Firstly, this group is doing great work, thank you for democratizing crypto, and I’m excited to contribute. Building off this thread by @gregdocter, I’d like to propose that the we adopt a set of investing tenets for all methodologists to adhere consider. I’ll preface this post with two caveats regarding my motivations:
- My goal is to make crypto accessible to as many people as possible, and therefore my bias is to optimize for small retail investors over others; this is aligned with the core KPI of maximizing total unique holders
- I believe that optimizing for customer needs is the best way to grow an institution in the long run; this is aligned with the north star optimization metric of maximizing total value locked
With that said, I propose we develop some tenets. What is a tenet?
- A tenet is a tie-breaker; at a high level, it is a pre-agreed decision we all can refer to whenever there is disagreement over something
- The creation of tenets forces us to refine our optimization criteria and priorities; in this case, we can build open the work already done by @gregdocter and others
- Tenets drive alignment on key issues early on and ensure the entire organization rows in roughly the same direction
- Tenets are similar to functions in programming in that once agreed to, there’s no need to re-litigate issues over and over again, saving time and increasing velocity; in this way, tenets increase organizational leverage because various autonomous teams can move faster knowing that everyone is prioritizing/decisioning in roughly the same way; this will be especially important if we want to become the Blackrock of crypto
If we do decide to consider this proposal and discuss tenets, below are a few questions to consider:
- Should our individual indexes (DPI, MVI, etc.) be thought of and marketed as discrete products, or should they be treated as components of a portfolio of indexes? More broadly, should we bias towards addressing customer needs over the Coop’s needs in the near term? This question is motivated by this point in the Polygon 10 proposal around not including the same token in multiple IC indexes. I have conviction that customers invest in themes; for example, if you believe in a Ready Player One future you are going to try and gain exposure to that future through the MVI index in crypto or the META ETF in TradFi. Over in DeFi, we hypothesize that many treasuries invest in DPI because they believe DeFi will see secular growth. Increasingly, tokens are addressing multiple themes. Therefore, the right thing to do for customers is to develop each index on a standalone basis to offer the best exposure to a particular theme, regardless of whether components of that index are also a part of other indexes. While this may cause near-term pain to IC from an operational perspective, we must deliver the products that customers want.
- Should we optimize for absolute returns or risk-adjust returns (Sharpe-ratio)? Having no “share of holdings” guardrails exposes our products to potentially high upside (e.g. Axie Infinity’s current epic run). However, the flip side is that those epic runs can very quickly turn into massive crashes. Should we therefore try to manage volatility? Any methodologist does de facto take a position on such questions – should we have a Coop-wide point of view on this? At a minimum should we make every methodologist answer the question of whether they’re trying to give unbiased exposure versus manage risk, as part of their index proposal?