Increase INDEX liquidity

Hi All,

INDEX liquidity has long been the neglected compared to our products. The absence of INDEX liquidity mining was a deliberate choice to avoid the common pool 2 problems seen with project launches, and so we managed with a Small Uniswap v3 and then Siushiswap pools.

Thin liquidity was great when the price was pumping, but not so good with stagnant or propping prices. In addition, as we have low liquidity, it makes it hard for some people to buy a sizable position (with the confidence that they can sell). Volume / liquidity is also a factor in getting used as collateral on other protocols (e.g. Rari Fuse pools).

I’m hesitant to recommend liquidity incentives for INDEX (i.e. Pool 2) as I think there are other ways we can improve our market depth.

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@overanalyser, what are the other ways to improve our market depth you are thinking about?

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Hi @slowowl,

There have been many chats around this topic and I can list out a few of the options considered to varying degrees to date.

  • Bancor listing - IC would only need to provide single sided liquidity but downside is we would much rather prefer INDEX to be paired with ETH. Having a ETH trading pair enables easier integration within defi.
  • CEX listing - IC would probably need to provide liquidity for INDEX and maybe the trading pair as well. If we could achieve this, it would be fantastic outcome, as it would help meet the Chainlink oracle listing requirements.
  • Ohm BOND - @jdcook mentioned this idea earlier in the thread. This has the affect of IC paying for all the on-chain liquidity including a fee.
  • Ondo Finance IC can provide INDEX liquidity and Fei Protocol can provide FEI, this could be an option. The cost here is 5% fixed interest to Fei Protocol and IC takes all the IL risk. Similar to the Bancor idea, a INDEX-ETH pool would be better.
  • Uniswap & Sushiswap Both DEXs are valid options for creating liquidity. The V3 pool design, versus Trident and SUSHI incentives is the discussion to be had.
  • Index Coop Treasury If we provide the liquidity ourselves, we need to find the ETH to pair the INDEX with. Which ever way to come at this, without using debt or spending our USDC balance we end up incurring significant opportunity costs. There is limited non INDEX & USDC funds to be deployed and a fair few ideas floating around as to how best to deploy this capital.
  • Marker Makers There exists an opportunity to use MM to provide on-chain liquidity on IC behalf. We would need to consider the cost of this, whether it be a DEX or CEX. The later is very appealing IMHO, especially if we only provide one sided liquidity.

Something to keep in mind, we do need to work towards attaining a Chainlink Oracle INDEX-ETH and/or INDEX-USDC price feed. To achieve this we need $2M to $3M daily trading volume, a CEX listing and good on-chain liquidity. This is the latest feedback we heard from Chainlink and we know from our discussions that the requirements for attaining the oracle price feed are going to become more stringent in the future. The $2M to $3M minimum daily trading volume needs to be achieve over an extended time horizon, at least 30 days.

Other things to consider, there is a lot of VC interest around future INDEX purchases. I am lead to believe some VCs have been buying on market. I know of folks who have built sizeable VC like holdings solely through on market buying. The point being there is no shortage of demand and large positions can be acquired over time.

If there are any DPI/MVI farmers who didn’t adequately take into consider the thinly traded INDEX conditions when apeing into DPI-ETH, then they can reach out via the OTC channel in discord and we can link them up with some folks looking buy larger parcels of INDEX tokens. VC and individuals alike.

Index Coop Full Timers have the ability to sell INDEX back to the treasury. We will also be considering rewarding contributors in either USDC or INDEX. This will reduce sell pressure as folks selling INDEX each month to cover living expenses will no longer need to do so.

I don’t think as a community there is appetite to offer incentives on INDEX-ETH to incentivise liquidity. The cost of doing so would be greater than some of the other options mentioned above. Any path that leads to a CEX listing is being explored. Further to this, without a clear pathway to a Chainlink oracle, then it would be hard to justify spending on INDEX-ETH liquidity.

There is limited non INDEX and non USDC holding in the treasury. Using the non INDEX and non INDEX holding to provide DEX liquidity would have a pretty significant opportunity cost and we would need to give this a lot of consideration. I am for improving trading conditions, but I am more for growing the value of our AUM and developing a clear runway to attaining a Chainlink oracle. The low INDEX price, is the time to be building a position. Those holders with weak hands will sell to those with longer investment time horizons.

The Chainlink oracle unlocks a lot of integration possibilities. The most obvious is the lending markets and then inclusion in DPI.

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I am surprised that nobody here is talking about Wintermute Market Making Proposal (IIP 83), approved one month ago.

