolio: The initial portfolio is divided into three main buckets:

  • DAO Infrastructure: Technology that enables DAO creation and operation.
  • Developer DAOs: DAOs that are dedicated primarily to developing technology.
  • Creator DAOs: DAOs that focus on non-technical value creation.
Allocation Project Asset Category Token Asset Score DAO Score Individual Limit
17% Friends with Benefits Creator DAO FWB 2 7.0 25%
18% Gnosis DAO Infrastructure GNO 2 6.5 25%
16% Alchemist Developer DAO MIST 2 6.5 25%
23% Gitcoin Developer DAO GTC 2 10.0 25%
6% Mask Developer DAO MASK 1 12.0 10%
3% Bankless DAO Creator DAO BANK 1 6.0 10%
5% DxDAO Developer DAO DXD 1 8.0 10%
6% Index Coop Creator DAO INDEX 1 10.0 10%
2% Metafactory Creator DAO ROBOT 1 3.0 10%
4% Aragon DAO Infrastructure ANT 1 7.0 10%
  • Product Differentiation: (DAOs) is designed to capture the paradigm shift of decentralized autonomous organizations, with a focus toward DAO infrastructure. The initial nine tokens within (DAOs) have no overlap with the existing index products, DPI, MVI, or DATA.

  • Combined AUM of Components: The initial ten components of (DAOs) represent approximately $1.3 billion in market value. Given that MVI, DPI, and DATA each represent multiple billions in market value, (DAOs) can be seen as the “small cap growth index” offering, similar to Vanguard’s VBK or iShares’ IWO.

  • Market Opportunity: This entire sector is likely to provide strong growth prospects for a portfolio over the long term. Given that DAOs are already heavily used within both the Defi and NFT sectors (and will only increase in usage), the potential is quite significant. This is also why our focus is on DAO infrastructure and on DAOs that activate or work with other DAOs.

  • Fee Split: DAO Revolution Index (DAOs) will have a streaming fee of 0.50% (50 basis points), a mint fee of 0.10% (10 basis points), and a redeem fee of 0.20% (20 basis points). At launch, (DAOs) will participate in the Methodologist Bounty Program and the fee split will be 70% to Index Coop, 30% to The DAOist. After launch, the fee split and methodologist bounty for (DAOs) may be revised as part of the Index Coop’s larger effort to refresh its relationships with its methodologists.

  • Methodologist & Author Background: The DAOist is a global collective that uplifts the DAO lifestyle and promotes the proliferation and understanding of DAOs. The DAOist is also an event series providing irl infrastructure to build and thrive DAO culture. The first event took place in Paris, right after ETH CC and preparations for the next event in Lisbon are in full swing (find more info here). Stefen Deleveaux (@stefdelev) and Luuk Weber (@luukDAO) are stewards of The DAOist, and have both been focused on DAO infrastructure and tooling for a significant amount of time. Stefen has a background in economics and political science, and wrote his undergraduate thesis on worker cooperatives. He also holds a Claritas Investment Certificate from the CFA Foundation, and is currently curating a list of DAO tools and infrastructure. Luuk began his DAO journey in 2018 at DAOstack as a contributor to Genesis Alpha, and has been involved in co-creating multiple DAOs ever since. He currently also runs a DeFi fund from the Amsterdam Stock Exchange as part of Icoinic (https://icoinic.capital/).

Motivation

“Imagine if you could have bet on the concept of a corporation when the Dutch East India Company launched, imagine how much that concept space has grown on the planet in that time. And DAOs are the future of the corporation, of organization … it’s a much, much bigger market”

– Tracheopteryx (September 2021)

There is no singular aspect or area of blockchain technology/crypto that is more potentially disruptive than Decentralized Autonomous Organizations. DeFi transforms finance, NFTs transform art, music, property rights, etc, but DAOs disrupt human organization and coordination at its core. This will have significant and lasting effects on communities, businesses, non-profits, and even governments. Many people will join and participate within DAOs over the next years and decades, and many more will be able to gain early exposure to this revolution via (DAOs).

The DAO Revolution Index (DAOs) is a digital asset index capturing and supporting the growth of decentralized autonomous organizations and open value networks. The DAO Revolution Index tracks leading DAOs with significant on-chain activity organizing a set of valuable assets.

