The Index Coop’s mission is to make DeFi simple, secure, and accessible. We do this by creating a diverse range of crypto indexes and structured product tokens that offer exposure to various sectors of the crypto market.
The purpose of this Q1 2023 report is to foster transparency and accountability within the Index Coop and to ensure that token holders are well-informed and engaged stakeholders in the Coop’s success.
This report will provide INDEX holders with a comprehensive update on the Coop’s performance, including financial metrics, product development updates, protocol upgrades, community engagement activities, and partnership updates. It addresses some things we’ve been quietly working on, upcoming plans and initiatives, and obstacles we faced during the quarter.
This update also allows token holders to ask questions, offer feedback, and participate in the Coop’s decision-making process.
Q1 2023 — High-level Overview
In Q1 2023, Index Coop has continued its mission to create and manage crypto indices while expanding its influence in the crypto and traditional finance sectors. Despite net outflows, the Index Coop’s treasury remains strong, with a treasury balance of $6.96 million and a focus on generating sustainable revenue and rolling out new products.
The Index Coop introduced several new products in Q1 2023, including Diversified Staked ETH (dsETH), Gitcoin Staked ETH (gtcETH), and the upcoming launch of the Money Market Index (MMI). The Index Coop’s product team is also working on creating a diversified stablecoin yield index (DSY) that aggregates USD-denominated yields across DeFi.
The engineering team has developed auction rebalancing, a breakthrough solution that promises optimal execution and enables product designers to incorporate a more comprehensive array of tokens. The Index Coop is also migrating from Set Protocol V2 to Index Protocol to ensure users will benefit from upgrades like auction rebalancing.
The marketing team will unveil a revamped marketing website featuring detailed product pages and a refreshed blog. The marketing team has also been working to hire a new writer/researcher. That process is almost complete, and the team hopes to make an offer soon. That hire will assist with developing the Index Coop’s new annual “State of On-Chain Structured Products” report. Finally, the marketing team is engaged in a brand messaging sprint to refine its mission, vision, values, and messaging.
The partnerships team focused on increasing brand awareness and TVL, incorporating products into various platforms, and forming partnerships with prominent crypto players and major global traditional finance firms. The team met with premier US and European financial institutions to bridge the gap between traditional finance and digital assets.
Read on for more detailed information on the Index Coop’s Q1 activities.
At the end of Q1, Index Coop’s treasury was in a good position with a balance of $6.96 million, composed mainly of stablecoins and stable yield positions totaling $6.73 million. The treasury does not account for INDEX as an asset.
The Index Coop Treasury Pod is diversifying and optimizing asset allocation to fortify our portfolio and minimize risks. The new strategy includes approximately 30% USDC, 30% DAI, 20% MMI upon launch, 10% USDT, and 10% LUSD.
Revenue & Costs
During Q1, Index Coop produced $193,942 in gross revenue and $132,825 in net revenue, with the latter accounting for methodologist fee splits. The top performers included ETH2x-FLI (39.5% of total net revenue), DPI (24.8%), and icETH (23.6%).
Our current monthly labor expenditure hovers around $215,000, distributed among 15 full-time and four part-time contributors. The current labor costs are a 57.6% reduction from March 2022’s total of nearly $507,000, showcasing our ongoing commitment to efficiency. Most cost reductions occurred in July 2022, with minor additional cuts this quarter across the finance function, which is now partially outsourced.
We’ve used net revenue as a benchmark against labor costs when assessing financial sustainability. There’s still significant room for growth, with net revenue accounting for only 21% of our labor costs. Our monthly burn rate is approximately $191,000, suggesting an estimated 35-month runway.
We are pleased with our current spending levels and shift toward generating sustainable revenue. We’re concentrating on refining the underlying product architecture and forging distribution partnerships. As we complete these protocol improvements, we’ll begin rolling out new products across different categories to gauge market potential. We’re confident we’ll have the products and tech stack ready to adapt swiftly and scale.
Net Flows Overview
During Q1, the Index Coop saw a net outflow of roughly $4.1 million, primarily due to withdrawals from ETH2x-FLI, DPI, and BTC2x-FLI. In contrast, dsETH positively contributed to net flows, while icETH, BED, and MVI remained relatively stable.
The outflows from FLIs and DPI were not unexpected. As sophisticated on-chain users have gradually shifted towards leverage-specific protocols, we’ve observed a long-term decline in FLIs usage. However, our product team can repurpose the leverage infrastructure for new use cases like icETH and ETH-BTC.
