INDEX Token Demand

[LemonadeAlpha]

I think there are a few issues with how INDEX is currently being leveraged which make the attractiveness of holding or buying lower than necessary.

INDEX Marketing Material

First, I think there needs to be more urgency to formalize a fee model or state an intention to do so at the very least, so that people evaluating INDEX as an investment on the open market can make a more informed decision on whether to hold, buy, or sell. Currently, the overwhelming narrative, intentional or not, pushed by the Coop is that INDEX is simply a coupon/voucher which stakers and team members should redeem for another asset upon receipt.

Fragmented forum discussions point toward value accrual models, but often with vaguery and the weird intended goal of “distributing INDEX widely.” I think what is meant by this is to make INDEX attractive as an asset to hold (which should advance an agenda of “wide distribution”), but I think its weird to not just state what is actually meant.

Additionally, documentation/marketing materials are outwardly negative to INDEX despite the clear desire to have people bid on the token (hence, the link to buy INDEX on Uni on the site!)

Team Distribution

The largest issue is that INDEX emissions are going to inflate the supply by a substantial amount over the next 12 months, and an outsize proportion will be going to founding team (Set + Defi Pulse).

Most companies include a one year cliff on vested equity. If these entities plan on providing continued value (and I have no doubt they do), why not commit to not selling tokens for one year? Otherwise, team can simply cash out on work already done.

I think the forced discipline and boon to the confidence in the DAO from such a proclamation would do a lot of good for the demand for INDEX.

Mitigation for the concern that such a large cliff would put strong downward pressure on price in 12 months time would be to spread 1-year cliff over 3 months: 1/3 Month 10, 1/3 Month 11, 1/3 Month 12.

INDEX Rewards

Lastly, I think we are being too cavalier with unsustainable UNI rewards. Instead of giving away way more tokens to people who don’t care about holding them, why not look for other solutions?

Someone mentioned Dodo, is there a plan to get DPI into CEXs? We can’t pay $500-750k a month (more if you count the continued downward pressure on INDEX) for $30m in liquidity. What happens at the end of the next reward period? Kick the can?

[feddas]

@LemonadeAlpha

First, I think there needs to be more urgency to formalize a fee model or state an intention to do so at the very least, so that people evaluating INDEX as an investment on the open market can make a more informed decision on whether to hold, buy, or sell.

Lemonade, I completely agree with your post. Being that this team is in USA, I’d like to add a different perspective as to why this situation might be the case. It primarily has to do with legal issues of intentionally distributing some sort of income/fee/profits whatever you like to call it. It’s not that they don’t want to, it’s just that they can’t be a part of it. Maybe?

I’d just go ahead and talk with the community and see if you guys can come up with your own reasonable model and vote on it. Good Luck.

[ansteadm]

Being that I’m in the US, and I know many of the team members from Set are as well, they wouldn’t be able to implement this, unfortunately. It would have to be something done by the community, and likely implemented by people in the community.

Assuming it occurs, then the protocol can get pushed through, and the network just “accepts” the new norm. I’m totally with you though on this.

Otherwise this becomes a similar situation to UNI, MKR, COMP, etc. It’s pointless to hold the token currently, so there needs to be a functionality that requires people to want to buy the token, potentially receive some form of reward, and allow the protocol to function as is.

One concept that I had thought of which occurs similar to yEarn’s strategies for Vaults is to charge a management fee. So when someone goes to mint DPI or buy/sell, they are charged a management fee of potentially 25-50 basis points. This would be direct income going towards the Index treasury, which can be used for whatever- those funds would also all be in ETH.

These funds that would be then received can be distributed to $INDEX stakers for a backstop on the underlying assets (as laid out in this post The $INDEX Flywheel), or be used to buyback/distribute $INDEX in the same fashion.

Otherwise the use for $INDEX will frankly go to the shitter- as almost everyone would look at this as a DeFi Pulse/Set Protocol governed economy, and no one else will want to participate in it. Frankly, I wouldn’t as a community member…

[ansteadm]

On your other point regarding token unlocks. I agree with you that many of them should be vested.

For early stage startups, the vesting period is usually closer to 24 months to be frank. This is something I don’t personally like about the token structure currently. I would be ok for them to be able to be used for voting, but unlocked entirely with the ability to be sold and cashed out? Ehhh not as much. It can be seen as a redflag.

I think that this needs to be more widely discussed, and especially get the feedback from the Set team unfortunately since they created it lol…

[Kiba]

Set and DeFi Pulse’s tokens are already vested over three years, you can find all the smart contracts for distributions in our docs Contract Addresses - Index Coop Docs

INDEX is simply a coupon/voucher which stakers and team members should redeem for another asset upon receipt.