There will be - and already are - a multitude of highly active DAOs; this is why this index will focus largely towards the infrastructural DAOs that most DAOs will and do already base their foundations on, such as Gnosis and Aragon, as well as DAOs that focus strongly on ecosystem development, such as Gitcoin and Index Coop.

An index focused on the infrastructure and ecosystems (ie DAOs that develop, activate, or work with other DAOs) will prove to be a powerful offering.

Specification

‌Overview


The DAO Revolution Index will contain a collection of ERC20 tokens to capture exposure to the DAO sector, with a focus on infrastructure and ecosystem plays.

Index Differentiation

For a DAO-based index, it is crucial not to simply reinvent elements from other Index products. For example, Uniswap and a number of other DeFi protocols are run as a DAO, but are already captured in DPI. This is why this index focuses on infrastructure and ecosystem plays - (DAOs) will thus not be significantly correlated with DPI, MVI, or DATA.

Index Composition

(DAOs) initializes a Token List with the following tokens:

  • Aragon: ANT (4%)
  • Gnosis: GNO (18%)
  • Alchemist: MIST (16%)
  • Gitcoin: GTC (23%)
  • Mask Network: MASK (6%)
  • Bankless: BANK (3%)
  • DxDAO: DXD (5%)
  • Index Coop: INDEX (6%)
  • Metafactory: ROBOT (2%)
  • Friends with Benefits: FWB (17%)

Size of opportunity

DAOs are on the rise. The number of DAOs and DAO contributors has grown exponentially over the past 6 months. According to DeepDAO, DAOs have crossed the 1M member mark. This entire sector is likely to provide strong growth prospects for a portfolio over the long term. Given that DAOs are already heavily used within both the Defi and NFT sectors (and will only increase in usage), the potential is quite significant. This is also why our focus is on DAO infrastructure and on DAOs that activate or work with other DAOs.

Market & Customer Research

Target Customer:

The Web3 trifecta is considered to be: Defi, NFTs, and DAOs. Where DPI gives exposure to Defi and MVI gives exposure to NFTs & the Metaverse, (DAOs) gives exposure to that third and most elusive market. The biggest opportunity here is having DAOs actually hold this index product in their treasury - this would give them easy financial exposure to some of their collaborators (easy = without needing to engage in direct token swaps, shared pools etc) as well as financial exposure to infrastructure that many DAOs use. There is a growing focus on treasury diversification for DAOs, and this would be a compelling opportunity. This product will also appeal to retail investors who have no exposure to any DAOs but desire access to the sector, as well as DAOists who are active in a few DAOs but would like broader exposure to the entire sector without having to join new DAOs and add to their workload. This represents a very large number of investors, and will grow daily as the DAO narrative proliferates and expands beyond just core Web3 culture.

Methodology

Initial Composition & Token Inclusion Criteria

The DAO Revolution Index token is composed of some of the most prominent and most relevant DAOs in the space, focusing on DAOs that are invoked or interacted with by other DAOs, forming an ecosystem.

Selection of (DAOs) tokens is based on the following criteria:

Token scoring criteria
First, the DAO tokens are evaluated using the Token Checklist to determine whether the token can be considered sufficiently liquid and mature to be included in the index.

  • The project has to be issued on Ethereum
  • The project has to use some form of on-chain Governance
  • +1 point if the token has 2% slippage larger than $20,000
  • +1 point if the token has 2% slippage larger than $50,000

Projects that have liquidity on Ethereum and any form of token-based governance scoring 1 points or higher are added to the DAO portfolio. If a project does not have any liquidity on Ethereum or does not have any form of token-based governance they are excluded from the DAOs index.

The DAO Revolution Index has two different buckets.

75% of the portfolio consists of Large DAOs: DAOs that score 2 points on the Asset Checklist.
25% of the portfolio consists of Small DAOs: DAOs that score 1 point on the Asset Checklist.

This approach has been selected to still allow for upcoming and semi-liquid DAOs to be included in the index without putting too much pressure on markets when rebalancing the portfolio.

DAO scoring criteria

After evaluating the tokens, the DAO Scorecard is used to evaluate the quality of the DAOs to determine the weights in the portfolio. Here the Market Cap, Treasury Size and Number of Voters in the DAOs determine the DAO score.

