In the most recent product/growth call (30th Nov) the community discussed how to improve education around our native token, $INDEX.
We currently have 2 goals outlined for the Index Coop
- Increase Assets Under Vault (AUV)
- Widely distribute the $INDEX token
And three main stakeholders make up the community:
- Set team
- Methodologists (currently just DeFi Pulse)
- Index Coop including core contributors and token holders
It’s something I’ve been thinking about for a while in the context of governance and aligning incentives, so I created a flowchart to share how I think about the tokenomics currently, and how they can be improved to capture more value as we grow.
Of course the aim is for the 3 stakeholder groups to all blend into one community over time. The reason I break it down like this is because it’s easier to then analyse how the tokenomics can be designed to create a positive feedback loop. The team at Set have already removed themselves from receiving tokens through the treasury committee at this time which leaves us to focus on methodologist and community rewards.
To incentivise positive outcomes for Index Coop, $INDEX needs to have value, without a dollar value there is no incentive to roll out quality products through our community via the methodologist bounty, and members who contribute to areas besides creating/maintaining products will be doing so effectively for free. Beyond these examples, anyone accumulating the tokens through liquidity mining with a view to governing the protocol will also be doing so altruistically if the token has no value.
Clearly though that isn’t the case. As managers and marketers of the index products, the Coop is accruing a portion of streaming fees from DPI. Combine this with the potential of managing an increasing number of products in future and the value case becomes clear. This is one side of the flywheel, where $INDEX value increasing means a larger incentive for teams to launch their products with us, bringing more streaming fees and credibility, thus further raising the token price.
The next part of the flywheel is linked to the goal of widening token distribution to decentralise the community and governance. While this is nice for the community and does achieve the stated goal, it is not a reflexive action like the methodologist bounty.
For this part of the tokenomics to become really powerful, we need to close the loop and introduce an incentive for token holders to want to participate in governance. This is where part 3 ‘Governance Mining’ comes in. I propose we have a third stated goal to engage and align voters with the other community stakeholders (contributors and methodologists).
There is precedent for something similar over at Balancer, and I plan to go into more detail in a separate post about what $INDEX gov mining might look like. For example at the moment we use snapshot to vote but the plan is to move on-chain so there is opportunity for a staking contract, another consideration would be can streaming fees be diverted to gov stakers in future? The more ways we can align the community with financial incentives the greater the flywheel effect.
One final point is that the chart ended up looking like an owl so I think that gives it extra credibility, well done if you spotted it!