Application for 484 Fund [$ERROR]

Authors: Dr Laurence E. Day, 0xb1.484, Palis

Proof of 0xb1.484: https://etherscan.io/verifySig/2519

Summary: we’re formally proposing the launch of the 484 Fund as part of the Sigma pilot program.

The 484 Fund

Description:

The 484 Fund (Twitter cashtag: $ERROR) is an index comprising assets selected by following the most-Tweeted projects of 2020 by Twitter persona 0xb1.484, aiming to act as a way to invest alongside (and take advantage of the insights of) one of decentralized finance’s biggest players, without surrendering your assets to a centralized service. 0xb1’s Twitter favorite YFL will also be added, pending their internal proposal for a token swap.

Unlike our other instruments, this index will not make use of a square-root market capitalization weighting. Rather, per request, we will be weighting assets within the index via a barbell strategy over the circulating market capitalizations: for example, an index with six assets will be ranked by circulating market capitalization and then weighted percentage-wise as: 25-15-10-10-15-25.

This is a strategy that you’d more typically see applied to bond portfolios (where the weightings are applied to the tenor of the bonds), but does have some adherents within the universe of stock selection. It’s an approach that gives equal priority to high-risk and low-risk investments (insofar as you can apply those terms to crypto), whilst paying relatively little heed to the ‘middle ground’. It’s… slightly experimental in nature, but that’s what the Sigma program is for!

What follows are the percentage weightings that would be assigned to members of an N-asset portfolio under this strategy (these are figures chosen by the Sigma committee):

3:                      40 | 20 | 40
4:                    30 | 20 | 20 | 30
5:                25 | 20 | 10 | 20 | 25
6:              25 | 15 | 10 | 10 | 15 | 25
7:            20 | 15 | 10 | 10 | 10 | 15 | 20
8:          20 | 15 | 10 | 5 | 5 | 10 | 15 | 20
9:  17.5 | 12.5 | 10 | 7.5 | 5 | 7.5 | 10 | 12.5 | 17.5
10: 15 | 12.5 | 10 | 7.5 | 5 | 5 | 7.5 | 10 | 12.5 | 15

Governance

Given the more personable nature of this index, selection of assets is being made solely by following 484’s Twitter activity, and with their knowledge.

In each instance - and bearing in mind their wish for anonymity - we will consider a signed wallet message from the 484 address sufficient for making a request to hold a snapshot vote for removing or adding an asset. This would result in a snapshot vote where $ERROR LPs decide to accept or reject the new token. In the absence of such requests or evidence, the assets within the index will remain unchanged, with the exception of YFL who we are already planning to add pending their token swap.

As with other Sigma pools, a circuit breaker will monitor the fundamentals of the underlying assets, halting swaps within the underlying pool in the event of excessive (≥10%) shifts in either the token price or total supply from one block to the next as a security measure. Circuit breaks can be lifted by approved addresses belonging to members of the Sigma committee.

As is the case elsewhere, reindexing will occur after three weekly reweightings, which may move assets currently within the index along the barbell depending on relative performance. However, should 484 explicitly request it (and, to be blunt, provides the ETH to pay for gas), the Sigma committee reserves the right to force reindexation of the 484 Fund pool in order to introduce or remove assets ahead of schedule.

The 484 Fund will not contain a wider ‘candidate list’ of assets beyond those that are currently marked for inclusion: there will only ever be a minimum of 3 and a maximum of 10 assets, either already included or pending inclusion on the next reindex.

Initial Value

We will target an initial price of US$5,000 for the 484 Fund token. During the bootstrapping phase, 100 tokens will be initialised by 484 to reach a total value of US$500,000. Once this value is reached, the pool will be deployed, giving anyone the ability to mint new $ERROR tokens.

Rewards

In the interest of full disclosure, it is the opinion of the Sigma committee that this index should not receive a significant reward pool for LP provision. Our reasoning is as follows: while we are grateful that 484 wishes to partner with us in producing an index, the reality is that they are enough of a whale to - if they so chose - dominate liquidity provision to the extent that any NDX pool that we offer is effectively theirs for the taking by staking several millions of dollars worth of LP tokens.