We have yet to see a substantial influx of new users with DPI, but some large holders have exited this quarter. This trend is unsurprising since the index has persistently underperformed ETH, mainly due to the protracted DeFi bear market. The tokenomics landscape has also evolved significantly in recent years. Some tokens included in DPI experience considerable inflation, which the index currently cannot capture. In the coming months, we plan to introduce a solution for generalized index productivity, making passive index investing even more attractive.
Over the quarter, the average daily TVL was $62.7 million, and Index Coop ranks 42nd in terms of TVL on Ethereum, according to DeFi Llama.
Over the quarter, the INDEX price rose from $1.58 to $1.77, representing a 12% gain in USD and a 26.5% decline in ETH.
At the beginning of 2023, Index Coop committed to working with Tres Finance for its accounting needs. By the end of April, we expect to be able to share a monthly Profit & Loss Statement and Balance Sheet that accurately reflects our financial position.
In Q1, the Index Coop launched two new products: the Diversified Staked ETH Index (dsETH) and the Gitcoin Staked ETH Index (gtcETH). We also began work on the Money Market Index (MMI) and made progress on plans for a Diversified Stable Yield Index (DSY).
Diversified Staked ETH Index (dsETH): Pioneering Liquid Staking Diversification
In January, the Index Coop launched the Diversified Staked ETH Index (dsETH) which provides diversification across several leading liquid staking tokens while promoting decentralization. Although the initial reception was positive, dsETH didn’t reach the anticipated adoption level. We’ve analyzed the launch and gathered community feedback, identifying the limited number of constituents as the primary factor. As more liquid staking tokens join the methodology, we are confident in dsETH’s growth potential.
We’ve realized that forming solid partnerships with wallet providers is crucial for dsETH’s growth. We’re proud to have Argent and Rhino.fi on board and excited about our future collaborations. As the TVL grows, we aim to secure a listing on lending platforms like Aave and expand dsETH’s utility. We’re also delighted to announce Gravita Protocol will support dsETH as collateral upon its launch. Finally, there is a 1inch proposal to allocate $1m of their treasury into the product.
Gitcoin Staked ETH Index (gtcETH): Supporting Public Goods with Yield-Sharing
The Gitcoin Staked ETH Index (gtcETH), which we launched in March, introduced a new product subcategory: yield-sharing. Although not an instant success, this innovative approach has strengthened our relationship with Gitcoin and offers DAO treasuries a unique opportunity to support public goods funding with a higher streaming fee directed towards public goods. The collaboration has also paved the way for many new partnership opportunities, thanks to introductions from Gitcoin’s business development team.
Introducing the Money Market Index (MMI): A New Chapter in USD Yield Products
Launched in April, the Money Market Index (MMI) offers low-risk, diversified exposure to top DeFi money market yields. The index’s initial integrations with Morpho and Notional will enable diversification across variable-rate, peer-to-peer, and fixed-rate lending positions. Geared towards large DAOs and high net-worth individuals, MMI offers an opportunity to earn diversified yields across USDC, USDT, and DAI with a single token. MMI will be our first product launched without protocol-owned liquidity or liquidity-mining incentives, relying solely on self-issuance.
The Stable Suite: Pioneering the Future of Stablecoin Yield Indexes
The Index Coop’s product team is working diligently to create a diversified stablecoin yield index (DSY) aggregating USD-denominated yields across DeFi. We’re exploring Liquidity Provisioning Index (LPI) and Real World Yield Index (REAL) methodologies as subsets of DSY, and the engineering team is progressing on adaptors for underlying protocols.
Reducing Issuance Costs: A Commitment to Inclusivity & Scalability
We understand the challenges faced by smaller holders due to the cost of issuance on the Index Protocol on Ethereum. The Index Coop engineering team is researching and developing innovative solutions to remove this barrier, ensuring our products are more accessible and scalable without relying on protocol-owned liquidity. Exciting possibilities such as Yearn-style vaults and deploying Index Protocol to Layer 2 are currently under consideration, promising to reduce costs dramatically.
We are fully committed to delivering a solution that provides diversified access to numerous yield sources through a single secure token. Stay tuned for updates as we finalize our approach.
Auction Rebalancing: Overcoming Challenges for Optimal Execution
Index Coop has faced issues with the rebalancing process for too long, limited to trading on a select few DEXs. This constraint presents two significant challenges: the need for liquid constituents on these DEXs and less-than-optimal execution. To address these issues, our engineering team has developed a solution called “auction rebalancing.” This solution not only promises the best execution but also enables product designers to incorporate a more comprehensive array of tokens, even those not liquid on specific DEXs or the Ethereum Mainnet. This protocol upgrade will be applied to all future products, enhancing our existing offerings and expanding possibilities for the Index Coop community.
