We are ready to launch simple leveraged products in-house
The purpose of this post is to communicate to the Index Coop community that the Product Working Group has the capacity to begin launching simple leveraged products. These products will be designed and maintained by the Automated Indices Pod, who have been responsible for the upkeep of our FLI products in recent months. These products are “simple” in that they are designed to closely track a 2x leverage ratio on the underlying asset.
We have reviewed all the products on the market (Crypto / CEX and Tradfi) and considered the pros and cons of each. Our proposed methodology has considerable benefits in terms of simplicity and behavior in the market. This gives us the ability to use the resources available to us to launch products with a proven, popular strategy. This will require only minimal lift by either the product team or by engineering - Set or IC. Because of the straightforward nature of these products, we propose to the community that 100% of the income from these products should accrue to the Index Coop.
The Automated Indices Pod
This team was formed in April 2021 to focus on three pillars - growing, maintaining and launching products. It is a cross-disciplinary team with members from Product, Engineering, Business Development and Analytics.
To date our focus has been on risk management and communications. Our focus has been on monitoring the FLI products and ensuring they are operating within safe parameters, and that our stakeholders are informed of any important information. During that time we have had the opportunity to develop the skills and understanding to design and launch our own products. Some examples of our work are:
- Discord Bot in #fli-parameter-status
- Twitter bot for FLI products (soon to be launched)
- FLI Educational materials: Everything You Need to Know About FLI Product Parameters, Understanding the Risks of Owning FLI Tokens, How Volatility Drift Affects FLI Products
- Volatility decay calculator, ETH2x-FLI modelling 1, dynamic risk model, FLI tokens dashboard web app, FLI profitability dashboard
- Parameter updates:
- Management of the Discord #fli-discussion channel, including addressing technical questions about the products
How are these products different from the current FLI products?
The current FLI products - ETH2x-FLI and BTC2x-FLI deploy a proprietary rebalancing algorithm that is designed to help reduce the impact of volatility drag. This is a novel innovation in the space, and unique to the FLI products. The products that we wish to launch are clearly differentiated from the FLI products in two ways.
For one, we propose to deploy a much simpler strategy with no sophisticated rebalancing algorithm. These products will simply rebalance back to a 2x leverage ratio at regular intervals. The same simple strategy is deployed on a number of leading leveraged indices in TradFi and Crypto, and is used to manage billions of dollars worth of capital. We are currently researching what interval will perform best, and will share that info in the forthcoming product proposals.
Secondly, we propose to launch products that use different underlying assets from the FLI products. Initially, we propose launching both a MATIC2x product and a LINK2x product. We appreciate that DeFi pulse has been the methodologist on leveraged products, but we do not believe that they wish to hold a monopoly on leveraged products within the coop - especially when they employ a different strategy and are based on different assets. We also believe that it is in the best interest of the Coop that multiple partners and methodologists are encouraged to launch leveraged products with us. This should include the Coop itself.
Also of note, we have received significant feedback from our customers that they find the FLI methodology confusing and frustrating. In a choppy or sideways market, a FLI strategy can help to offset some volatility decay, but it will underperform a simple fixed leverage strategy during a strong market move. Similarly, a simple leveraged strategy should be more predictable in performance. The products that we are proposing to launch will offer that option to our customers who want a short burst of leveraged exposure during a bull market.
Why are we doing this?
One goal of the team is to generate revenue for Index Coop, but that is not all we want to achieve. We want to present this option to the community because we share a different vision of what Index Coop can be. It is up to the community to decide if this is the correct path forward.
We believe that the future of the Coop is to design and build the majority of our products in-house. The methodologist bounty program was an incredible success - it bootstrapped growth and enabled us to design and launch products - when we could not do so ourselves. But the greater success of the methodologist bounty was the secondary effect in that it enabled this community to form around an idea - crypto investing should be made simple and accessible to all. Because of that success, we find ourselves in a very different position today. We no longer need anyone to tell us how to design products. We have the capability to do that ourselves.
What is the role of a methodologist?
Blockchain and DeFi is about openness and collaboration. The Index Coop is emblematic of these virtues. We will work with anyone, we will hear any idea, we will commit to any project that we believe in. For this reason, I share the belief with many of you that our future is full of successful collaborations. But we have the option to be more selective about who we collaborate with. The external methodologist program confers massive advantages to anyone we partner with. But our resources are limited. Every project that we commit to today, could mean a good project that we have to turn down in the future.
For this reason we need to ask our prospective methodologists two important questions:
- What is it about this product that Index Coop cannot build ourselves?
- What are you going to contribute to the Index Coop to ensure that this product is a long term success?
Being able to answer these questions will allow us to achieve what should be a primary goal in product design - attracting sophisticated partners who bring resources and capabilities that we do not have in-house, and that are willing to commit to years of collaboration to improve upon designs and to create new ones.
How does launching simple leveraged products affect this?
Index Coop taking a more assertive stance in our prospective partnerships begins with acknowledging our own capabilities (to the benefit of all INDEX holders). Primarily, we are not dependent on anyone to launch products. Successfully launching the LINK2x and MATIC2x products is an opportunity to demonstrate that we can do this quickly and safely. With the community’s further support, we would be able to scale up a rapid deployment pipeline. Within months, we will be able to support a diverse suite of products that generate revenue in all markets. This can be achieved far more quickly and efficiently if we execute it fully in-house. The goal of the team is that we can generate positive cash flow for the Coop within months. If we can accomplish that we will have achieved sustainability for the Coop. Our hope would be that this creates an environment in which in-house creativity and innovation is rewarded. The continued success of MVI demonstrates that we already have the talent to do this. These are the kinds of projects that should be encouraged.
What if we don’t do this?
This decision belongs to the community. We believe very strongly that the future success of the Coop requires us to become proactive in developing products. However, we realise that the community may not agree with this strategy, and will respect any decision arrived at. But I must ask the question - if not now, then when? And what are we giving up by not doing this?
You only learn when you step outside of your comfort zone. Only when you are actively overcoming new challenges do you improve. The Index Coop outsourcing all of our product design is stifling the development of our team. We are left in the role of facilitator but not creator.
This creates two major problems:
- We will never develop the expertise required to design leading products of the future.
- The most talented people will be incentivized to interact with us as an external third-party.
This environment creates a pre-emptive brain drain in our community that we are already experiencing, and that we will not overcome until we redefine our position as the primary authors of our product roadmap. We should create an environment where the best and brightest are hungry to work with our team - not because of what they can get out of us, but because of what they can learn from us.
How does this fit into the current product roadmap?
Right now we have a product team with no product roadmap. We have a first mover advantage in DeFi investing. We have a massively capable team, a phenomenally well-run DAO and a strong reputation. We have a once in a generation opportunity to play a significant role in shaping the economy of the 21st century. But we are not launching products. We are strategizing, and negotiating, and planning and considering.
Let’s launch products.