We have been assured that 484 will provide the initial US$500,000 of $ERROR tokens minted as Uniswap liquidity themselves, and as such, the need to incentivise bootstrap liquidity is not as strong as it might be otherwise. This is not to say that there will be zero rewards for liquidity provision: the current thinking of the Sigma committee is to provide roughly 7,500 NDX per month for three months, for those that wish to copy-trade 484’s current ‘basket du jour’ but still want to put the tokens to work.

Token Criteria

The only true criteria for asset inclusion here is that they’ve been marked for inclusion by 484. However, there are some standard rules which still apply:

  • No major vulnerabilities have been discovered in the token contract.
  • The token’s supply can not be arbitrarily inflated or deflated maliciously.
  • The control model should be considered if the supply can be modified through governance decisions.
  • Sufficient liquidity is locked in the Uniswap market pair between the token and WETH.
  • The token does not have transfer fees or other non-standard balance updates.
  • The token meets the requirements of the ERC20 standard.
    • Boolean return values are not required.

The 484 Fund Composition

Market caps pulled April 1, 2021.

1. Alpha Finance (ALPHA)

TVL: $441,419,384
CoinGecko: alpha-finance

Alpha Finance is a cross-chain DeFi platform which aims to address the underserved markets within the crypto community. The first challenge is the limited availability of products outside the Ethereum blockchain. The second challenge is the lack of liquidity on decentralized exchanges which leads to common issues such as price volatility. By addressing these issues, Alpha Finance hopes to expand the use-cases of DeFi and eventually improve DeFi’s adoption rate amongst the general populace.

Website: https:// alphafinance .io

2. Badger DAO (BADGER)

TVL: $336,923,465
CoinGecko: badger-dao

Badger DAO aims to create an ecosystem of DeFi products with the ultimate goal of bringing Bitcoin into Ethereum. It is the first DeFi project that chose to focus on BTC as the main reserve asset rather than using ETH.

Website: https:// app.badger .finance

3. KeeperDAO (ROOK)

TVL: $133,924,077
CoinGecko: keeperdao

KeeperDAO system automates aspects of providing liquidity to decentralized exchanges (DEXes) as well as capturing profitable trades across trading platforms (arbitrage) and liquidating undercollateralized loan positions.

Website: https:// app.keeperdao .com/

4. Big Data Protocol (BDP)

TVL: $74,972,646
CoinGecko: big-data-protocol

BDP is the governance token for the Big Data Protocol. Big Data Protocol powers a liquid marketplace for commercially valuable data.

Website: https:// bigdataprotocol .com/

5. yAxis (YAX)

TVL: $11,490,045
CoinGecko: yaxis

yAxis markets itself as a meta yield farming aggregator that is able to switch the underlying assets when deploying strategies. Yield farming strategies are governed by a DAO, where token holders vote regularly to implement the best strategy out of a selection of strategies provided by multiple yield aggregators.

Website: https:// www.yaxis .io

6 Likes

Cool to see that we’re breaking out the Barbells here.

I think this is a pretty cool move and I think it’ll help get Indexed.finance into the sights of more people/projects.

1 Like

Interesting to see how this will play out.

Community seems to not have a strong control over this kind of index though. it seems the group/484 will be in charge more…

Either ways… I stand corrected. this might be the first of its kind so lessons will be learnt along the way to fine tune such implementations…

It’s a “go” for me…

1 Like

This is a fantastic idea and consistent with my thoughts on using NDX’s Sigma Program to bring in more high profile crypto and/or financial personalities. I definitely support!

3 Likes

Yeah I am all for the barbell strategy and the more unique take this index provides. Keen!

Definitely like what’s being put forward here. This is definitely not a usually index for Indexed, but trying new things is what the Sigma program is for.

One thing that worries me is how “centralized” the management becomes. How do we ensure that the index isn’t sabotaged and then buyers of the index are stuck with an index token that doesn’t have liquidity on Uni to make the swap?

This is a terrible idea for so many reasons.