Migration from Set V2: Smooth Transition for Our Users
Index Coop products exist on Set Protocol V2 (DPI, MVI, BED, FLIs, icETH) and Index Protocol (dsETH, gtcETH, and all future products). To ensure our users enjoy the benefits of upgrades like Auction Rebalancing, we’re working on migrating products from Set Protocol V2 to Index Protocol. Our product team is working to determine the optimal migration strategy to minimize friction for our valued product holders.
Aave V3 Leverage Module: Boosting Performance Across the Board
The product pod continuously seeks ways to improve our leverage products, including icETH, ETH2x-FLI, and BTC2x-FLI. Introducing the Aave V3 Leverage Module will enhance performance across our leveraged product suite. Currently, the FLI products operate on Compound V2 while icETH is on Aave V2. Additionally, we’re excited to unveil pair trading leverage indices like the ETH-BTC Ratio Index, all built upon Index Protocol and utilizing the Aave V3 Leverage Module.
Permissioned Tokens: Pioneering Partnerships and Regulatory Compliance
Our Partnerships team has been hard at work, and we’re thrilled to be close to securing deals with prominent names in traditional finance. These collaborations will bring new products to life and open up previously inaccessible distribution channels with enormous potential. Our engineering team is ensuring our protocol has the tools necessary for an excellent token management infrastructure. As some partners face regulatory restrictions, we’re also exploring ways to provide limited access to specific products, ensuring compliance.
Cross-Chain Assets: Meeting Demand for a Comprehensive Market Index
Index Coop has long received significant demand for a broad market index, including cross-chain assets. Our product team has made substantial progress in exploring ways to build such a product, and we’ll continue to investigate technical feasibility throughout Q2.
Methodology Enhancements: A New & Improved Metaverse Index
Since taking over the Metaverse Index (MVI) entirely, our Internal Methodologist Committee has revamped its methodology. We’ve introduced procedures for added transparency during rebalancing, including a Pre-Rebalance Report and a Post-Rebalance Report.
Leveraged Liquid Staking: Gaining Market Share and Expanding Offerings
Despite a relatively flat quarter for net flows, Index Coop’s icETH has outperformed Instadapp’s iETH series throughout Q1.
As we transition from Aave V2 to Aave V3, we’ll create a new version of icETH, leveraging our upcoming Aave V3 Leverage Module. Following Ethereum’s Shanghai upgrade, we’ll assess the leveraged liquid staking landscape and explore additional leverage liquid staking tokens like MATIC.
A Media Spotlight Worth Celebrating
In Q1 the Index Coop made headlines across various crypto and DeFi publications. Our noteworthy features include a detailed evaluation in Tom Dunleavy’s “Crypto Portfolio Management” piece at Messari, coverage of our dsETH launch on Decrypt, Blockworks, The Defiant, CoinDesk, and Bitcoin Mexico, as well as our gtcETH partnership with Gitcoin in The Defiant and CoinDesk.
A New Digital Homecoming
We’re on the brink of unveiling our revamped marketing website. As we put the final touches and run QA tests, we plan to launch it next week. This new platform includes many improvements, making creating product pages more efficient and streamlining the launch process for our growth team. The redesigned site also features a whitepaper library, a refreshed blog, and product pages that showcase price and APR graphs. We’re eager to share our new digital home with you.
A Talent Hunt Nearly Concluded
In Q4 of 2022, we embarked on a quest to find a skilled writer/researcher who could craft in-depth whitepapers for Index Coop. We are nearing the end of our hiring process and looking forward to onboarding a new contributor soon.
Industry Report: A New Annual Tradition
As we chart new territory, we’re laying the groundwork for our annual "State of On-Chain Structured Products’’ report. Inspired by Messari’s annual report, this comprehensive analysis will be spearheaded by our newly hired writer/researcher. We aim to release this insightful report by the end of Q2, establishing it as a yearly tradition.
A Collective Brand Messaging Sprint
Our team is currently engaged in a brand messaging sprint to refine further Index Coop’s mission, vision, values, and messaging. By involving all core contributors, we’re excited to see how this exercise will shape our future marketing campaigns and initiatives.
Index Insiders: A Flourishing Community
In 2022, we launched the Index Insiders community for customers holding at least $10,000 of our products. As the community thrives, we’re planning to lower the entry threshold in Q2 to invite more members. Our ongoing programming, which includes monthly Insiders updates and community calls, will continue to foster engagement among our Index Insiders.
Empowering Partnerships with Compelling Collateral
Our marketing pod’s core responsibility is crafting captivating materials and collateral to enable partnerships. In Q1 of 2023, we refined our master deck, highlighting the value of Index Coop and our product suite. Additionally, we developed product fact sheets and a partnership opportunities deck, now used to forge alliances with dApps, DEXs, and wallets wanting to list our products.