Finally, in the Portfolio Distribution - the scores of each DAO is multiplied by the size of the bucket it is part of (Large or Small DAOs) to come to an initial portfolio distribution.


Example: Aragon received two points on the Asset Checklist, because it has over 100K and 1.5M liquidity a day. It is also deployed on Ethereum and has some form of on-chain governance. This means Aragon will be included in the portfolio in the Large DAO bucket. Now we move Aragon to the DAO Scoring sheet, here we evaluate the Market Cap, Treasury Size and Number of Voters of Aragon. They score 3 points for Market Cap, 3 points for Treasury size, and 1 point for number of voters adding up to a total of 7 points in the DAO scorecard.

To determine the actual distribution of ANT in the Portfolio, we multiply all the DAO scores in the Large DAO Bucket to determine the relative distribution ANT should have in that bucket. This percentage is then multiplied by the size of the Large DAO bucket, in this case 75%.

If we have a total DAO score of 42 across all Large DAOs and ANT scores 7, 16.67% of the Large DAO bucket should be allocated to ANT. With the Large DAO bucket being 75% of the total portfolio, the total starting amount of ANT = 16.67% * 75% = 12.5%, rounded up to 13%


On-Chain liquidity analysis of underlying tokens:

For the Large DAOs - each of the assets has over $50K - 2% depth. For the Small DAOs, each of the projects has at least $5K - 2% depth. To limit the potential slippage, we have limited the max allocation of any Small DAO assets to 10% of the total portfolio.

Full simulation will be done in the next stage.

Cost

Cost to mint / redeem:

The index will charge a mint fee of 0.10% (10 basis points) and a redemption fee of 0.20% (20 basis points). (This isn’t an Index Coop feature at the moment, but will be in the future).

Rebalance frequency:

Monthly

Manual Rebalance magnitude:

Expected to rebalance 1-4 assets and up to 5-8% of the portfolio per month. Will be further worked out.

Fee split:

To be discussed - from our POV ideally 70% (INDEX) / 30% (The DAOist)

Meta / intrinsic productivity:

The DAOist would like to form a committee to control the Metagovernance token with supervision from Lavi.

Liquidity

We propose making a product pair on Balancer exchange. The DAOist has close ties with Balancer and can likely receive at least 250 BAL - 500 BAL per week in liquidity rewards for a ETH / DAOs pool on Balancer.

[The minimum size of the liquidity pool AUM and 1% price impact depth should be identified prior to DG2]

Author Background

The DAOist is a global collective that uplifts the DAO lifestyle and promotes the proliferation and understanding of DAOs. The DAOist is also an event series providing irl infrastructure to build and thrive DAO culture. The first event took place in Paris, right after ETH CC and preparations for the next event in Lisbon are in full swing (find more info here).

Stefen Deleveaux (@stefdelev) and Luuk Weber (@luukDAO) are stewards of The DAOist, and have both been focused on DAO infrastructure and tooling for a significant amount of time. Stefen has a background in economics and political science, and wrote his undergraduate thesis on worker cooperatives. He also holds a Claritas Investment Certificate from the CFA Foundation, and is currently curating a list of DAO tools and infrastructure.

Luuk began his DAO journey in 2018 at DAOstack as a contributor to Genesis Alpha, and has been involved in co-creating multiple DAOs ever since (PrimeDAO, Balancer). He currently also runs a DeFi fund from the Amsterdam Stock Exchange as part of Icoinic (https://icoinic.capital/).

Marketing support / distribution / partnerships

The DAOist marketing support:
Push to The DAOist and allied DAOs. Currently over 30 DAOs have partnered with The DAOist and over 1000 Community Members.

We have direct relationships with Aragon, Gnosis, Alchemist Gitcoin, Mask Network, BanklessDAO, DxDAO, Index Coop and Metafactory and will aim to engage in co-marketing with each of these groups. In addition, we will also request a co-investment in native tokens from each of the groups, which will help to bootstrap liquidity.

The co-investment will be executed through a Gnosis Safe where we will gather funds from each of the projects - these funds will be converted to (DAOs) tokens after which it will be returned to the Gnosis Safe. We will use the new Exit module from Zodiac to allow each of the DAOs to rage quit their respective (DAOs) tokens.

