Set labs and DeFi pulse have obviously been thinking about key customers as outlined in the slides they shared last week. I’m going to be taking a very wide definition of customers, some would call them stakeholders, however, that provokes thoughts of 32 ETH, beacon chains and validators…
Trigger warning: Bullet points 
For the moment I’m only thinking about $DPI. $INDEX and other funds may be different… How I present things is based on some of the ideas presented in my post on Indexomics (Build $DPI, AUV and capture income for INDEXcoop treasury). There are have been some recent tweets on AUM / LP and building the velocity of assests in a cycle that builds (or collapses)
OK, this is one way to think about our potential customers. No graphics to help this time…
Small retail
What do they provide to us?
Assets under vault (AUV). Most likely long term and relatively slow to act. AUV is potential streaming fees and opportunities to extract yield from the underlying assets for INDEXcoop treasury.
What do they need?
- A secure deposit guaranteed to retain it’s value against the underlying tokens.
- Someone else to take the time to decide which assets to hold – time and attention saving
- Someone else to take the actions when requited to rebalance – gas and attention saving
What do they want?
- Low ongoing costs (streaming fees)
- Confidence that we have a track record in being secure and stable
How can we incentivise them?
- Reduce streaming fees,
- Give bonus income.
What actions by INDEXcoop would screw them
- Loose the underlying collateral
- Raise fees
Large passive holders
What do they provide to us?
Long term assets under vault (AUV).
What do they need?
- Secure deposits.
- Liquid markets for when they decide to trade.
- Confidence that we have a track record in being secure and stable
What do they want?
- Low ongoing costs (streaming fees)
- Outsourcing investment decisions within DeFI protocols to invest in.
- Credible neutrality in investment decisions (where investing in protocols can be seen as a vote of confidence in a singel team) – Think in terms of Protocol treasuries, high profile individuals, VC funds making long-term sector plays in DeFi).
- Someone else to take the actions when requited to rebalance – attention saving
- Ability to use $DPI as collateral.
How can we incentivise them?
- Reduce streaming fees,
- Give bonus income.
- Building liquidity in $DPI markets / give them access to easy redemption back to ETH or DAI.
What actions by INDEXcoop would screw them?
- Loose the underlying collateral
- Raise fees
- Allow liquidity to collapse.
Large Active DeFI investors (DeFI whales)
What do they provide to us?
Long and short term AUM, possibly shorting DPI as part of a larger strategy. These are investors who could easily hold all the underling tokens and may be farming them already. $DPI is another tool for them to make money / hedge their exposure.
Short selling should make the market more efficient and help price discovery for all the DeFi protocols.
Large active traders provide trading volumes in the main DPI:ETH pool, but may also rely on direct redemptions and so avoid DPI LP’s.
What do they need?
- Secure deposits.
- Massive liquidity for when they decide to trade.
What do they want?
- Liquidity.
- Ability to use $DPI as collateral.
- Ability to borrow DPI from other protocols to short the DeFI sector.
- An index whose components match their needs, so broardly capturing the space that they are trading. DPI is useless to a BTC:USD trader.
How can we incentivise them?
- Absolute security of underlying assets.
- Help other DeFi groups to build $DPI into there protocols (MKR vaults, AAVE / Compount collateral and lending).
- Make is easy to trade – DPI:ETH pool liquidity and direct splitting / redemption to the underlying assets.
What actions by INDEXcoop would screw them?
- Loose the underlying collateral
- Allow liquidity to collapse.
- Increase fees on minting / spliting $DPI as it makes every trade less profitable (and so less likely to happen) which reduces trading volumes.
Liquidity pool providers
What do they provide to us?
Long term ownership of $DPI (in the pool), liquidity for others to use. LPs are generally considered to be active investors who are willing to risk divergence loss to make money on pool fees (and liquidity mining). They can also be considered to be project agnostic, they may leave as soon as they identify a pool that better fits their needs.
Large liquidity will help large investors to trade without excess slippage on every trade. So a large pool, is an incentive for large traders and holders.
