What incentive do customers have to long-term hold DPI?

Product
#1

I am trying to understand how this product can be successful in the long run for both it’s owners and the Index COOP. Currently, it seems the business model does not encourage long-term investment. Below, I outline how I came to this conclusion and I am sharing it because I fear most investors will draw the same conclusion unless the streaming fee is changed or the benefits of the product are explained better to investors. I am obviously new here so any DM’s or replies will be extremely helpful.

I can’t seem to justify the .95% streaming fee I pay you when I compare it to the .04 expense ratio I pay for VFIAX, a Vanguard fund. I am 44 years old with a degree in economics and 15 years of financial services experience. Prior to 01/13/2021, I had no working knowledge of crytpo. My college roommate, who runs a division of an investment firm, told me to invest in Grayscale’s Bitcoin and Ethereum funds. I dumped about $70,000 into the funds. Realizing that the funds had a premium I started looking into investing in crypto directly, which led me to DEFI. Knowing the best way to learn the space would be to have skin in the game, I put $10,000 onto Etoro. I quickly bought a nano ledger x and tried to find an index fund because you can’t beat the market, you can only try to keep up if you buy and hold, less fees. I started with Piedao, which led me to coingecko. Sorting by Index, I saw DPI. I bought 1 ETH of DPI on 02/24. Since then, I have been reading your forum and listening to your podcasts, both of which are exceptional. I even bought 1 more ETH of DPI last night. However, I went to bed realizing I should just buy the 13 underlying assets myself. Not only will I not have to pay 1.00% streaming, but I will learn much more because I will be tracking each item in my portfolio.

Interestingly, if your fee has been .25% I likely would have never stopped to learn your product in depth, so I would have just kept buying more of it. Even with what I know now, there is a price point at which your fee makes sense. What am I missing? Won’t a large percentage of your clients eventually come to the same conclusion meaning the product won’t be viable?

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#2

I went to bed realizing I should just buy the 13 underlying assets myself. Not only will I not have to pay 1.00% streaming, but I will learn much more because I will be tracking each item in my portfolio.

That’s your prerogative. Others find that kind of overhead for a relatively small fee a worthy tradeoff.

There is $110m AUM in 5 months. What’s your alternative? Any DeFi ETF or portfolio construction is going to be more expensive. To get the components themselves, depending on your sizing and timeframe, the gas fees could be more expensive than DPI’s fee.

Are you familiar with Ark funds and their expense ratios?

#3

Thanks for the response and feedback. It is very helpful.

PieDAO, which seems to be an alternative, allows one to bake pies, greatly reducing gas fees, and stake them which helps offset their .70 streaming fee. DPI’s streaming fee is 28% higher than PieDAO’s fee. However, PieDAO doesn’t have near the AUM. The reason I purchase DPI seems to be superior in the following aspects: AUM, website interface and presentation, community, and potential partnerships. When DPI becomes listed on central exchanges, it’s AUM will likely skyrocket. The problem I can’t seem to solve is that while I think the IndexCoop is going to win the space, I don’t know that buying DPI helps me profit from that win.

Is there a way to generate yield with DPI? I am still so new to this space I am struggling to understand all of these concepts

I am not familiar with ARK funds. I will take look at them.

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#4

Is there a way to generate yield with DPI?

A couple but more are coming. You can be a liquidity provider to earn trading fees along with INDEX token incentives. Loopring is currently incentivized and I think the pools on Uniswap and Sushiswap also are.
Alpha Homora has mentioned that they are planning to implement DPI lending and leveraged yield farming in the future.
As a smaller DPI holder I am willing to pay the streaming fee since I wouldn’t be able to trade all of the indexed tokens because of gas costs.

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#5

Hey @Johnny_Kilroy thanks for the post.

My understanding is that PieDAO simply eats the gas cost of their oven feature. That’s not really sustainable for a protocol. Their products are also community-driven, meaning you have no idea what will get included in a fund and why.

Specifically, on DPI and the fees, you can certainly choose to buy the underlying assets separately. If you do so on a DEX, that’ll cost you $500 and many hours. If you then want to go and make them productive, that’ll cost you more time and more money. A lot of us have a decent understanding of the DeFi landscape and prefer holding DPI vs. dealing with the hassle of the underlying asset management. If you are dealing with a significant amount of money then perhaps purchasing underlying assets separately makes more sense.

I think that comparing streaming fees to traditional finance is misleading. Equities generate on average 10% pa return, emerging markets maybe 16% or so. That’s roughly the range. Paying a 1% fee on a 10% gross return is painful, it hurts. DeFi is early stage tech. Returns are, for now, measured in multiples not percentages. Paying 1% fee on 200% return seems quite okay, considering the savings of time, money and your peace of mind.

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#6

Thank you for the feedback.