From the proposal it was clear that Wintermute would provide market making service for the INDEX token on dexes as well:

We propose to Index Coop Community appointing a third party agent (Wintermute Trading) to act as the Index Coop Community Agent to market-make $INDEX across cefi, defi and OTC

Isn’t it the job of Wintermute to answer to @Tradespot’s point? @fallow8 @wishful_cynic @Metfanmike

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I tend to agree with OA. Also if we increase liquidity we run the risk of more negative sell pressure. INDEX was heavily rewarded and farmed so there is a lot out there that can be dumped. We should really try be doing OTC sales with old farmers and VC’s that want exposure not increasing liquidity will just compound the dumping problem.

I think going forward when forum posts like this are put in the forum the pro’s of the current situation should be highlighted as well as the cons of the initiative proposed so enough information is out there. At the end of the day we should be encouraging people to hold index long-term and increasing liquidity doesn’t do that.

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I’m not sure I agree with the mindset that we should keep bad liquidity to encourage holding positions, also people who want to dump farm rewards will dump into bad liquidity if they are looking to exit. Considering our treasury is largely INDEX and one whale knocked 20% of the market cap off IC because they dumped 25K INDEX, I don’t think that’s OK.

Would be interested in what’s being actioned from the market making proposal @trx314 highlighted, are Wintermute due to be doing anything here soon? I might not have visibility of it. cc @wishful_cynic

  • Index Coop Treasury If we provide the liquidity ourselves, we need to find the ETH to pair the INDEX with. Which ever way to come at this, without using debt or spending our USDC balance we end up incurring significant opportunity costs. There is limited non INDEX & USDC funds to be deployed and a fair few ideas floating around as to how best to deploy this capital.

With regards to this point, providing single-sided liquidity above the current price tick on Uniswap v3 negates the need for finding ETH to pair INDEX with. If the thesis is that VCs will buy into the market and that there’s no shortage of demand for INDEX, then this may be the ideal approach.

How this would work is that we would provide only INDEX tokens from treasury above the current price tick at say $32. We can provide up to 15k of purely INDEX tokens in a concentrated range from $32 - $32.10. As people buy INDEX tokens, the liquidity position will eventually convert to ETH. Upon 50/50 ratio, we can auto-rebalance the position over a wider range.

The single-sided limit position is ideal because (1) it doesn’t involve dumping INDEX tokens at a discount (2) it allows the treasury to obtain the other side in ETH without having to pay a premium.

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I’ve had this brewing for a while:

I’m a big fan of Bancor, so will be an LP in this pool.

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Really great suggestions in this thread. The answer is most likely multi-pronged.

It is, indeed. Token2049 was the focus last week, but now that is in the rearview mirror, we’ll be having a strategy meeting with Wintermute (likely next week), a next step outlined in the recent IBWG proposal. We’ll be taking in perspectives from Treasury and Product on what the goals should be on the liquidity front and come back to this thread with a properly baked/vetted response and game plan.

Regarding dividends, I’m not aware of any yield-producing governance tokens that have successfully been listed on, say, Coinbase…are you? The prevailing thought has been that adding dividends/yield would alter the token to a point where it would be viewed unfavorably by many Tier I CEXs for regulatory reasons. Getting a centralized exchange listing seems more consequential than paying out a dividend. Also, the Coop is barely a year old. Early-stage startups don’t pay dividends because they’re in growth/re-investment mode. The Coop is no different, imo.

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yes, you are right, i wasn’t aware of the way forward that @Matthew_Graham described. Sounds like a good plan to me.
Is it clear what the main problems with getting listed on a cex are?

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I wouldn’t call them problems so much as constraints/watch-outs. From our experience thus far, there is an application process that then goes under a formal review by the exchange across multiple dimensions (e.g., legal/compliance/technical) to arrive at risk scores. The application receives that feedback to either clarify initial responses or incorporate the CEX feedback. A token like DPI that isn’t a pure governance token can also require a legal letter (which is why we’re focusing on that in Q4). All tokens benefit from having a formal market maker in place (which is why we focused on putting that in place in Q3). And depending on the exchange, there might be additional requirements for minimum liquidity, which is why this conversation is a good one to have (as a community and with Wintermute), to best tee ourselves up for a possible listing.

Does that help?

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Thank you for pushing this initiative. I like the concept of owning LP. Also, building a relationship with Ohmies would be great, however, I have a few concerns/questions.