What do they need?
- Secure deposits.
- Confidence that the protocol will not rug pull the asset (mint $DPI and dump it for ETH).
What do they want?
- Income in return for the divergence risks (Uniswap pay 0.3% on every trade).
- Huge amounts of trading volume so they capture pool fees.
- An asset pair that is largely correlated (reduces divergence losses) and stands a good chance of price growth. I think ETH:DPI is such a pair.
How can we incentivise them?
- Pay INDEX to LP providers: Liquidity mining (as we are doing until early dec)
- Pay ETH:DPI into the pool as an financial incentive – Liquidity mining without INDEX issuance.
- Maximise trading in the pools.
- Give them a NFT
What actions by INDEXcoop would screw them?
- Make trading inefficient so trade volumes from arbitrators (and others) are reduced.
- Focus only on long term holders who don’t trade.
Arbitrators
What do they provide to us?
Price efficiency.
Arbitrators act on any imbalance between the DPI price and the underlying assests. Being closer to the peg gives holders and traders more confidence that DPI will be correctly prices when they decide to act.
Inefficient arbitration means that our long term holders have less confidence in the DPI price.
Effective arbitration generates lots of trades and so more fees for LP’s (which then increases liquidity).
What do they need?
- Access to trades that give the opportunity to a profit. Buying ETH → DPI → 11 tokens → ETH makes profit if DPI costs less than the underlying tokens value.
- Liquidity. The profit on a 2% offset compared to the NAV is dependent on the liquidity. If the pool has 1% slippage on a $200 trade, arbitration is worthless. If the same difference occurs on a pool with 1% slippage on $2,000,000 they can capture $1 M profit.
What do they want?
- Liquidity on the pools
- Volatile markets that produce changes between in token prices.
- Low fees on DPI creation / splitting.
- Instant trades / minting / splitting – Delays force them to hold DPI / tokens in hand which exposes them to price risks vs ETH (or their base currency)
How can we incentivise them?
- Increase liquidity
What actions by INDEXcoop would screw them?
- Increase fees on minting // splitting DPI
- Add time locks to minting / redemption
- Making minting / splitting DPI clumbersum by including none native tokens that change (cMKR etc) as me manage $DPI to exploit yeild.
- Making minting / splitting DPI inefficient / impossibly by including tokens that have no native liquidity.
- Anything that requires pausing, or unwinding contracts / deposits (although, such problems probably generate lots of volatility to be exploited in other ways…)
DeFi protocols that hold collateral
What do they provide to us?
A use case for DPI as collateral. Somewhere for our holders to put DPI to capture additional yield.
E.g. MKR vaults to mint DIA, COMP or AVVE to earn additional passive income or collateral for loans on other tokens. COMP or AAVE allowing borrowing allows traders to short DPI and so increase trade volumes and DeFi price discovery.
What do they need?
- Security of underlying collateral.
- Large DPI AUV to produce a collateral type that is significant within their protocol. AAVE has $7 M MKR as collateral locked in, they dont need to spend time building a new vault for a mtoken with a market cap of $200 k.
What do they want?
- Customers who understand how DPI can be used as money Lego.
- Liquidity on the pools
- Confidence in INDEXcoop as a long term partner. Adding collateral to a protocol is an implicit vote of confidence in it the collateral producer.
- Lending protocols take a risk on every token included.
How can we incentivise them?
- Good PR from INDEXcoop as a partner.
- Considered use of any INDEXcoop controlled governance tokens to make friends and influence people.
What actions by INDEXcoop would screw them?
- Compete directly with lending etc.
- Interfere with their internal governance.
- Screw up management of $DPI.
OK, I think thats enough for now. I know I’ve missed a few (Centralised exchanges, decentralised exchanges, wallet providers), but I wanted to try and capture the main online involved in the DPI trade velocity system. (I’ve lost the Tweets / medium post that covers this cycle that builds AUV and liquidity…)
So, what have I missed? What other customers should we think about (and how we help / harm them)?
Regards
OA