I think you are confusing the INDEX token with DPI. DPI is redeemable for the underlying assets, INDEX is only used for governance of Index Coop products

forum discussions point toward value accrual models

If you are referring to the intrinsic yield conversations, those are specifically about DPI and providing value to our customers, not about INDEX token.

intended goal of “distributing INDEX widely.” I think what is meant by this is to make INDEX attractive as an asset to hold

What is meant is that we want more people involved with INDEX. Basically none of the core contributors talk of INDEX as an investable asset or something of value. Outside of liquidity mining and using INDEX as a backstop we barely even mention the price and only then because it’s part of specific programs that require it.

is there a plan to get DPI into CEXs

Yes we have many ongoing conversations with CEXs. You can join the weekly growth calls if you want the latest news.

why not commit to not selling tokens for one year?

Currently 100% of costs for operating Index Coop (development costs, servers, indexcoop.com domain, security audits, etc.) are covered by Set Protocol team. It’s very reasonable to let them recoup those expenses.

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There is already immense value in holding INDEX even if you only consider the meta-governance over DeFi protocols. Then consider our growing treasury for growth initiatives, controlling which assets go into the largest DeFi index product, and creating which awesome products we launch next. You’re only looking at “value” as money that goes to you, not as the ability to build things together.

[LemonadeAlpha]

I know they vest over three years, I’m saying they should commit to something like not selling tokens for 1 year. I don’t think anyone would care if they recoup reasonable costs, but afaict they are a venture-backed entity. At the very least, committing to not selling tokens allows for delayed gratification and better incentive alignment.

I don’t hate Set, quite the opposite. I just think the token has a demand problem and there are some reasonable steps to take.

I’m not confusing INDEX and DPI. I was saying that the people who are being distributed tokens are selling upon receiving them, and rationally so. Why? Because for one, the docs dissuade people from holding it (Again, despite many solicitations to bid on the INDEX token all over the site and docs). If I can sell something I perceive as marginally better than worthless for $4-5, of course I’m going to.

If you are referring to the intrinsic yield conversations, those are specifically about DPI and providing value to our customers, not about INDEX token.

What is meant is that we want more people involved with INDEX. Basically none of the core contributors talk of INDEX as an investable asset or something of value.

I understand that you are dogmatic about not returning dividends to INDEX, but I believe you are probably in the minority on this, and I’d like to hear from the rest.

[DarkForestCapital]

@LemonadeAlpha

Most companies include a one year cliff on vested equity. If these entities plan on providing continued value (and I have no doubt they do), why not commit to not selling tokens for one year? Otherwise, team can simply cash out on work already done.

I’ll start with this as it’s something I’ve seen in almost every community. What makes you think that Set and DFP would go to all this trouble launching a DAO around their core products, only to sell all their tokens in the first year? Both teams have a reputation on the line and both have very high profile products elsewhere namely Token Sets and DeFi Pulse’s website, so acting in a short term and selfish way would be extremely damaging to them.

Having said that, as @Kiba mentioned Set are currently covering the overheads and doing the heavy lifting in terms of smart contracts and kicking the project off. If a number of team members wanted to take a salary from *some of their distribution that would both be totally justified and insufficient to move the market (9% of rewards have already been supplied thru liquidity mining vs around 3% for the teams).

Fundamentally the $INDEX token should be seen as proof-of-work in that you can obtain it by participating in activities that exist to benefit the Coop, e.g liquidity mining, contributions to marketing etc. The Coop doesn’t exist to appease people that market bought at $15 and now feel it’s someone else’s responsibility to make the number go up. The community is a group of contributors who are working together to create something that they know will be valuable over the long term, despite it not having been decided how we get there just yet.

In this post I tried to discuss my own thoughts about how the token accrues value and things we might currently be missing, including ways to make the token stickier through governance mining. You’ll see there are two main options, using $INDEX as a risk backstop and rewarding governance participation. Both act to incentivise holding the token and using it in ways that benefit the Coop.

@LemonadeAlpha

Lastly, I think we are being too cavalier with unsustainable UNI rewards. Instead of giving away way more tokens to people who don’t care about holding them, why not look for other solutions?

The reward allocation changes from the 7th December to a much lower rate, if you have any other solutions that might add to the flywheel effect it’d be great to have a discussion around them.

[LemonadeAlpha]

@DarkForestCapital

The Coop doesn’t exist to appease people that market bought at $15 and now feel it’s someone else’s responsibility to make the number go up.

This isn’t an accurate characterization of me.

What makes you think that Set and DFP would go to all this trouble launching a DAO around their core products, only to sell all their tokens in the first year?

I’ve never even said that I think they’re selling. I just think they should proclaim they are not, as an outsize portion of supply emissions is going their way next 12+ months. It’s a strong signal to market, and it better aligns incentives.

Fundamentally the $INDEX token should be seen as proof-of-work in that you can obtain it by participating in activities that exist to benefit the Coop, e.g liquidity mining, contributions to marketing etc.

Then why are solicitations to bid on INDEX plastered all over the site?

In this post I tried to discuss my own thoughts about how the token accrues value…two main options, using $INDEX as a risk backstop and rewarding governance participation. Both act to incentivise holding the token and using it in ways that benefit the Coop.