  • buying Index LP might need significant funding from the treasury. Is TWG open to this idea? How much are they willing to spend on this?

  • I am curious what will the LP sellers do with the discounted INDEX that they acquired through bonds. Are they going to dump or hold it?
    If we based it on DPI/MVI farmers, the INDEX holders and sellers are almost 50-50
    See: Dune Analytics

  • There is an initiative that would encourage IC contributors to hold INDEX to get higher APY for their INDEX (Sorry I forgot which meeting was that, maybe Index 2.0 ).
    Is it possible to only offer bonds to whitelisted addresses, such as IC contributors and farmers that held INDEX? This would likely reduce the selling pressure if there is any.

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yes Metfanmike, thx for your answer

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Hey, Bruno here from Fei community!

I was reading this discussion and wondering if Liquidity-as-a-Service could have a fit here.

Fei and Index have a solid partnership. FEI DAO invested in INDEX, DPI and is also providing liquidity to DPI-FEI on Sushiswap. I would like to bring the discussion about a new kind of partnership, the Liquidity-as-a-Service (LaaS) offering.

Liquidity Mining attracts capital at a high cost, LaaS is a cheaper alternative.

With LaaS, projects can get immediate liquidity without issuing more tokens and upfront capital costs. Fei & Ondo help by doubling their liquidity.

DAO allocates tokens to an Ondo Vault; this amount is combined with Fei to LP on Uniswap or Sushiswap. Currently, the program lasts 30 days and at the end of the period, DAO would pay a 0.17% fee (2% annual fee divided by 12 months) on the total value of the governance token deposited in the vault. This 0.17% fee can be partially, if not fully covered. This will depend on the accrued trading fees of the vault and the impermanent loss that are kept by the project.

You can use this worksheet to make simulations.

It is a good way to increase liquidity with a much lower cost than liquidity mining and to gain awareness by participating in this innovative partnership.

Fei is finalizing the selection of launch partners for LaaS. Those selected to be part of the launch group can benefit from the low fees associated with the group.

More resources on the Liquidity-as-a-Service here: Medium Article.

I would love to hear Index community about this idea.

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OK, we now have a Bancor $INDEX:BNT pool live :slight_smile:

This has added ~5% to the available liquidity:

Bancor has pros and cons:

  • Single sided deposit
  • Divergence loss protection (after 100 days) - [and if INDEX pumps you may get some of the value back as $BNT…]
  • No need to reposition / claim fees.
  • Gas to deposit is more than Uniswap v2 (and possibly v3).
  • Pairs with $BNT and Not $ETH
  • Lower LP fee (0.2% so ETH → BNT → INDEX is only 0.25% LP fee [but more gas than sushi or Uni v2]), Stable coin to INDEX would be 0.4% fee to LP vs 0.6% for Uni v2 or Sushi.
  • Not as capital efficient as Uni v3, so more tokens for the same depth.
  • INDEX in the pool can’t be used in coop snapshots.

Note the Uni v3 pool is a 1% fee - good for LP’s but expensive for traders. Also, the Uni v3 pool is out of place at the moment due to the INDE price dropping vs ETH:

What can we do with the Bancor pool?

  1. Nothing / pursue other options for growing INDEX liquidity
  2. Encourage INDEX contributors / dolphins / whales to deposit
  3. Deposit Treasury INDEX into the pool to boost liquidity without selling / providing other tokens / risking divergence loss.

The pool is capped at ~$1,600,000 total value, but can be raised by Bancor governance proposal if it’s filled.

There is the option for $BNT incentives on the pool, but we would need a Bancor governance proposal and high engagement from INDEXcoop to stand any chance of passing.

I like Bancor, and I’m farming BNT. I also like the fact I don’t suffer divergence loss on tokens I LP. However, I’m aware that there are other options for increasing INDEX liquidity.

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@ncitron how difficult would this lift be?

I’d have to look into it, but I’ve been meaning to update the INDEXPOWAH contracts to support Uniswap V3 anyway. I imagine it won’t be particularly difficult to add Bancor as well.

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I would leave Bancor for the moment / until after v3 launches.

  1. Very little traction amongst LP’s
  2. Bancor v3 (due in a couple of months) will give LP tokens and any work done to integrate v2.1 will be wasted (v3 may be a simple 1:1 on the number of tokens deposited).
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@Metfanmike Any more updates on the Wintermute proposal. I do think that this is a sustainable way forward.

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Please make an announcement or let @jackiepoo and I know once you’re done updating the INDEXPOWAH so we can update the analytics side too. :owl:

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