The sCoop - Contributor Newsletter - 2022.05.10 Tuesday

Fresh Owlpha, curated daily. This is @IndexCoopDAO. (previous issue)

Not too busy this week as the Owls gear up for Permissionless! Big news from Monday and Tuesday was the Community Call on the Market Neutral Yield Index ($MNYe), expected to launch later this week.

Tomorrow, we’re talking results of the Owl Pulse Survey on the Leadership Forum. On Thursday, we’ll hear from Growth Nest and, as per, check out the Community Welcome Call if you’re new to Index.


Forum Posts:

Bounty Board:

  • Build Web App for Displaying Your icETH Yield
  • Create a Video Review for an Index Coop Product
  • YouTube BizDev Pro

Right on the MNYe

MNYe Crash Course | slides | recording

Why a crash course? Because MNYe is complicated; it’s not something we’ve done before or that’s very popular in DeFi as is. It’s also our first product native to Optimism (using Set infrastructure) with basis trade module, a component within Set that plugs into Perpetual Protocol, an onchain solution for trading perpetruals. The market we care about is the ETH market.

So, we’re plugging into the ETH perpetual market and extracting yield from the funding rate (what is paid to traders depending on what side (short/long) of the trade that they’re on). The Longs have to pay periodically to the Shorts. MNYe will always hold a Short ETH perp position (a perp contract is like a futures contract, but with no end date). So under the hood, we’re betting on the funding rate to stay positive so Longs will continue to pay funding rates to Shorts, generating yield.

Simply: traders that are long pay this funding rate to traders that are short. MNYe token holders capture this funding rate via a short ETH position that is offset by an equivalent amount of spot ETH. The result is a market neutral APY of 15-20%, denominated in USDC.

Let’s unpack this. How’s it working? MNYe will be built on Set Protocol infrastructure on Optimism and utilize an integration with Perpetual Protocol. The product will employ an automated strategy that maintains a delta neutral position with a 50% position in -1x short ETH perp (collateralized with USDC) and 50% spot ETH.
The funding rate, denominated in USDC, is paid every hour and any returns are auto-compounded every 7 days (IIP-152). The Projected Yield from MNYe TokenSets is derived from the past month’s NAV performance.

Now, risks, 3 of 'em:

  1. Liquidation: ** If the Ethereum price increases dramatically and the short position is not de-levered, MNYe could be liquidated. The leverage ratio is actively monitored to mitigate this risk. The liquidation threshold is an effective leverage of 16x, equivalent to a margin ratio of 6.25%.
  2. Negative funding rate: We’re betting on funding rate being positive. If funding rate is negative for a sustained period, MNYe will provide negative yield. To minimize this risk, the strategy will be unwound if the yield is negative for a sustained period.
  3. High volatility: NAV has high volatility, presumably due to oracle price feed.

Finally, a few FAQs. Watch the recording for more questions answered.

Expect launch later this week!

Wednesday Meetings: (UTC)
1800 - Leadership Forum

Thursday Meetings: (UTC)
1600 - Community Welcome Orientation Call
1800 - Growth Nest

Daily TROWLLpha: “the best DAO tool isn’t a treasury management system or web3 discord / it’s therapy” - @chaserchapman