Index Methodology Bounty

The introducing the index cooperative post on the medium specified how the INDEX tokens would be distributed:

This includes the following:
Index Methodology Bounty

7.5% of all INDEX tokens have been allocated to an 18 month program (beginning at the end of the DPI liquidity mining period) to attract and reward index methologists a share of emitted tokens based on the success of their indices. Rewards are distributed pro-rata monthly based on the total fees contributed to the cooperative by the methodologists’ indices (counted every Ethereum block).

Given that we have agreed to focus on DPI growth as our our primary goal. It appears that after the 6th December, the methodology bonus would be allocated to a single methodologist (PSI pulse). While I deeply love DPI pulse, I’m not sure that allocating 41,666 INDEX to them every month was the aim when the token allocations were initially devised.

Should we be looking at changing the allocation of this structure of this allocation? Some half considered possibilities.

  • Remove the INDEX incentive for methodologists
  • Change the incentive to DIA from the treasury?
  • Delay the incentive until we have more indices running (4, 6?)
  • Change to incentive so it’s based on streaming fees accrued to the coop.
  • Change the incentive to allowing the methodologist to use (some of) the methologist streaming fees (i.e. 0.3% $DPI AUV annually for DPI pulse) to purchase INDEX at a discount (50% market price ?).

I don’t have a good answer, but It’s something we should discuss.

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Before getting into it I want to ask the questions:

  • What are we trying to achieve with the methodologist reward program?
  • What exactly are we rewarding?

The proposed program was a private deal made between Set Protocol and DeFi Pulse before the Coop launched and things have changed since that deal was made - namely we elected to not launch other indexes in order to focus solely on accelerating DPI. I have the utmost respect for the DFP team and value all their contributions so far and in the future, this isn’t about DFP/DPI and more about ensuring the long term success of Index Coop.

Strategic Issues

We have all agreed that making our flagship product DPI widely integrated and the best option in the market would setup Index Coop to easily launch new indexes with good market penetration. This has gone very well and we’ve had a ton of accomplishments in our first month. I believe we need to keep focusing on DPI until it’s self-propelling with an ecosystem developing itself without needing direct effort from the Coop. We aren’t there yet so there is still work to do.

On the first community call we decided as a Coop that the best way forward was to focus solely on building DPI. No other indexes, no other initiatives. However, we never set parameters on when DPI would be successful enough to start devoting resources towards other products. But by our own collective definition of goals, DPI isn’t successful enough yet. We do not control 1% of supply for tokens in DPI, we aren’t listed on any exchanges, and we aren’t integrated into any major DeFi protocols. There is still lots of work to do. Without these DPIs success could be short lived, all the hype around it now is just hype and doesn’t guarantee long term success. So DPI still needs our help and hasn’t met our general standards of success so why would we pay out additional rewards on top of the 2% pre-allocation?

If the methodology program starts in two weeks as planned, what is to stop the community from pulling back to focus on their own indexes in order to acquire the 7.5% reward. Index Coop would become fragmented and internally competitive destroying the momentum we have behind DPI.

This is not only bad for DPI and DeFi Pulse but also detrimental to the Coop in the long term because we don’t have that one outstanding product we can point to when we launch further indexes, slowing down growth for future products.

I do believe there is a concept of “good” competition in that once DPI is self-propelling then the competition between indexes in the program would be symbiotic since Index Coop will be well known and trusted brand and so any progress made by one index will likely drive adoption of other indexes (e.g. getting listed on a new exchange opens doors for all other indexes to get listed but gives an advantage to the index that put in the work for the first sale)

Another strategic issue is that assuming the purpose of the program is to reward the best indexes, starting it now wouldn’t achieve that goal since there is no competition. There wouldn’t be any valuable performance data generated for the Coop to analyze or new methodologists recruited if we can’t start new indexes and evaluate them on the open market.

