Treasury Management Goals

Thanks to @Matthew_Graham @verto0912 @MrMadila @Lavi @BigSky7 @overanalyser for input and alignment on this post.

Summary

Treasury management is vital for Index Coop’s continued growth and success. A strong and resilient treasury will allow us to survive both market downturns and prolonged periods of volatility. Projects with no consideration for careful treasury management, giving out native tokens like the Fed prints money, are going to have a hard time sustaining operations through a downturn.

Since the launch of Index Coop our approach to treasury management has tended to be a mix of reactive and proactive actions. This is fine in favourable market conditions and even excusable while we are still in a phase of rapid growth and structuring the community. This post is the first of many to communicate how we intend to flip the approach to being more proactive, starting with communicating our goals.

Where have we been?

To date there has been a vibrant and growing conversation around fees, asset allocation and spending of INDEX tokens. This has taken place across all our social media channels and some examples are linked below. It is important to share these for future posterity and to evidence where the goals below emerged from.

The common thread from our conversations and initiatives to date is the need to:

Grow, sustain and preserve our treasury assets, whilst attracting and compensating community members, through a variety of market conditions.

These main themes this statement describes are currently covered by a mix of the Community Treasury which we tap into for contributor rewards and growth, and the proposed Smart Treasury where, as fees outgrow expenditure, it leads to automated buy-back of INDEX and provides sustainability. There is however a need to address the preservation side of things.

Treasury Management Goals

Following on from above, we believe the three goals outlined below will enable Index Coop to not only persevere but thrive in the long term:

  • Grow - Growth Initiatives

    • Accelerate growth by funding promising initiatives
    • Fund strategic relationships and grow market share
  • Sustain - Fund Expenses from Income

    • Recurring expenses like full time salaries, community rewards, software licenses etc…
    • Flexibility to settle expenses in non INDEX terms, like USDC or ETH
    • Incentive schemes, eg: Liquidity Mining, Methodologies Incentives
    • Governance staking contract rewards
    • Incentivise achieving north stars
  • Preserve - Protect our future

    • Ability to survive throughout all market conditions, eg: crypto winter
    • Deploy capital productively and safely generating APY

Where are we Today?

Currently, the treasury consists of INDEX & DPI tokens. The DPI tokens accumulate from streaming fees and currently neither INDEX or DPI is being used productively to generate yield. We are doing well on the spending side of things, rewards, bounties and incentive programs have all been managed really well. Our next step is to set up the treasury to deliver against the goals outlined above.

The step towards progressing the treasury away from passively holding DPI & INDEX, is the introduction of wETH-INDEX (80/20) pool on Balancer also known as the Smart Treasury. Over an initial 3 months phase, income from DPI will be used to purchase INDEX on market automatically. This market buy-back mechanism acts to provide sustaining capital to Index Coop through token price appreciation which can help to cover operating expenses.

Much more needs to be done if we are to realise the potential of our treasury and that is exactly what we intend to do!

The Data

The balance of our accounts at the end of February 2021 is shown below and given the goals laid out above, gives us the opportunity to act.

  • $254K of DPI for 1.54%
  • $16.2M INDEX for 98.46%

Furthermore, when we consider the inflation schedule shown below, this further highlights the need to develop a plan for managing the treasury as much more funds become available over time.

Qty INDEX Token Oct -Apr 21 May-Oct 21 Nov 21-Apr 22 May-Oct 22 Nov 22-Apr 23 May-Oct 23
Genesis Funding 500,000 0 0 0 0 0
1 Year Vesting 1,187,500 1,187,500 0 0 0 0
2 Year Vesting 0 0 712,500 712,500 0 0
3 Year Vesting 0 0 0 0 475,000 475,000
Total 1,187,500 1,187,500 712,500 712,500 475,000 475,000

Next Steps

There will be more posts to come on the subject of treasury management. The purpose here was to set out the vision and use it as a guide as we kick off the initiatives that help us reach our goals.

Further Reading

The links below highlight other examples that we used to inform our thinking. It’s interesting to note, each project is approaching their sustainability differently, there is no playbook for treasury management and the interaction with token distribution only adds complexity. The great thing is that the Index Coop is being recognised for what we’ve already done.

Yearn - Buy & Build

Yam House

Sushi House

10 Likes

Awesome work, DFC and co. Great to see the clarity of thought here.

Regarding the Smart Treasury - I am personally in favor of pursuing it.

  • There’s lots to learn about community & treasury processes required from creating & managing it
  • There’s lots to learn re: the wider market reaction to it.

Here are some other dynamics to consider:
The proposed smart treasury will funnel DPI streaming fees to the Balancer pool, creating an automatic buy-back mechanism. Based on previous month’s revenue, that looks to be somewhere between 50k to 150k USD per month depending on the TVL of DPI

How much do we expect a 50k - 150k USD market buy to affect the price of INDEX? My instinct says that the pure economics of the smart treasury will not meaningfully impact INDEX price, the streaming fee quantity is currently too small.

Instead, the narrative around INDEX value accrual is what can meaningfully drive INDEX price up. In this case, the fact that the proposed smart treasury is only temporarily redirecting DPI streaming fees significantly weakens the “value accrual narrative” appeal for perspective INDEX holders. Regardless, pushing the value accrual narrative when the Smart Treasury launches is probably worth it.

I don’t think changing the current proposal to permanently redirect DPI streaming fees is the answer, either. Just wanted to surface this for consideration.

TL;DR:

  • IMO the economics of smart treasury will not seriously impact INDEX price
  • Narrative around value accrual has a better chance of driving INDEX price
  • The fact that value accrual is temporary (3 months) hurts the narrative approach
  • We should push the value accrual narrative anyway to see what response we get
5 Likes

Great post @DarkForestCapital and Co. Thanks very much for getting your arms round this and for this first post of many.

  • I am also in favor of executing the Smart Treasury solution as laid out: it will be great to do something in this treasury space and we can figure out some of the things @dylan raises as we go
  • Look forward to more suggestions from y’all re asset allocation within the treasury and strategy for productively using these assets

Seeing progress re Treasury overall adds to my motivation :star_struck:

3 Likes

Great post DFC and I echo @dylan’s comments that the narrative that the buyback mechanism positions our treasury as INDEX buyers of last resort is probably the best way to get to the price appreciation.

2 Likes

This whole post is very clarifying :fire: excited to see this used as a guide as you + Coop members kick off new initiatives

2 Likes