Questions on the relationship between Set labs and INDEX coop

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I don’t think I fully understand the relationship between Set Labs, Set protocol and INDEX coop. And I suspect that I’m not the only one…

From the Token sets FAQ:
TokenSets is the first application built on the Set Protocol, which allows users to buy and sell tokenized portfolio management strategies easily. Set Protocol is a protocol that allows users to create, issue, redeem, and manage portfolios of ERC-20 tokens in a completely trustless way. Learn more about Set Protocol here
and
Set Labs Inc. is the company building the Set Protocol smart contracts. Set Labs Inc. does not serve as managers for any Sets, act as a counterparty, or custody anyone’s funds on TokenSets. Set Labs Inc. may participate in each open auction as a participant along with any other liquidity providers. Learn more about Set Protocol here

So in V1, Set labs were not managing any sets, and (as far as I understand) did not receive any income from set managers [i.e. Set Labs are currently burning cash with minimal income].

V2 sets have been launched, and Set have been involved in the first three v2 Sets (ETH WBTC Yield farm, ETH USD yield farm, and DeFI index DPI with DeFI pulse). So Set Labs will now start to benefit from streaming (and other) fees.

INDEX Coop is a decentralised organisation launched by Set Labs and DefI Pulse to build a community tomanage, market and reap rewards from the creation crypto based index sets. As founders Set Labs and DeFi Pulse control 30% of the total supply (subject to vesting etc).

INDEX coop is currently distributing the INDEX governance tokens by a combination of retrospective air dropping on DPI holders and ongoing DPI:ETH liquidity providers. So INDEX coop farming is driving a substantial increase in DPI AUM (which is good for Set Labs v2 streaming fees).

So a few questions occur to me:

What is the road map for Set Labs to become profit making?

I see a few potential income streams:

  1. Consultancy / coding support for community set creators
  2. Income from INDEX tokens
  3. Income from the manager of Set Lab sets on the Set protocol
  4. charging streaming fees for all Sets on the Set protocol (is this even possible)
  5. Charging a fee based on the purchases / sale of Sets via the tokensets.com website (as apposed to sales on secondary markets like Uniswap).

Other questions include:
Do Set labs and Defi pulse intend to transfer the 0.95% streaming fee for the DPI index to INDEX coop? (Note I personally don’t think that they have to, as DPI was created before INDEX coop was announced. However, INDEX coop could easily launch a similar INDEX and cannabalise DPI AUM)

Do Set labs see INDEX coop as the sole route to launch future sets to the market, or do they (Set Labs) plan to launch and manage Sets outside the INDEX coop community governance? (Again, I would see no problem with that so long as we understand the differentiation)

I understand that Fair Launches are a hot topic at the moment, and that there are multiple opinions on the best approach. I’m grateful for the change to get involved in an INDEX community and to share some of the governance rewards as we build a part of DeFi.

Uniswap approached fair launch / decentrralisation via launching a governance token that covers the entire Uniswap entity. By launching INDEX coop, Set Labs did something different. I suppose I’m trying to understand the rational for not copying Uniswap and create the “SET” governance token.
.

I think my key question is:
Should I as a INDEX holder consider Set Labs to be a competitor for Set marketing and governance rewards, (admittedly one that is partially aligned with my interests as co-owners of INDEX tokens). Or should Set Labs be considered as the incubator / core team for INDEX coop who will eventually be assimilated into the INDEX coop as part of a planned decentralisation?

I understand that Fair Launches are a hot topic at the moment, and that there are multiple opinions on the best approach. Personally I’m grateful for the change to get involved in the INDEX community and to share some of the governance rewards as we build a part of DeFi.

If anyone can point me toward any published (or write?) information on the vision for Set Labs and how it relates to INDEX coop, I would be extremely grateful.

Best regards

OA

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This is a great question and would appreciate the clarifications on why set lab decided to issue an index token rather than a set protocol token. My first impression is maybe set protocol would like to stay as a for profit private organization while index protocol is the community version of it. But I do see the possibilities of it having conflicting interest down the road on how the fees are being distributed, on the percentage allocated to set protocol and index token holders.

And I am guessing we are in default going to use set protocol as the issuing platform. It might be a good idea to set in stone what are the expected fees would be.

I think we can view index protocol as a subsidiary of set protocol where set protocol and defi pulse is holding 30% shares. This kind of structure is quite common even in traditional industries.