Political Issues

Many community members joined because we wanted to start our own indexes and sacrificed that goal for the betterment of the Coop. And now if the program goes forward we are also deprived of rewards that we should have gotten but now go to the people that we sacrificed ourselves for. Personally for me it’s less a sense of “fairness” and more a sense of “ownership” and mutual rewards in the Coop. If it goes forward, Coop members are essentially glorified DFP and Set freelancers since they would control 40% of total supply and thus complete control of the treasury. Doesn’t really sound like a cooperative to me. DFP would be receiving almost 0.5% of total supply each month + their 2% pre-allocation + any farming rewards they’ve done independently so they could easily vote down the addition of other indexes to force Coop members to keep pushing DPI for them. It makes the Coop anti-competitive which makes desertion/forking a pretty likely scenario.

If 40% of all tokens are controlled by two companies and ~10% by a single methodologist, I don’t see any reason for subsequent methodologists to just fork the code and launch on their own instead of using the Coop where they will be entirely disenfranchised.

Closing Thoughts

Everyone knows I’ve been a big supporter of DFP and Set but to be abundantly clear - I highly respect DeFi Pulse and all the expertise and energy they bring to Index Coop. That is why I want to make sure DPI is as successful as it possibly can be by continuing to devote 100% of Coop efforts to it. In exchange, I ask that DeFi Pulse delay the start of the methodologist rewards program.

On Scott’s comments the other day on reputation and trust - I agree with most of what he says and sympathize with their situation. However the deal was made not by the Index Coop but by DFP and Set. Yes we implicitly agreed to them by joining and the community can choose to update them, obviously things don’t go as planned and we need to adapt. We are doing this to benefit future methodologists so I don’t see it as “reneging” on a deal, rather making the deal better for all methodologists. We don’t need to change what the methodologist program is, just delay it. Of course this means DFP will make a bit less INDEX so they are opposed to it but long term it’s beneficial to everyone including DFP since this allows us to continue working on their product.

We need to be focused on expanding the overall pie vs forcing us into an internally competitive situation. No matter when the methodology program starts DPI will be the most well known, the most integrated, the most liquid, and the most sought after index so will get the majority of the program rewards. The difference is how fast we accelerate (or decelerate) when the program starts.

Some suggestions for updates to methodology program

  • Delay the incentive until we have more indices running (4, 6?)
  • Suspend rewards until success criteria for DPI are set and met
  • Give fixed rewards to methodologists e.g. 1.5% to first 3, 1% to next 2, and 0.5% to last index launched
  • Change the incentive to allowing the methodologist to use (some of) the methodologist streaming fees (i.e. 0.3% $DPI AUV annually for DPI pulse) to purchase INDEX at a discount (50% market price ?).
  • Continue DPI/ETH liquidity mining program which pushes back methodologist reward program according to original terms laid out.
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This program doesn’t make sense if we are trying to attract people to come up with ideas for indices, while at the same time, de-prioritising them due to the focus on DPI.

I like the idea of delaying the incentive until some metric has been reached and the coop is ready to introduce introducing new indices.
By that time DPI, being the incumbent and flagship product of Index Coop, already with AUV built up, should still have a big advantage over any new indices at this point (and one might argue this is fair, since the success of DPI will be what builds reputation for index coop to attract investors in our other indices). But at least everyone has a fair fighting chance of the share of the reward then.

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Agree with yours and loc’s comments above that launching now doesn’t make sense. As for Scott’s post it seems the terms were agreed that the 7.5% was there to give DFP “a good chance to earn a significant portion of the methodologist tokens”.

If we go with either of these options it does still give DFP the chance to earn significant share, but keeps a level of incentive for other methodologists to join the Coop.

I can’t comment on terms that were agreed before the creation of Index Coop as it has nothing to do with me and doesn’t change my involvement in the project. But if those terms could possibly harm our ability to onboard other index products then it needs to be discussed and receive input from the community. You don’t launch a DAO and then expect it to only discuss/vote on/carry out the actions you want.

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Felt like this was relevant and speaks to my question “What are we trying to achieve with the methodologist reward program?” We have this mechanism but it’s not clear what that mechanism is actually supposed to achieve for the Coop.

“In purpose driven systems we don’t tell them what to do but embedding goals. The methods discover things they don’t do things. They help us be better versions of us versus making us do things…Having an adaptive system requires us to participate in the decisions about adapting the rules and feedback systems so they can continue to meet our needs.”

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