Thank you for your comments @akirillo and @verto0912. We compiled your questions and our answers into one post:
Locking, minting, burning
This requirement serves the purpose of ruling out token models, where passive tokenholders are diluted without a weighty financial reason. Liquidity mining is used for boosting the growth of the protocol, and could therefore be considered a weighty financial reason as it aims to increase both the usage and utility of the protocol.
Index dynamics (DPI -TTI)
Over time, the DPI and TTI will most likely gradually diverge, as the TTI aims to front-run price action, whereas the DPI is buying the price-wise top performing assets. This can already be seen when looking at the backtested composition from the past few months. As the DeFi space grows and new assets are listed to Token Terminal, this differentiation should become more clear.
Relative weightings
With “relative weightings” we refer to the same calculation that is provided in the proposal. This is how the weighting for each asset is calculated:
- Calculate the P/S ratio for each asset
- Calculate the inverse P/S ratio for each asset (1 divided by asset’s P/S ratio)
- Calculate the uncapped weighting for each asset by dividing its inverse P/S ratio with the sum of all inverse P/S ratios
- Sort the assets from the highest uncapped weighting to the lowest
- Apply a 20% hard-cap (to assets whose weighting is over 20% of the index) by redistributing the extra percentages to the remaining projects pro-rata
Price impact of rebalances
In our view, the price impact of rebalances, and how to minimize it, should be discussed together with the Index Coop and Set Protocol team, who are responsible for the administration of the product. In the current TTI data, larger rebalances result either from (i) new assets being included to the index or (ii) larger changes occurring in a project’s P/S ratio. In the former case, the price impact could be reduced by making the purchases in several tranches over a relatively longer time period. In the latter case, we’re less likely to see as large month-over-month changes as the projects mature and more assets are added to the index. The latest daily trading volumes for the tokens with the larger rebalances give some indication of their current market depth: BNT ($47M), BAL ($90M), COMP ($97M), SUSHI ($665M), YFI ($1.1B), UNI ($750M).
Hopefully these answered your questions.