First, it’s not an index. It’s a managed fund - a completely different product targeting completely different investors. While DEGEN can be categorized as an index at a stretch (an index tracking a community’s views on x), this fund would have zero properties of an index.

Secondly, the total control of token choice is a bribery honeypot. The $500k investment by 0xb1 is an incentive for them to make good choices only for so long as the fund remains relatively small. If it were to become large enough, the incentive would quickly be dwarfed by various commissions that protocols might offer 0xb1 to be included (or even to be publicly considered for inclusion).

Thirdly, what is to stop 0xb1 taking private positions in a token before they add it to the index, or selling a private position before one is dropped? This would have a small but direct impact on every index token holder.

Fourthly, what is to stop 0xb1 weaponizing everyone’s capital? They could leverage the control of the index in disagreements with protocol governance of other tokens. This may not directly impact every index token holder but it is not a benefit.

Indexes are well suited to DeFi because they are trustless. Managed funds regulated more heavily than stocks, derivates, indexes, etc in real life because of the increased level of trust needed. Having a managed fund on a blockchain is no more trustless than having one in real life. They are not suited to DeFi.

1 Like

Weaponize everyone’s capital? not sure that is how it works, it would be owned by the smart contract, which is usually delegated to NDX holders [for meta governance].

Managed Funds? Nothing wrong with that, it is what all our Sigma Funds are mainly, in addition it would still follow our passive constructs.

Not Defi? How is allowing people the freedom of choice to invest in what they want on a open market, not exactly the premise…

Overall, I see no real reason not to go forward with this proposal, people should understand what they are getting into. This is DEFI after all :thinking:

Weaponizing capital just means having additional weight that can be thrown around to get things that you want. Managed funds do this all the time. It’s not a bad thing if that weight is being thrown behind a cause that is beneficial to the people invested in the fund. IRL a fund’s management has fiduciary duties such that they cannot (without penalty) use that weight for their own gain. Smart contracts are irrelevant to this risk, if the choice of investments is centralized and non transparent.

There is nothing wrong with managed funds per se. They are just very, very different beasts to index funds - the polar opposite almost - and tend to perform significantly worse than index funds over the long term.

There is no question that managed funds on Ethereum would be a form of DeFi. Of course they would. It’s just that they would conflict with one of the core aims of DeFi, which is to provide trustless provision of financial products and services.

If Indexed.Finance is to become the go-to provider of index funds, the focus should be on index funds. A good provider of Ethereum index funds has the potential to become a kind of financial primitive or growth engine for DeFi. A managed fund provider could so easily become something more akin to TokenSet’s failed ‘social sets’ program or one of the other managed fund protocols that have near zero users.

First, it’s not an index. It’s a managed fund - a completely different product targeting completely different investors.

I agree it’s a different product, but I don’t agree it’s “completely” different. Managed funds sit beside index funds at Vanguard, Fidelity, etc. Why not NDX?

Having said that, NDX’s lack of a coherent strategy - or at least one they have articulated - does give the impression they are just throwing out new indices without rhyme or reason. It would be very helpful for NDX to clearly define what they are doing in this space, how they categorize funds, how this (and all present and future funds) fits into that strategy, etc., etc.

Your other points evolve around the integrity of Oxb1. If you doubt his integrity, don’t invest in his fund. Managed funds like this are very much about the person at the top, look at Ark Investments and Cathie Wood, or Ray Dalio and Bridgewater.

While I agree NDX needs to be very careful how these funds are managed, I believe they can bring a lot of new users to the protocol, and allow us to better differentiate ourselves now with other offerings. Yes, there is new types of risks to manage, but I think it’s doable.

DeFi is, if anything, a grand experiment. Let’s push the envelope and see how it goes!

1 Like

Just to be clear - my comments are grounded in the ideals and principles of trustlessness. I would say the same things if it were Mary Poppins who was to be managing the fund.

I have no reason to doubt the integrity of 0xb1. All I know about them is that they’re a team of people who invest heavily using a lot of different DeFi protocols. I’m sure they’re a stand up bunch.

I found the idea of a managed fund very interesting. it should be for the user very clear that it i not an Index. It this and the risk is clear communicated, why not.