22 October 2020
scott_l | DeFi Pulse joined group by link from Group
C
07:45
Crypto AMA Bot
Number go up!
Felix Feng joined group by link from Group
C
08:08
Crypto AMA Bot
Number go up!
SN
08:10
Spencer Noon
Hey everyone. T minus 2 hours!
SN
09:45
Spencer Noon
15 minute warning! 🚨
SN
10:01
Spencer Noon
Alright everyone, let's do this! Please welcome @felix2feng and @scott_l to Crypto AMA
SN
10:02
Spencer Noon
As a reminder for everyone participating — please keep the discussion respectful at all times.
SN
10:03
Spencer Noon
Felix & Scott, can you guys give us some context on your backgrounds and what you're doing with Index Coop, including progress to date? We'll then be off to the races with questions.
FF
10:04
Felix Feng
Hey everybody - I'm Felix and I'm the Cofounder and CEO of Set. Previously, I worked at a few startups in SV including Radius and 21.co (Earn). And I've been obsessed about crypto since 2013
s
10:04
scott_l | DeFi Pulse
hey spencer, thanks for inviting me.

i got started in crypto in late 2016 when i discovered the augur project. researching that led me to discover ethereum, and then i started getting involved in the ethereum community shortly thereafter.

At DeFi Pulse we've been really excited by the early traction for $DPI and are focused on making it better as we take it to market.
FF
10:06
Felix Feng
The way to think about the relationship between Set andIndex Coop is that Set is a DeFi Prime Brokerage, serving the world's on-chain asset managers (IndexCoop). We initially built RoboSets (smart contract automated strategies), Social Trading (enabling 3rd parties to run strategies), and now are building entire AM organizations (Index Coop being the first one).

Launched about 2 weeks ago, the Index Coop is a global community focused on creating and maintaining the world's best crypto indices. It aims to be the BlackRock of crypto and endeavors to run the best index product in every vertical (the DPI the first).
FF
10:07
Felix Feng
We've seen an incredible amount of activity and traction with the community so far and are excited to keep growing!
SN
10:09
Spencer Noon
Gotcha. Thanks guys! Let's kick off questions...
SN
10:09
Spencer Noon
I'll start: how did this partnership come to be and what is it like working with each other's companies?
FF
10:10
Felix Feng
Haha, I am curious what Scott is going to say
s
10:10
scott_l | DeFi Pulse
hmmmm.
s
10:10
scott_l | DeFi Pulse
well....
SN
10:10
Spencer Noon
s
10:11
scott_l | DeFi Pulse
i pinged sassal a long time ago, and tried to guage interest in something like this, but set was only doing baskets of ETH, WBTC and stablecoins at the time
s
10:11
scott_l | DeFi Pulse
and then i pitched pieDAO back at ethdenver, and they said yes.
s
10:12
scott_l | DeFi Pulse
but then we didn't think balancer pools were a good fit, because of the impermanent loss, but pieDAO did.
s
10:12
scott_l | DeFi Pulse
and so we pitched set, and it was.....
s
10:12
scott_l | DeFi Pulse
a match made in heaven.
FF
10:12
Felix Feng
That said, in early summer, we were working on Set Protocol V2, which opens the pandora box for what is possible with Set. And we weren't sure what to focus on. Yield farming was getting hot, indicies were enticing, and there were so many other things we could do like structured products or double down on social trading.

I don't remember exactly, but we got connected with DeFi Pulse and they wanted to do a DeFi Index. We did some customer / product research ourselves and found there was a lot of appetite for DeFi Index products. Thus, we got excited about the idea of working with a top brand to launch a DeFi Index with.

Since then, we've been working closely to launch the index and grow it
Sf
10:14
Stani from Aave
whoop!
SN
10:15
Spencer Noon
Gotcha, super cool story guys
SN
10:15
Spencer Noon
So, can you walk us thru DPI and its methodology / current portfolio construction? Why do you think it is the best index product on the market?
s
10:18
scott_l | DeFi Pulse
DPI is structured similarly to a cap weighted index (which are actually weighted by float, not total market capitalization). we use the circulating supply to determine the ratios of each token in the index.

the methodology itself is a bit complex, but two key themes run thru it. 1) does this protocol have actual users (drafting of defi pulse' curation/TVL metric and 2) is this token hodlable.
FF
10:20
Felix Feng
Currently, there are a few types of CeFi index products:
- Index Funds (e.g. Bitwise): These are centralized, custodial products that are typically sold to institutional investors. They are "funds" and thus require LP agreements with each investor. The negative is that it is inaccessible to retail.
- Perpetuals (e.g. Binance/FTX Perps): These are derivative products offered by exchanges offering levered / short exposure to indices. Most users want to buy and hold an index product for passive investing and don't want to deal with margin requirements, liquidation risk, etc.