That’s nice, I thought it was positive when you said this: “As managers and marketers of the index products, the Coop is accruing a portion of streaming fees from DPI.” (It does beg the question, when you say a portion of streaming fees, where is the rest going??)

It was nice when Felix said:

Currently, we are considering the following $INDEX staking mechanisms:

• $INDEX as a risk backstop : $INDEX gains a reward for taking risk, but serves as the backstop in case things to wrong.
• $INDEX as a voting reward : $INDEX is the voting that engages and aligns community

The issue is, the risk backstop discussion started 27 days ago. The post you laid out only briefly brought it back up and had very little mention of value (dividend) accrual to INDEX. All I’m saying is formalizing at least the theory of value accrual to INDEX and communicating it is necessary. I’m happy to help draft it, if that is the issue.

It’s two months in now, the token is being distributed to people who believe they have no reason to hold it. There are token demand issues.

The reward allocation changes from the 7th December to a much lower rate, if you have any other solutions that might add to the flywheel effect it’d be great to have a discussion around them.

I know that, but what happens at the end of that reward? We’re still spending a boatload on DEX liquidity and there isn’t much discussion I see of how to get over this problem…

[DarkForestCapital]

@LemonadeAlpha

It’s two months in now, the token is being distributed to people who believe they have no reason to hold it. There are token demand issues.

I think we agree that there should be a reason to hold the token, but given the token has value at all I’m not entirely clear what the demand issues are? If there was no demand price would be at zero. Sure we can get something spun up for the future which is why I bought up the flywheel idea, but right now the community members, Set and DFP are all heads down working to push things forward and accumulate through LM & contributions, rather than focus on the price of the governance token.

If you’ve seen this post you’ll know one of our values is long term thinking, so rather than rushing to increase demand for the token, we have offered a few different ways interested parties can get hold of it. You can provide liquidity to the DPI/ETH Uni pool or make a contribution to the efforts of the Coop. Not everyone has time to contribute but if they still want to be a part of Index Coop they can purchase $index on the open market. You’ll notice the Index liquidity pools on Uniswap sprung up organically, and we purposefully never created a pool2, again because we are focused on making Index Coop a success first and foremost, knowing that this will bring demand in the long term.

@LemonadeAlpha

We’re still spending a boatload on DEX liquidity and there isn’t much discussion I see of how to get over this problem…

We discussed it and signalled via polling in order to get to the point of reduced rewards in the first place, and will change the allocation on a monthly basis to tune the liquidity in the pool to the $30m target. Beyond that you and I have both started a topic related to it! I’ll get it added to the growth call on Monday so everyone has an opportunity to input and discuss it further.

[LemonadeAlpha]

May I ask, does the entirety of 0.95% DPI streaming fees go to the COOP? If not, where else does it go?

How hard is it to say the streaming fee will be used to pay dividends to INDEX holders? At 1b aum, that’s roughly $9.5m annually to INDEX holders. That is attractive.

With more token demand, the coop can accomplish more through the treasury and advance DPI.

With no token demand and disdain for secondary market buyers, treasury can’t accomplish anything.

Frankly, I’m not sure what the pushback is for.

1. I’d like to see if Set is willing to publicly commit to not selling tokens for 1 year. If you are part of Set, answering for them makes more sense.

2. The demand issues are exactly what I’ve stated in the post:

-Confusion on site as to whether INDEX should be held, sold, or bought. The fact that no one has even attempted to square this in this thread is pretty telling. One page basically screams “SELL INDEX TOKENS IF YOU RECEIVE THEM”. Others are plastered with solicitations for buying INDEX (Clearly a desire of the COOP) You guys are not educating people on why it would be valuable. It’s confusing.

At the very least, taking down the mess from whoever wrote “they don’t” with improper punctuation and putting a more thoughtful paragraph is necessary. I can’t believe I have to say this.

If there is no indication of a concrete value accrual method, rational people have no reason to hold the token.

-If people like me, who are bidding on INDEX, don’t keep doing so, the price will collapse? Do you not understand that?

We discussed it and signalled via polling in order to get to the point of reduced rewards in the first place, and will change the allocation on a monthly basis to tune the liquidity in the pool to the $30m target

So the current regime is to kick the can down the road and use > 1% of token supply on a MONTHLY basis to sustain a liquidity pool…

[ChrisSavadge]

How hard is it to say the streaming fee will be used to pay dividends to INDEX holders?

The problem is this would make it much easier for INDEX to be regarded as a security in the United States. Until there is regulatory clarity on the status of governance tokens, you don’t want to provoke an SEC enforcement action if you’re concerned primarily about the INDEX price.

This is a major question hanging over all manner of so-called governance tokens, but is a particularly thorny issue for projects with clear ties to the USA. This is why you see COMP and UNI teams tread very carefully and deliberately in their governance involvement. They cannot be seen to take actions with the clear effect of increasing the price.

[Rhieve369]

Why are you waiting for regulations?