The INDEX token is interesting in many ways, but currently has only two stated use-cases outside of future-value-speculation:
- Governance of the Index Coop DAO; and,
- Meta-governance of the components of the DPI-ecosystem for which those capabilities have been set-up.
A third use-case has recently appeared: proposing votes utilizing the meta-governance framework via delegation.
These are, in theory, the only existing drivers of INDEX value. Again, anything else is speculative. So how do we protect that value?
- Relentlessly guard against unlocking the power of the INDEX token outside of the established use-cases;
- Provide INDEX as a reward only to those that are aligned with IC core philosophies (the handbook captures this well: $INDEX should be viewed as a ‘proof-of-work’ token as it is distributed to those who contribute to the progress of Index Coop);
- Build out a safe and well-communicated process (and charge a fee similar to a flashloan) for the vote-proposal use-case above; and,
- Utilize OTC sparingly, if at all.
As it stands, there are discussions or instances violating all of these value drivers (tied to the 4 points above):
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Covered in the following points, just a note that no new use-cases should be established without thoughtful consideration.
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We currently provide INDEX as a reward to contributors and liquidity providers. While contributor dedication to DAO sustainability is without question, the motivations of liquidity providers are generally unknown. Using Uniswap as an example, the DAO is quite small relative to the AUM, and so rewarding those that add value to the system directly (via LP rewards, Grants, airdrops) makes sense. In the case of IC it’s mainly users and contributors, as we’re capable of seeding our own liquidity (and in my opinion should do this more - future post on this soon). IC is WAY more labor-intensive than Uniswap operationally day-to-day on a relative basis, as such contributors should be rewarded in greater proportion as contributor buy-in will be necessary for sustainability. Only those that actively contribute and/or utilize our products consistently should be rewarded with equity in the DAO.
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The ability to propose a vote on a protocol such as Uniswap is quite powerful, currently requiring approx. $300MM in UNI to be delegated to an address to propose. While the recent delegation was exciting in proving the use-case, the vote to do so was closer than most (64%/36%) with some objections noted in the forum. At best, we utilize resources without remuneration if we continue to do this, at worst we get blacklisted by Uniswap for a perceived partiality in lending out votes. We should interface with other protocols to get a sense of if this type of thing is well received, and if so, charge handsomely for it.
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OTC sales are a powerful way to onboard potential partners utilizing treasury assets, however it allows an immense amount of value to escape the system when INDEX is transferred out of the treasury. By way of example, a $1MM INDEX buy on the open market would currently drive the index price up by 22% and fracture across multiple liquidity sources:
While there are considerations regarding the relatively low-liquidity of INDEX to consider, the fact remains that even one $1MM OTC sale STRONGLY suppresses the main value accrual mechanism of INDEX (demand on the open market), harming all holders including the strength of the community treasury. As such, a study should be conducted outlining the benefit to The Coop and potential harm to holders should OTC sales be put forth for consideration.
These seemingly disparate points are raised here to highlight one overarching theme:
We need to clearly establish utility mechanisms that imbue the INDEX token with value and remain credibly neutral in their application. Allowing the price to reflect demand will create significantly more value in the long-term, as we have an appreciating asset, yet use USD as our baseline for rewards and LP funding.
Profit and INDEX token value tend to be taboo topics here at The Coop, and as such both have not been given the appropriate amount of attention and discussion, so I’d like to open that conversation up now and get some philosophical underpinnings in-place as a guide. All input appreciated.