Good relationships with each of the index partners will allow us to create effective cross-marketing initiatives. Additionally, we’ll leverage what we call “The DAOist Elders” (key figures in the DAO space) to help with amplification.

26 Likes

Extremely excited to be supporting the creation of DAOs and further aligning The DAOist with the Index Coop community. We’ll be hosting a workshop at The DAOist in Lisbon in about an hour to gather more input from DAOists on how they would value DAOs and what type of index they would be interested in.

Looking forward to feedback and input <3

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Thank you for your post. It’s exciting to see this new idea come into the forums. If all looks well with the community we will plan to schedule a community call in the near future.

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Interesting. I like the concept but dislike this particular proposed token list. Coincidentally, there is another DAO / group of DAOs working on a similar DAO index methodology… not sure if the two parties would be interested in coordinating, but I personally believe a collaboration could yield a more comprehensive and complete DAO-related index product-- one that the entire DAO community could rally behind and support.

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Oh interesting, can you tell me more about this? (as well as your thoughts on the token list)

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There’s a pretty significant intersection between DeFi and DAO’s, given the fact that these two worlds intersect not only in the crypto-economic environment, but also in the proposed products provided by Index Coop, how will you manage the categorization?

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This is a wonderful initiative from the DAOist. (These guys also have awesome events)

I think there can be a lot of ways and methodologies to include or exclude DAOs, this one specifically focuses on Infrastructure, Developer, and creator DAOs. Personally would like to support this one + see more being proposed in the future, Each with their own focus and methodology.

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I think this is a fantastic idea. Looking forward to seeing this develop into an actual investment product over the coming weeks. Its the perfect index to get ‘economic’ exposure to the overall DAO ecosystem. Kudos to Luuk and Stefen for leading the effort.

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This reminds me of the proposed DAO Jones Index

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DAOs need more long-term commitments to work together rather than just compete or waste time. Many of the teams that gave away these DAO treasury funds work every day to create an infrastructure for Web3. This index will hedge volatility, tighten the bonds between some very important projects, and I’m confident this is the middleground solution that is sometimes lacking in 1:1 token swap proposals.

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Some thoughts:

Generally

It’s a good time to start the planning on launch a DAO index, as the entire DAO ecosystem will only keep growing in scope and interest. That said, projects in the DAO sector are still very nascent but evolving and growing quickly. As a small cap growth index, the index should aim to aggressively add tokens (as well as rebalance current allocations) as each ecosystem and DAO expands in utility and liquidity. For example, NFT DAOs, community token DAOs, and gaming DAOs are rapidly increasing in member count and interest, and should be likely be considered over time for inclusion as a separate category (examples of DAOs in these categories include FingerprintsDAO, $DOG, YGG, etc.), which can help increase the index’s exposure and reach to the DAO ecosystem.

Creator DAOs are likely underrepresented.

Only 18% of the total index allocation represents creator DAOs. This is less than the allocation to other single tokens (i.e., Mask at 20%), and is less than the total allocation for the other two categories (Developer DAOs: 57%, and Infrastructure: 25%). Overall, for an index to accurately cover the broad range of DAOs and categories, the total allocation between each category should likely be more balanced and not so skewed towards a single DAO (Mask makes up 1/5 of the index). My reasoning being that, for example, developer DAOs and creator DAOs are focused on two almost entirely separate areas in the ecosystem (in terms of value accrual, member participation, etc.). Because of this, growth of DAOs from these categories will have different adoption curves and different growth trajectories. The index’s methodology should aim to capture this varied focus and try to include that exposure for the index’s tokenholders.

I reviewed the Token Checklist and DAO Scorecard, and understand the metrics used to determine the ultimate distribution, but I caution using solely objective metrics to judge token inclusion. Things like current market cap, size of the treasury, and voter participation won’t reveal the full focus and potential growth of each DAO, and these metrics may not translate well across DAO categories. There should be some smaller-weighted subjective analysis included in the methodology to account for differences in newer vs. older DAOs as well as DAOs across categories (i.e., whether the DAO is focused on a unique service or focus that doesn’t yet exist elsewhere in the ecosystem). Also, some additional objective data could help DAO token analysis (tokenomics of these projects, circulating vs. total supply, monthly or quarterly revenues, total votes vs. # of tokenholders/DAO members, etc.).

