Author: Matthew Graham (@Matthew_Graham)
Created: 15 October 2021
This proposal is to approve a spend of $105,770 to joint incentivise lending and borrowing of DPI, MVI, BED & ETH2x-FLI on Beta Finance’s platform. Index Coop will acquire $105,770 of BETA tokens on market by swapping ETH for BETA from the Operations Account and transferring it to the address shown below:
Initially, the products will not be whitelisted as collateral as a risk precaution and in time, this will be re-evaluated when Beta considers listing new collateral.
Index Coop will initialise the MVI, BED, and ETH2x-FLI markets on Beta Finance, this will require some ETH for processing the transactions and can be performed by anyone.
The permissionless lending platform Beta Finance launched on the 18th August 2021 and entered into Phase 2 of the launch cycle with the introduction of liquidity incentives and the permissionless listing of assets on the 11th October 2021. Index Coop has the opportunity to list the following assets with the support of the core team at Beta Finance.
The target TVL at launch and at the end of the incentive program is shown below:
As part of the listing process, Beta Finance has asked if Index Coop is able to support the initiative and provide BETA incentives. Initially, Index Coop considered providing INDEX incentives to compliment the BETA incentives in a dual incentive program. However, we learnt this requires a new contract to be written and as developers time is a premium, we are opting for an alternative solution. The newly proposed solution is for Index Coop to acquire BETA tokens on market and transfer the same USD spend value to Beta Finance in the form of BETA tokens. This enables the existing distribution contracts to be used and avoids any Index Coop developer lift.
Beta Finance and Index Coop are to provide joint incentives in the form of BETA tokens to support lending and borrowing of the four Index Coop products.
The initial across all pools is assumed to be ~$5M with the vision of growing the pools to ~$20M thereafter. The total cost for this incentive program is $105,770 and the durations is estimated to be around 3 months. At the end of the 3 month period, we will revert and advise the actual Index Coop portion of the spend. Beta Finance will distribute all BETA rewards for lenders and borrowers of Index Coop products.
Beta Finance is in the launch phase, recently listed on Binance and was the 21st team to go through the Binance Launch Pad. Beta has an aggressive growth strategy that involves expanding across other ecosystems, including L2. As the first partner to list assets on Beta Finance, and with incentives, Index Coop is investing in a relationship for the future that will help integrate Index Coop products across other ecosystems. As Beta Finance expands and a solid relationship is established, it will be easier for Index Coop products to be integrated and attain extrinsic use cases in other ecosystems.
Another benefit of partnering with an early launch phase community is DPI, MVI & ETH2x-FLI holders now have the ability to earn yield by depositing or borrowing Index Coop products on the platform.
- Beta finance will be the first lending protocol to list MVI.
- 10% yield on MVI rather appealing for an otherwise unproductive asset.
- Beta Finance will be the first lending protocol to provide incentives on ETH2x-FLI and DPI.
- Market participants can deposit DPI and short any other listed asset.
- It is possible to Long DeFi and Short the Metaverse in a single trade.
- Traders can hedge their ETH portfolio by shorting ETH2x-FLI. This could create a fixed income like product strategy with minimal ETH price exposure.
- Traders can deposit stables and short ETH2x-FLI, giving them a leverage short position.
- During Crab season, the ETH2x-FLI decay can be turned into a profitable strategy by shorting ETH2x-FLI (this would be risky and hard to execute)
Will this drive N$F to Index Coop products ? We haven’t tried anything like this before and therefore don’t know. This is an experience and this IIP is to spend $105,769.23 to find out what happens. When we offered 10%-15% Liquidity Mining rewards on DPI-ETH, we had a lot of Liquidity providers deposit into our staking contract. With 10% on just DPI deposits, this is equivalent to 20% on a 50/50 DPI/ETH LP token and 20% on a MVI/ETH LP token without the impermanent loss risk.
Index Coop and Beta Finance are targeting a $20M across the DPI, MVI, BED & ETH2x-FLI pools. Incentivising all the mentioned products is expected to occur during the week starting 22nd November 2021, subject to Index Coop’s governance process being complete.
Incentives are distributed based upon the target APR. The APR is expected to drift lower as capital enters the pool and every two weeks the distribution of incentives will be adjusted to revert back to the target APR. The initial target pool sizes at launch are as shown below:
- DPI - $3.25MM deposits and $1.28MM borrowed
- MVI - $425K deposits and $167K borrowed
- BED - $230K deposits and $90K borrowed
- ETH2x-FLI - $1MM deposits and $425K borrowed
Details for how this was determined can be found here.
The above is different to what was originally proposed, which is shown below:
1% lending APR on $10M for 2wks + 2% APR on $10M for 2wks assuming only 75% is borrowed = $7,143
1% lending APR on $20M for 10wks + 2% APR on $20M for 10wks assuming only 75% is borrowed = $96,154
Total cost is $105,770
Since, the original USD spend figure was determined, the initial launch pool size has drifted from $10M TVL to $5M TVL. The methodology applied is more comprehensive than the original approach.
However, expected spend is anchored at $105,770 and it is important to recognise Index Coop’s spend is considerably less than Beta Finance’s spend. What does this mean, well, it means Index Coop will incur the same spend with the same end objective of $20M TVL in Beta Finance. The distinction is that rewards are distributed based on APR which is determined by TVL and this can be rather fluid with prevailing market conditions. The variables in the cost estimates is TVL and APR.
What happens if we hold the APR around the target level and the TVL does not come? Then we can decide to increase the rewards distribution in an attempt to boost the TVL- this discretion will be Beta Finance decision as they are spending 10x Index Coop’s rewards.
Incentives are expected to last for an initial 3 month duration. Both Index Coop and Beta Finance are committing to an initial 3 month term. Towards the end of the 3 months, both communities will reconsider the next step.
The funds will be administered by Beta Finance to lenders and borrowers. $105,770 in BETA from the Operations Account will be allocated towards this initiative. The Operations Account will sell ETH for BETA tokens.
DO offer $105,770 in BETA incentives across all Index Coop products when Beta Finance lists DPI, MVI, BED & ETH2x-FLI. BETA is to be purchased using ETH from the Operations Account and sent to Beta Finance.
DO NOT offer incentives on any Index Coop product when Beta Finance lists DPI, MVI, BED & ETH2x-FLI.
Copyright and related rights waived via CC0.!