Bankless - Building A Decentralized Blackrock - Index Coop (SotN 7/27)
Primer: The Index Coop is a community-led, decentralized organization whose goal is to create, maintain, and drive the adoption of crypto indexes. In this Bankless episode, Simon Judd, JD Cook, and Dark Forest Capital shares with listeners the products available at Index Coop and their path towards becoming a decentralized Blackrock.
Invited Guests
Simon Judd
Business Development Lead at Index Coop
JD Cook
Analytics team at Index Coop
Dark Forest Capital
Metaverse Index Methodologist
Introduction To Indexes
Index funds were introduced in the late 60s/early 70s in TradFi
Index products take away a lot of the complexity in investing
Plenty of newcomers are unsure where to invest and indexes gives them exposure to a multitude of assets
Index Coop is bringing this same vision to crypto investing
Genesis Story Of Index Coop
Flagship product (DeFiPulse Index) launched in September 2020 by Token Sets and DeFiPulse
Index Coop was created in October 2020
"We use the term like becoming the Blackrock of crypto as well. And I think that kind of touches on the inspiration of it and where it came from." - Dark Forest Capital
Relationship With Other Projects
Think of a tripod analogy
Token sets is the baseline technological infrastructure that they built upon
Methodologists such as DeFiPulse and Bankless are the data providers/distribution platform
Index Coop as the glue to hold everything together
High-Level Overview Of Index Coop
Currently have 5 products:
DeFiPulse Index (DPI)
ETH2x-FLI
BTC2x-FLI
Metaverse Index (MVI)
Bankless BED Index
DeFiPulse Index (DPI)
Introduction
S&P 500 of DeFi. For large-cap DeFi protocols
How An Asset Enters The DPI
Has to be a product or a protocol that's been operating on Mainnet for over 6 months
Protocol has to go through multiple audits
Governance Of DPI
Done by trusted external parties
ETH2x-FLI And BTC2x-FLI
Introduction
Token Sets engineering team spent months building them
Products abstract away the collateralized debt position for users
ETH/BTC is deposited in Maker and DAI is borrowed. With that DAI, more ETH/BTC is then borrowed again
Allows holders to quickly enter and exit leverage positions
"I think that the cool thing about this [ETH2x-FLI/BTC2x-FLI] is that you have turned leverage into a money lego." - David Hoffman
Has It Been Used As A Collateral
Just launched their first Rari Capital Fuse pool with FLI as collateral
Metaverse Index (MVI)
Introduction
Dark Forest Capital put out a proposal for it in October 2020
Observed an emerging trend where the physical and the digital blends together
Wanted to create an instrument to capture this trend
"The way I think about this [Metaverse] index is it's really like, imagine in 1995, if you could own an index of Nintendo, Sony, Microsoft, Sega Genesis. And then they throw in Pokemon in there and the Pokemon Trading Cards as well." - Simon Judd
Market-cap weighted, which they then square root, to reduce volatility during rebalances
Growth Of Their Indexes
DPI has 60% of the AUM, ETH2x-FLI has 20% while the remaining 3 products has the last 20%
Seen explosive growth since April 2021
MVI growing 7-12% every week for the past month
Index Coop Dashboard
Built by JD Cook on Dune Analytics
The team uses it to orient themselves. Report on them in their weekly meetings and keep track of their progress
Address Exposure metric: what kind of users are holding their products
"Five years from now, there's going to be a significant number of companies in S&P 500 that report their earnings using a dune analytics dashboard." - Simon Judd
Unit supply is how they measure demand of their products
Address Exposure
Difficult to tell whether 1 user could have multiple addreses with Index Coop products or vice versa
Used this metric to look into the amount of exposure
Differences Between TradFi Indexes and DeFi Indexes
INDEX token holders can participate in meta-governance of the underlying token of a given index (e.g. vote on Aave governance proposals as AAVE is held by DPI)
Currently discussing intrinsic productivity, which involves making the underlying tokens productive by depositing it in other protocols
Index Creation Process
Someone comes up with an idea
Index Coop provides a template requiring the specifications of the potential addressable market, how the methodology would work, and approaches to integration, etc.
The person fills up the template and posts it on the forum
The community would evaluate the proposal and give their feedback and the post will be refined
If the feedback is good, there would be a community call on it
Proceed to Decision Gate 1 (DG1), INDEX token holders vote on it to gauge sentiment
Once that goes through, the product team does research and number crunching to help them prioritize their product pipeline
If it's given the top priority, it will proceed to Decision Gate 2 (DG2), where a final vote will be conducted. 15% has to vote and 60% has to be in favour for the product to launch
Will The Index Creation Process Be Made Simpler
Yes, their vision is to get to a point where anybody can come in and create an index
For now, their focus is on launching big products to win the market
Availability Of Indexes On CEXes
Actively communicating with several CEXes to list their products
Foresees that major institutional capital will flow into their products because of their expertise and partnership with blue-chip methodologists
Institutional Investors
Institutions are already in the space. They are mainly staking and LPing stablecoin pairs
Increase in traditional VC funds in the space. Entering with a long-term mindset
Organization Of The Index DAO
Token Sets helped them to set up a structure at the beginning
At a high level, it is mainly between working groups and the funding council
Anyone can go to the forum and propose a working group and a timeline for it
Funding council started as a group of members in charge of a multisig that could fund things at their discretion
The working group leads request a budget from the funding council and has to tie it to their KPIs
Lessons From DAOing
Token Sets leadership enabled them to make the right strategic bets on the DPI and FLI series
Using funding council and working groups to maintain high-level strategic alignment
Challenges would be as your community grows, it's harder to maintain focus
Observed Synthetix and their elected Spartan council being empowered to make decisions quickly
"And so I think what we're seeing in DAO is a lot of people come in, and I did the same, very naively thinking that essentially, decentralization solves everything. Unfortunately, it doesn't, you have to have a group of like high context, highly accountable people to make decisions and move stuff forward. Because otherwise, you get a lot of friction, a lot of delay." - Dark Forest Capital
Upcoming Products
Launching their first DAO internship program on 9 August 2021
Index Coop made a commitment to be a leader when it comes to diversity and inclusion in DeFi
Community about to vote on the Data Index, a thematic index to give exposure to on-chain data economies such as Chainlink, Graph Protocol, and Ocean Protocol
"Like, we want the best and brightest to come to Index Coop, we want them not to say I'm gonna go work at Google or Facebook, we want them to say I'm gonna go work at DeFi. And we're very committed to making that happen." - Simon Judd
The PAY Index, a yield-bearing stablecoin index, is going through DG1
Continuation of the FLI series. Next one is the Inverse ETH Index
BED Index
BED Index consists of BTC, ETH and DPI
BED Index contains the DPI and enhances the growth of the latter
Synergistic effect of indexes containing the indexes of other projects. The entire space grows together
An Index Of All The Indexes
An index of all the products of Index Coop? Discussions are ongoing in the forum and somebody named it COOP
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