Liquidity Score re. HAUS and ROBOT.

As a member of LP DAOs for HAUS and ROBOT, PoolHAUS and iROBOT, I can say that there’s been discussion around improving L1 liquidity for both tokens.

iROBOT is currently in the voting process to create a new mainnet Balancer V2 pool that will add significant ETH and ROBOT liquidity. Given ROBOT’s current liquidity, trading volume, and market cap, this new pool should significantly change the current analysis done on ROBOT/Metafactory in the Asset Checklist. The pool should be live within the next 7-10 days, so if this index isn’t voted on by then, I suggest a reanalysis of ROBOT.

PoolHAUS’ liquidity is currently focused on xDAI (with around $10k +2% depth), but there’s been several discussions over the past couple months to bridge at least a portion of the DAO treasury to mainnet. So, if there’s a minimum liquidity threshold for HAUS to be included as an infrastructure token, and if there’s still time to be included in the index, inform us, because the DAO can organize and move more swiftly toward L1.

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Great question! And as you can imagine, we definitely want to reduce overlap as much as possible - this is why we focus specifically on infrastructure DAOs, developer DAOs, and creator DAOs, as opposed to Defi DAOs and Metaverse DAOs

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Thank you for the support!

Would holding this index provide governance liquidity, such that the underlying assets can also be used to vote with? I believe this index would then be of significant interest to all represented tokens and as mentioned above facilitate closer and collaborative partnerships.

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Thanks for sharing! Great choices (and name) too.
We also definitely want to reduce overlap with DPI and MVI as much as possible - so we’re focusing specifically on infrastructure DAOs, developer DAOs, and creator DAOs, as opposed to Defi DAOs and Metaverse DAOs

Yes 1000%! Deeper interaction and collaboration between DAOs is absolutely the goal here.

Thank you so much for this great feedback! Pretty much agree with all of this. Some thoughts:

  • Definitely agree we’ll probably be changing/rebalancing quite often, as liquidity levels in some of the DAOs have shifted quite a bit even from the time we posted this proposal, up til now. Agree on potentially expanding the categories later on as well.

  • We’re already trying to add one or two more creator DAOs to the list currently, and are definitely open to increasing the allocation for them in general.

  • Given the difficulties with liquidity, we’re putting a lot more focus on making that work - so definitely expect a few changes based on that as well. Re: Haus, we started a dialogue based on exactly what you said - porting liquidity over to mainnet. We’ll know shortly what minimum threshold we need for liquidity, so can keep posted. Definitely keep us posted on Metafactory’s moves as well!

We think so as well! Still much to work through there, but there’s definitely potential for meta-governance and closer collaboration.

Currently if I hold INDEX ANT GTC I have the right to vote or delegate my voting, this is a primary utility of DAO governance tokens, yes?

Are you saying that the right to vote is no longer inherent in the under lying assets when purchased as DAO Revolution index?

Without governance utility - which directly facilitates decentralisation - can you clarify please the “powerful offering” or value proposition here.

In terms of “potential for meta-governance” what is the process, time and cost to re-establish governance utility?

Hey @lee0007 I can jump in here to help clarify.

Meta-Governance can theoretically be enabled for most non-staking tokens in an underlying index via the MetaGovernance Module, as well as for tokens that use Snapshot and have delegation enabled.

In order for this to go into effect for the DAO Revolution Index, the community could create an IIP calling to enable Meta Governance, as done for DPI with IIP-8 and IIP-33. These two proposals accepted the MetaGovernance Module to allow votes for UNI, COMP and AAVE, and enabled Snapshot for voting on tokens within DPI that have delegation enabled.

In summary, enabling meta-governance for the DAO Revolution Index is possible, but it depends on the underlying tokens.

One thought I’d like to add is that while meta-governance is an important feature, it’s only one piece of the greater value proposition of our products and essentially not part of our north stars or KPIs. I appreciate your commitment for MetaGov a lot, at the same time I wouldn’t put too much emphasis on this feature right now, primarily since this product is still in a very early stage. Imo, meta-gov is something that comes at a later stage, once the product has established itself and the community sees benefits in enhancing the meta governance reach to additional protocols.

I hope this helps to clarify your questions.

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