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Richard’s tweet here is a great start to answering this question:

The way to think about it is that Set Protocol is DeFi’s Prime Brokerage, serving the biggest on-chain asset managers (AMs) in the world. Set Protocol provides the technology, services, access to liquidity, and framework to power these AMs. Initially, Set deployed its own strategies (RoboSets), opened it up to social traders (Social Trading), and is now helping to launch asset management organizations (INDEX). Prime Brokerages in the traditional world (e.g. Goldman Sachs, Morgan Stanley) typically monetize via transaction fees, helping to do deals, etc.

Index Cooperative is the biggest asset manager to work with Set Protocol and intends to be the Blackrock/Vanguard of crypto. Index Cooperative is utilizing Set Protocol as its prime brokerage, but the community could decide to use other providers if they are superior. All fees generated from the index products on Index Cooperative go to INDEX holders, not to Set Protocol.

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@setoshi Thank you.

I also discovered the Bankless AMA with Felix Bankless SET AMA which is highly recommended for others.

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Hello there,

I’m not confortable with this relationship neither, notably because of the 30% allocation to the Set team. It is way too much in my opinion, especially since it’s not even the Set token (I heard someone from the team saying that a Set token is something they are thinking about), but a side project for the team. How are these two worlds going to work together without cannibilizing each other’s opportunities ?

I see 2 options there :

  • the $INDEX token becomes the $SET’s token, and the team can keep 30% of the tokens
  • The INDEX token is limited to few indices, and the team keep a really limited amount of tokens (5% ?) + an additional funding mechanism for each new index project (see my proposal below)

It’s going to be really complicated to motivate people to join the Indexcoop if they found out that there is such an important amount of tokens pre-allocated. Indexcoop is also a way for the Set Protocol to get more awareness, it should be a win-win situation. Currently it mostly benefits to the Set Protocol, which by the way will have the most voting power to decide what to do with the remaining 50% $INDEX in the treasury !

If the Set team really believes in this project, why not setting up an Operational Treasury system (same as Yearn) coming from the Fees paid by our clients ?
We could define a cap of XXX USD (to be discussed), and once it’s filled up by the streaming fees of indices, all the remaining fees start to go to $INDEX holders, creating yield !
This way, the project has to be profitable for all parties involved, including the Set team. It’s a healthy way to launch a project and an awesome signal to the market.

And, by the way, I totally agree with you: we should remove the fee for the creator of an index. Holding $INDEX is enough if terms of incentive, we don’t want to create useless noise on the forum.

Thanks in advance,

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Hey Etienne,

Your concerns are understandable. From Set’s perspective, there are a few lines to delineate:

  • Set is a prime brokerage and is not going to be launching strategies on its own, rather its role is to serve the individuals and communities launching strategies on top.
  • Supporting $INDEX and Index Coop will be Set’s main focus for the foreseeable future and Set will not be supporting index strategies outside of Index.
  • Re: allocation, we believe in fairness. If we do not live up / earn the slotted allocation, we will be glad to make adjustments / reparations. That said, it is still too early to be able to judge what everyone’s contributions actually look like yet.
  • Except in the initial transitionary phase (where the community learns how to govern itself and the multisig is in Set control), Set will never have > 50% voting power. It is the community that must govern Index Coop.
  • Totally agree re: the Operational Treasury. All fees of Indices under Index Coop can be used for whatever purposes the community decides and hopefully get the Coop to a sustainable place.
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Hello Felix and thanks for your answer.

In my opinion Set should be considered as :

  • a large $INDEX holder and thus an important member of the community - therefore I understand the idea of some pre-allocated tokens. But 30% is… a lot… and saying that the Set team won’t have more than 50% of the vote power is not really reassuring…
  • and a service provider which is paid by the $INDEX treasury every time it codes or maintain and indices as requested by the community he belongs to.

Furthermore, since you are aiming for a fair and healthy equilibrium between the community and Set, and since it’s too early to judge anyone´s contribution to the Indexcoop (As you said !), why not let the community decide if you deserve that much tokens pre-allocated ? This would be a great signal of decentralization and fairness. Maybe you end up keeping your 30% ! (Especially if you vote « Yes » ;)).

Happy to discuss further with you.
And by the way, I will try to attend the community call today, but if I can’t, Would it be possible to record it ?

Thanks,
Etienne

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