INDEX distribution to Liquidity Providers AND users

Product
1

Summary :

Distributing INDEX tokens to Set Index (i.e. DeFi Pulse Index) token to both LPs and users.

Abstract :

After the initial 60 days of LP farming, using a percentage (tbd) of the Community Treasury to distribute INDEX tokens to both Set Index token LPs and holders of the protocol.

Motivation :

As part of the initial Community Distribution, 1% of all INDEX tokens (100,000 tokens) has been distributed to DeFi Pulse Index token owners.
Although this is a great initiative from Set Labs, that represents less than 1000 unique addresses (and thus, less than 1000 unique humans).
The current Index Cooperative growth hacking / liquidity program will incentive new users as well as current users to provide liquidity and collect another 9% of the total supply.
It is likely that, after 60 days, INDEX tokens will be mostly owned by whales. That is fine, as this is representative of DeFi right now : Few people, lot of capital.
However, if the goal is ultimately adoption, projects need to continue to attracts a continuous inflow of new users, who actually want to use the product (i.e. holding an Set Index token).
Hence, some sort of incentive program must continue for LP but also for users.

Specification :

Percentage of the unvested Community Treasury would be allocated to LPs and to users.
I distinguish LPs and users here because I assume that one of the aspect of Set Indexes is ultimately to allow anybody (non-technical users) to invest in DeFi by holding the token. However I still believe those non-technical users should have a voice (and hence hold some INDEX tokens).
The amount would be defined as x tokens every t period of time and distributed amongst all eligible parties.
In the case of LPs, LP tokens can be used as a proof of Liquidity Provision and be staked (similar to today’s system).
For users, I prefer not to discuss about specifics yet, but ideally it would depend on how long each user as held an index in a period of time. A staking system would be radically simpler though, but would loosen the composability of the protocol (i.e. being able to use an Set Index on Compound or Aave).

TL;DR example (numbers tbd) : Taking 10% (avg) of the unvested Community Treasury and distribute 7% to LPs and 3% to holders every block. There would be still 90% of the Community Treasury left for other projects, bounties and incentives

For :

  • Fair-ish distribution : Users are the ones who actually care. By distributing at least some of the governance tokens to users, they make choices on the products they are using.
  • Whale mitigation : By having this program running during at least the 3 years release schedule, more users have time to onboard
  • User incentive and fees compensation : User are incentivized to use a Set Index rather than purchasing individual assets because Set Index slippages (and potential fees) are compensated with obtaining INDEX shares regularly.

Against :

  • More complex distribution system.
  • Never 100% fair (31% of the final supply is already allocated, further 9% in only 60 days).
  • Costs some funds (percentage to define) of the Community Treasury.

Poll :

After the initial 60 days of LPs INDEX distribution :
  • Distribution to LPs only
  • Distribution to users only (i.e. DeFi Pulse Index holders)
  • Distribution to both LPs and users (ratio to define)
  • No further distribution

0 voters

PS : I am also for rewarding Index creators as well as other actors of the ecosystem using the Community Treasury. However this is not covered in this poll.

2 Likes
2

I don’t know 100% how it Set Protocol works but wouldn’t we want to give more rewards to users because 1. they increase total supply of tokens there by also being liquidity providers in a sense and 2. buying a set converts ETH/stables into the underlying tokens which moves up the price improving the indexes performance?

I’d expect as these indexes evolve they will automatically add themselves to liquidity pools e.g. a DPI/DEFI++ pool so focusing on users is more beneficial in the longterm.

3

We need to incentivize all participants. Holders have investment risk. LPs risk impermanent loss in their portfolios when they provide liquidity along with the risk that comes with investing.

I think anyone that participates that has any sort of risk should be compensated as such. Those that have more risk should be compensated more. I support this proposal 100%.

I also agree that those that created the indices should be compensated for their time and energy.

2 Likes
4

I voted for both, seems more fair.

1 Like
5

I voted for both. It’s a good idea. But let’s wait at least a month to launch this kind of initiative.

2 Likes
6

If the distribution doesnt change, the project will die as fast as it popped up.
We need decentralized distribution to people who add massive value to the project.

1 Like
7

I understand how people feel about yield farmers in general which makes me chuckle a bit since there are two Set products that do that very thing. I do think it’s naive to think that without it or a modified version of it you will have a decent-sized exodus out of DPI and Index which is okay to some degree; however, should we not seek higher retention? Also do we not also want to “market” our products using one of the prime motivators for humans in general…profit? I believe without a program (call it marketing if you like) to incentivize people to invest in DPI, provide liquidity, and link that to the INDEX token as it is the co-op’s capital then we are missing an opportunity while we have the momentum. I would recommend we create an incentive for an increased yield if you hold and stake a certain amount of INDEX. We’ll need to figure out the program that is reasonable to strike the right balance but I’m stating my opinion that stopping the liquidity mining program cold turkey is the wrong move and a missed opportunity. Finally, if we do not provide some rewards to INDEX owners besides simple appreciation of its value wouldn’t we be diluted over time as inflation progresses?