Revamping the Product Development Process

Product
1

Title: Revamping the Product Development Process
Status: Draft
Author(s): @allan.g
Reviewer(s): @0x_Dev @jordan.t @pblivin0x @MrMadila @anthonyb.eth
Created: 26 February 2024

Summary

This proposal seeks to revamp the Index Coop’s product development process by introducing a pre-sale process for new product proposals. This pre-sale process will accomplish four things:

  1. Surface a direct demand signal (or lack thereof) for potential products
  2. Ensure DAO resources are allocated to products with clear demand
  3. Bootstrap TVL and liquidity for new products before launch
  4. Incentivize early adopters to support and grow new products over time

Background

Over time, Index Coop’s product development process has taken many different forms:

There have also been efforts over the last 18 months to refine the product development process further, amounting to a more extensive and iterative research phase for a given product and resulting in a formal business case, product requirements document, and product viability score. Primary market research and customer research have become more integral to early-stage design, though this is still a critical area of improvement for the Coop. Altogether, many elements of the modern process are similar to historical development practices and resemble standardized product development frameworks.

Despite this, we have failed to launch a successful product since icETH in April 2022. Since then, dsETH, gtcETH, ic21, and cdETI have not made meaningful contributions to TVL, net inflows, recurring revenue, or user growth. There are many potential explanations (and excuses): bear market conditions, limited structured product inflows, flawed market research, target user ambiguity, distribution hurdles, stronger competition, etc. Solely blaming external factors would be a mistake, though they do play a meaningful role in a product’s ultimate success or failure. Identifying internal factors that contribute to failures is the motivation for this proposal.

Motivation

Separating signal from noise is one of the most challenging aspects for any product development process. Over time, the Coop’s early product efforts have expanded to capture more signals in the form of qualitative research–interviews, surveys, contextual inquiry–as well as quantitative research–wallet behavior, cohort analysis, onchain activity–all in service of the fundamental question: “Can this product meet a need or solve a problem for enough customers?”.

Admittedly, these methods are imperfect and far from exhaustive. Biases, assumptions, and subjectivity affect research scope and erode outcomes. Constraints around customer communication, sampling, and comparability complicate market validation efforts. Opinions, preferences, and enthusiasm–from customers, contributors, and investors–are also unreliable indicators of product potential. All of these factors and more impact our ability to decipher clear demand signals.

Consequently, we would like to propose an alternative path for product development that answers this fundamental question faster and with higher fidelity through the use of a pre-sale process.

Pre-sale Process Overview

The pre-sale process enables customers and early adopters to demonstrate tangible demand for a proposed product by depositing funds into the token before launch. Each pre-sale will have a pre-defined deposit threshold (ex. $3m) that must be met within a specified amount of time (ex. 30 days) to determine whether or not the product is formally launched. If a pre-sale meets or exceeds this threshold in the allotted time, the product will be launched by the Index Coop. If the pre-sale does not meet the agreed-upon threshold, the product will not be launched and depositors can withdraw their funds. Pre-sale supporters may also be incentivized with $INDEX, future product revenue, or other rewards (more on this later).

Pre-sale Process Steps (high-level)

  • Step 0: publish Pre-sale Product Proposal to the forum for comment period

  • Step 1: conduct $INDEX vote to advance (or not advance) the product to the Pre-sale

  • Step 2: open Pre-sale for a specified amount of time with a defined deposit threshold*

  • Step 3: if Pre-sale threshold is met, begin formal launch preparation and distribute incentives*

  • Step 4: execute formal product launch*

  • exact timelines to be determined on a per product basis

Resource Allocation

In addition to signaling direct demand for potential products, the pre-sale process also ensures that DAO resources are allocated more efficiently. Under the current product development process, a significant amount of resources must be invested to bring a product to market. Almost every contributor is involved at some stage, translating to direct costs and opportunity costs. It’s not until after these investments are made and the product is formally launched that we truly find out if there is a demand for a product.

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Under the pre-sale process, the majority of these go-to-market activities do not need to be completed until after the deposit threshold is met and there is a clear indication of customer demand. Therefore, this pre-sale approach minimizes the upfront investment that has been prohibitive in the past and clarifies the case for eventual resource allocation.

Product Bootstrapping

For pre-sale products that are successful, there is additional validation in the form of early TVL and liquidity that supports future growth. New products that fail to attract early inflows are likely to have low secondary market liquidity, which introduces friction for buyers and sellers. Though all Index Coop products can be issued and redeemed permissionlessly without a dependency on secondary market liquidity, the gas costs associated with self-issuance can be prohibitive for small-to-medium-sized purchases. However, products that accumulate early TVL often beget liquidity and enable access for more customers, leading to more successful product outcomes.

We are also exploring an intermediary step between pre-sale completion and formal product launch whereby depositors can lend their new product tokens to liquidity providers in exchange for some amount of yield. If possible, this step may solve the secondary market liquidity issue before a product is formally launched and create an additional perk for early adopters in the form of yield (without IL risk). More details to come on this part of the process.

Early Adopter Incentives

Finally, the pre-sale process will experiment with incentives for early adopters and product supporters to participate in the creation and growth of new products. Ultimately, these incentives should align the long-term interests of product supporters and the Index Coop, in a more sustainable way than early liquidity mining experiments. These incentives may take multiple forms: $INDEX tokens with a vesting schedule, tokenized future product revenue, or other incentives provided by product partners. Additional perks, such as access to exclusive yield opportunities, may be applicable on a per-product basis.

Incentives are being researched in collaboration with community members, investors, and counsel, though it is worth noting that none of these ideas are guaranteed to reach fruition. More conclusive details will be shared on a per-product basis once a clear, compliant path has been established.

Next Steps

There will be a seven-day comment period on this proposal before it is piloted by an initial product. Community engagement and constructive feedback are encouraged, both on this proposal and the Pre-Sale Product Proposal template.

An $INDEX token vote is not required for this new pre-sale process to be ratified; however, product-specific pre-sale proposals in the future must be approved by $INDEX holders before a pre-sale may begin.

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