That said, index products have not made it to retail yet because of regulatory reasons. Index products are typically "funds", and thus exchanges cannot list or offer it natively w/o doing LP agreements with each user.

Index Coop is changing the game by offering the first "decentralized index product", which can be offered on centralized exchanges and retail broadly. It's similar to DAI which is a "decentralized" stablecoin run by smart contracts.
FF
10:22
Felix Feng
There are some other DeFi players like PieDAO and Power Pool who are taking a Balancer Pool-like approach for a more equal/constant-mix strategy. There is the upside that users are market makers and can earn fees, but there is significantly more risk.

In addition, most users are more familiar with market-cap weighted products. And the AUV in each of the products somewhat reflects that interest
s
10:24
scott_l | DeFi Pulse
i used to read index methodologies and figure out how to trade against the manager's rebalancing rules as part of my job at susquehanna international group.

i wrote this methodology to minimize those opportunities.
SN
10:24
Spencer Noon
Can you talk about the increased risks of using a Balancer Pool-like approach?
s
10:24
scott_l | DeFi Pulse
In reply to this message
sure.
s
10:25
scott_l | DeFi Pulse
anyone that has participated in a "Pool 2" understands that if the project token goes to zero, you will lose all the value invested in the project token AND all the eth used for the second half of the pool.
FF
10:26
Felix Feng
This might be a repeat of what Scott says... but

Using a direct basketing approach (Set), if a component goes to 0, there is no risk of loss of the other components.

With a balancer pool, if a component goes to 0, there is risk that the entire pool gets drained.
s
10:26
scott_l | DeFi Pulse
as a token's price goes down, the pool buys more and more and more of it from other market participants.
s
10:27
scott_l | DeFi Pulse
if you have a bunch of very risky defi tokens in a pool (and all defi tokens are risky right now), its possible one of those projects will get quite unlucky and the price will spiral downwards.
s
10:28
scott_l | DeFi Pulse
if that unlucky project token is 5% of the DPI, you can only lose that 5%.
ND
10:29
Nick DeBontin
Can you explain the token economics for INDEX? What types of value capture mechanisms do you anticipate governance voting in someday?
SN
10:30
Spencer Noon
Yes I have that question too! Assuming @ndebontin means INDEX^
A
10:30
AP
For DPI and other INDEX-spawned indices down the line, will DPI holders be able to vote pro-rata on its underlying assets’ governance or will DPI be passive and the INDEX cap table will assume that role/responsibility?
s
10:32
scott_l | DeFi Pulse
In reply to this message
defi pulse (thru pulse.inc) manages the defi pulse index and has licensed it. the decision on how to track the index is the index co-ops responsibility (for instance, should the UNI be tracked with UNI, aUNI, cUNI or whatever)
FF
10:33
Felix Feng
Traditional ETF companies like Blackrock / Vanguard monetize in 2 ways: 1) management fee (% of AUM) and 2) securities lending (lending stocks to hedge funds for interest).

INDEX is the native governance token of the Index Coop and has many capabilities including adding new indices, setting rebalance parameters, and spending the treasury.

Currently, it monetizes the DPI via a streaming fee (0.95% of AUV of which 70% goes to the Index Coop treasury and 30% to DeFi Pulse).

In the future there are many additional ways to accrue value or gain perceived value:
- Lending / Farming: The Index Coop could put constituent assets to work and take a percentage of earning (like YFI) as income
- Exit Fee: One topic being discussed on the forums is charging a 0.5% redemption fee
- Governance: There could be significant perceived value in the massive number of tokens in the Index Coop that can be influential in protocol governance
JM
10:34
Jonathan Marcus
This is all super interesting. Thanks @felix2feng and @scott_l!!
FF
10:35
Felix Feng
Re: how voting is actually performed and what is being voted on, that is yet to be discussed / decided, but we see it as a pretty hot topic given all the stuff re: Uniswap proposals / voting recently.
SN
10:36
Spencer Noon
In reply to this message
Do you expect this licensing model to be used for all Index products?
s
10:37
scott_l | DeFi Pulse
In reply to this message
DAOs are unpredictable, but it seems like a good way to align incentives.
FF
10:38
Felix Feng
In the traditional world, data providers like S&P and Dow Jones will license their brands / methodologies to ETF sponsors like Blackrock/Vanguard. And they do typically charge a % of AUM and have very profitable businesses doing that.

This is the initial model and may be differing on a case to case basis. But the design space of crypto is very broad and there are numerous ways to align incentives.