Expanding Horizons and Forging New Paths
Throughout Q1, our partnerships team made significant progress in broadening Index Coop’s influence in the crypto and traditional finance sectors. We directed our efforts towards improving brand awareness and TVL via targeted education and awareness initiatives and incorporating our products into an array of DAOs, DEXs, dApps, wallets, CEXs, and custodians. Furthermore, we connected with less prominent crypto players such as prime brokers, trading firms, and major global traditional finance firms, setting the stage for remarkable partnerships in Q2 and beyond.
Embracing Layer 2 Networks and Cultivating Global Partnerships
In a collaborative effort with Rhino.fi, we expanded the availability of icETH from Mainnet to major Layer 2 networks, such as Arbitrum, Polygon, Binance Smart Chain, and zkSync Era. We continued to forge strong alliances with partners like Argent to list and promote dsETH, our innovative Ethereum yield product. Our partnership with Matrixport, a leading Asia-Pacific platform, enabled us to introduce icETH as their premier DeFi Ethereum staking product for their centralized user base. These partnerships are vital for penetrating mature crypto markets like the Asia-Pacific region. Our infrastructure presence has grown, with icETH listed on BitGo and an upcoming preferred custodian partnership with Copper, a top digital asset custodian. This collaboration will involve listing core Index Coop products such as dsETH, DPI, icETH, and MMI on their platform, supported by joint marketing campaigns and endeavors. We aim to enhance our visibility among larger purchasers and position our tokens as viable alternatives to traditional off-chain vehicles.
Partnership Program: Incentivizing Distribution Partners
Emphasizing our brand and products, we pursued applications for our core Index products with major CEXs, custodians, and intermediaries outside the US, adapting our strategy to accommodate the dynamic regulatory landscape. The recent launch of gtcETH, our public goods-oriented Ethereum yield product, has allowed us to connect with new audiences. In late Q1, our partnerships team devised an extensive partnership program to encourage distribution partners to promote our products through more aligned incentive structures. By the end of Q1, we were in ongoing discussions with over 15 core crypto distribution platforms, with two partners having agreed to terms.
For inquiries about the partnership program, please contact email@example.com.
Bridging the Gap: Traditional Finance Meets Digital Assets
Q1 saw a surge in interest and adoption of digital assets among traditional finance firms. Our team engaged in fruitful conversations with premier US and European financial institutions, including some of the world’s largest index providers and asset managers. Although regulatory uncertainties have stalled planned product launches, research and innovation initiatives persist. It has assembled a list of action items for product and engineering teams to help the protocol evolve and tap into the extensive networks of traditional finance firms as assets move on-chain. In Q1, we laid the groundwork to ensure Index Protocol becomes a leader in on-chain asset management infrastructure.
Overcoming Challenges and Refining Strategies
While we made strides in Q1 2023, we also encountered obstacles. Regulatory uncertainties, notably the FTX fallout, disrupted key partnerships and forced us to reevaluate timelines and roadmaps. A general decline in volume and product demand, worsened by the bear market, resulted in more selective listings and hindered partnership efforts. We identified inefficiencies in our processes and have been transitioning to new platforms and workflows to enhance productivity and accelerate growth.
In Q2, we will continue distributing our products where demand is most significant, actively promoting our partnership programs and ensuring our products remain relevant with major distribution partners. We will adopt a more hands-on approach to marketing our products to DAOs and other large ecosystem purchasers, capitalizing on our enhanced product suite featuring dsETH and MMI. We will refine our institutional services to finalize partnerships with high-impact firms, developing a more robust protocol to meet their demands. As we learn from challenges, adapt, and grow as a team, we will concentrate on jurisdictions more receptive to digital assets, continually tracking progress and making improvements across the board. Additionally, we will remain steadfast in pushing integration partnerships, ensuring our products reach a broad and diverse audience. We will work closely with our partners to explore new collaboration and product integration opportunities, ensuring our offerings remain innovative and relevant in a rapidly evolving market.
In Q1 2023, our team focused on its core mission of creating and managing crypto indices while enhancing product infrastructure and expanding our presence in the crypto and traditional finance sectors. Despite net outflows, we have maintained a healthy treasury balance, prioritizing long-term sustainability by reducing expenses and continuing to drive revenue through new core product offerings.
As we enter Q2, we’re committed to improving user experience and product accessibility by implementing innovative solutions like auction rebalancing and transitioning legacy products to Index Protocol. We will persist in refreshing and optimizing our brand identity through an updated marketing website and targeted strategic research reports. And we will expand our partnership initiatives and continue collaborating with key players in the crypto and traditional finance sectors.