For example, Index Coop currently has a 18 month 7.5% index methodologist program that pays out INDEX tokens to methodologists pro-rata based on the revenue contributed to the DAO over
SN
10:39
Spencer Noon
Got it.
SN
10:40
Spencer Noon
What are the requirements of the methodologist program to receive INDEX rewards?
RB
10:41
Regan Bozman
Are there differences between $INDEX, PieDAO, PowerPool, besides their choices to use the balancer structure?
FF
10:41
Felix Feng
There are no requirements outside of having an index added to the Index Coop. Fees will be calculated on a block-by-block basis off-chain and distributed.
FF
10:43
Felix Feng
Architecture is destiny, so we do see the fundamental differences of underlying protocol / design to be pretty critical for what can be done in the future.

That said, I believe PieDAO uses Aragon for its governance while INDEX uses Compound/Uniswap governance
SN
10:43
Spencer Noon
What are some of your favorite legacy finance index products that you think there is room for in DeFi? Or perhaps brand new types of products!
s
10:45
scott_l | DeFi Pulse
In reply to this message
oh this is a fun one.
DB
10:45
Dmitriy Berenzon
For DPI, what was the rationale behind using circulating supply vs. total supply, or potentially somewhere along that spectrum?
s
10:45
scott_l | DeFi Pulse
In reply to this message
if you using FDV you end up with imbalanced demands on the liquidity of each token.
DB
10:46
Dmitriy Berenzon
For INDEX, what was the rationale for the 70/30 token distribution? i.e. how did you find that was the optimal mix between team & community ownership?
s
10:46
scott_l | DeFi Pulse
lets say you own 1% of the market in the set, then if you have to own 10% circulating supply, which will create a significant dislocation in the market
FF
10:46
Felix Feng
There are a few types of interesting trades enabled by Index Products. Not only can you get diversified exposure, but you can short the market. You can do a few trades like:
- Spread trade: If you're long a single DeFi Project but want to hedge out the DeFi market risk, you can short the DeFi index
- Carry trade: If theres an interest-rate spread between borrowing the DPI and being able to put the underlying components to work, a market maker can borrow the DPI, redeem the underlying, and put it to work in lending protocols, staking, etc.
s
10:47
scott_l | DeFi Pulse
In reply to this message
but if u weight to circ supply, then you have equivalent needs in each symbol.
FF
10:47
Felix Feng
That said, there's definitely room for new stuff. Something a community member shared was maybe a VIX-like product, which could be really cool
FF
10:47
Felix Feng
And I'm excited about the idea of leveraged or inverse index products too
s
10:48
scott_l | DeFi Pulse
In reply to this message
negotiated. 70/30 seemed acceptable to all.
DB
10:48
Dmitriy Berenzon
In reply to this message
Ah that makes sense, thank you
SN
10:48
Spencer Noon
Who implements the strategy? Is it up to the methodologist to find a dev team?
FF
10:49
Felix Feng
In reply to this message
The token distribution shouldn't be considered a "fair launch", but it is a community-first launch. We think community is a key differentiator and wanted to reflect that in the distribution!
s
10:50
scott_l | DeFi Pulse
In reply to this message
low collateral termed token borrowing agreements.
token borrow facility for low cap tokens (coming soon.. sshhhhh)
collars
the ability to donate vesting tokens to tax-deductible charities.
FF
10:50
Felix Feng
In reply to this message
As of now, Set is responsible for implementing all smart contracts / strategies that Index Methodologists need -serving as the prime brokerage.

If Set somehow doesn't have aligned interests, it is possible the Index Coop may choose a different provider
FF
10:51
Felix Feng
That said, it is more the Index Coop to find developers than it is the methodologist
DB
10:51
Dmitriy Berenzon
In reply to this message
Agreed! Thank you
SN
10:54
Spencer Noon
In reply to this message
Hmm what are the mechanics for he first product you described? Not sure I understand
SN
10:55
Spencer Noon
@felix2feng: can you talk about the community building work you've done since Index launched? How does it look today, what are your goals, etc.
s
10:59
scott_l | DeFi Pulse
In reply to this message
basically have borrowers sign a traditional legal agreement offchain, borrowers get whitelisted, then borrowers borrow tokens from the pool based on an automated formula. they can go "do the thing" with tokens to earn a return above the borrow rate they are paying.
FF
10:59
Felix Feng
Yeah, we think that community today is pretty broken. We're seeing a lot of:
- Short-termism, selfishness: Projects like Sushichef did rugpulls, Bluekirby w/ exit scam, and projects where there were insider dealings.
- Soul-less communities: A lot of projects shipped the protocols and "decentralized", but left their projects w/o any vision, culture, direction, or values. Thus, we're seeing instances like actors try to self deal (e.g. Uniswap proposals) vs. move forward together.

We're trying to take a radically different approach to community-building - one that is focused and embodies real values/mission/culture.

We believe that culture is what people do when no one tells them what to do. And culture takes time to cultivate and share. And that not only does code need to be shipped / deployed, but culture in the community too.

In the context of Index Coop, the mission is to win the crypto index market and become to crypto blackrock. Every community member's contributions should be focused on that goal and rewards will be provided commiseratively.
FF
10:59
Felix Feng
We're taking inspiration from crypto's best communities like Metacartel and MakerDAO in hopes of pushing the envelope and potentially changing the game
FF
11:00
Felix Feng
One thing we've done recently to align the community is release a Secret Master Plan, similar to Tesla's. This has helped the community align on a set of goals and a strategy to achieve it. Thus, the community has been more focused than ever!
FF
11:00
Felix Feng
And our community is one of the most builder-centric, long-term oriented, and least price-focused one we've seen so far
FF
11:01
Felix Feng
We're only less than 2 weeks in, but we've seen so much progress so far!
SN
11:01
Spencer Noon
In reply to this message
Well said. Love this approach.
SN
11:07
Spencer Noon
~20 minutes left folks. Get those questions in!
SN
11:08
Spencer Noon
Can you talk about the current liquidity mining program?
JH
11:13
Jared Hedglin
How big do you think the market for DPI and other DeFi index products is?
FF
11:14
Felix Feng
In reply to this message
Yeah, the current liquidity mining program is pretty simple. Basically, users deposit DPI and ETH onto Uniswap and earn INDEX. Currently 9% of the INDEX tokens are earmarked for this program. There are >$26M in liquidity on Uniswap, making it the #8/9 pair
FF
11:15
Felix Feng
In the traditional index/ETF world, about 30%+ of US stocks in terms of value is held in passively managed products. So there is a potential that 30% of DeFi tokens / crypto will be held in a passive way - which is HUGE.
FF
11:15
Felix Feng
As of now, the Index Coop's goal is to reach 1% of DeFi Token market cap (currently 0.3%), and that would be really cool from a governance proposal perspective
SN
11:16
Spencer Noon
How will you make governance decisions as a coop?
s
11:17
scott_l | DeFi Pulse
In reply to this message
i think it will be hard for users to get maximum value hodling tokens solo. gas costs and domain knowledge required to move tokens around to maximize excess returns can be prohibitive. the penalty for self-managing is higher with ERC20s than in tradfi.
FF
11:18
Felix Feng
In reply to this message
We believe a big part of decision-making will be guided by the values, culture, vision and high-level goals of the Index Coop. Like we said earlier, culture is what people do when they are not told to do. So hopefully, decisions philosophically will be guided by the high-level values of long-term thinking, fairness, growth-mindset, open-mindedness, safety, empathy, and trust.

In terms of the process, it will be done via the community and eventually some sort of token-voting.
SN
11:20
Spencer Noon
Cool, thanks guys.
s
11:20
scott_l | DeFi Pulse
thanks spencer!
SN
11:21
Spencer Noon
Running up on time -- get your final questions in if you have them!
FF
11:21
Felix Feng
Thanks for having us
SN
11:22
Spencer Noon
One final question from me: who do you think are the best candidates to hold DPI?
SN
11:22
Spencer Noon
And before you go, please tell us how to get in touch + stay on top of all things Index Coop!
s
11:25
scott_l | DeFi Pulse
In reply to this message
people that are not professional traders.
FF
11:25
Felix Feng
We think that Index products / DPI are best for those who are 1) not looking for alpha, 2) too busy to token-pick themselves, and 3) simply looking for beta exposure. Essentially for people who want to set and forget?

There are a few personas that come to mind:
- DeFi Curious Retail: Those who have heard about DeFi on the news and want exposure but don't have the time to individually pick
- Project Treasuries: Yam recently voted to buy $250k of tokens into their treasury for passive exposure!
- DeFi Whales Who Want to Use DeFi as a Productive Asset: Those who want to go long DeFi and also earn yield / yield farm with it (when it is added on a lending protocol!)
FF
11:26
Felix Feng
In reply to this message
To be in touch, you can find us at:

- Twitter: @indexcoop
- Website: indexcoop.com
- Forum: gov.indexcoop.com
SN
11:27
Spencer Noon
Love it. Thanks for coming on today guys!
SN
11:27
Spencer Noon
🔥
FF
11:27
Felix Feng
🔥