[DISCUSSION/PROPOPOSAL] Creating long term value accrual for NDX via passive income generation

Governance
#1

Introduction:
This was discussed in another discord, and then brought to the Indexed.Finance discord to see if implementing such a system would be possible. It was determined that while complex, it may be possible, which resulted advancing this discussion to this forum.

As it stands, there is enormous sell pressure on $NDX and it is being treated as another standard farmable asset. I understand that were are discussions on how to remedy this, but I would like to propose the following:

Generating passive income for $NDX holders/stakers

Currently, we have almost $10m TVL in various assets. These assets are a result of users depositing their defis and minting the index tokens (cc10 and defi5). This number is only going to grow as new users onboard to the platform. These assets, as it stands, are just sitting there. Many of these tokens have inherent value and functionality outside just their price tag. The majority of them can be used on Aave, Compound, Harvest, Curve, etc. to either earn interest, farm, or earn yield.

This is the topic I want to bring to a formal discussion. Would it be possible, to unlock these assets, and have a smart contract use them on various platform to earn yield, farm, etc., and then have that contract sell the rewards into DAI, ETH, or something else and disburse all fees earned, yield farmed, etc., to those either holding or staking $NDX

This would generate passive income for those holding or staking $NDX and would alleviate sell pressure massively. It would also incentivize more TVL. Users would deposit their defis to farm $NDX (until farming ends) in order to tap into this passive income, which would increase the farming power of the smart contract.

This would also address the potential exodus when farming ends by incentivizing the holding/staking of $NDX.

Added benefits:

Obviously this is a pretty radical change of direction, but something like this could take this project from a small/mid cap to something much larger. Exposure to the current indices as well as future ones is very attractive to those with a low-risk appetite, but the ability to earn passive income while maintaining that exposure becomes VERY attractive. This also encourages participants to buy $NDX to tap into this revenue stream instead of just buying and hoping “number go up”.

Alternatives

Should this approach prove too risky (potential of these platforms to suffer a drain, exploit, etc., and jeopardizing deposited funds, some of the underlying assets still have utility that maybe can be explored. SNX can be staked to earn weekly rewards, for example.

Summary

TVL is growing and will probably continue to grow. There is untapped potential to use these funds to feed the ecosystem and help grow what has already been built here. I wanted to bring this to a discussion to see if this is something we are interested in exploring (assuming it’s even possible)

Governance is important and a great starting point, but creating long term value accrual on the NDX token itself has a net positive effect where a stronger community of long term holders will exist.

Any feedback is appreciated.

3 Likes
#2

This is the kind of thing that creates a dedicated community, a constant influx of more TVL access to more governance on other platforms and so much more. This makes NDX a serious contender in this space if implemented

2 Likes
#3

Well that’s not quite true, they are being swapped between each other and earning swap fees, as each index is an AMM. The idea with this project is very much to generate passive revenue off of the assets in portfolios, the index pools are only the first, with the revenue being swap fees, and they have the added benefit of making rebalancing super simple. I’m definitely interested in exploring other models though, including things which employ yield farming strategies.

The short answer is not really. The long answer is that this is technically something we could do while still having the pool be an AMM, but it would be extraordinarily expensive and complicated. For a super simple example, say the pool has 1000 DAI and we want to lend it to Compound. Whenever someone interacts with the pool via join/exit/swap we would need to wrap all the functionality of lending/withdrawing on Compound. This would drastically increase gas fees and code complexity, and reduce the security of the assets by having multiple layers of asset ownership.

Indices are extremely useful on their own - I honestly don’t think people will just dump all of them when staking ends, but either way we could do some incentives for people to continue earning rewards for providing liquidity on Uniswap or another market for these tokens in order to combat impermanent loss for the people who make them usable as ETFs.

With regard to the value of NDX itself, please check out IIP 3

#4

Part of the assets, say 15%~25% of each asset in the pool, can be used to earn some revenue from the lending platform, and evaluate it and perform adjustment at every reweigh/reindex to make sure that fraction not beyond 20%.

BTW, for further security, maybe Saffron tranche(https://app.saffron.finance/) can be used.

#5

Saffron doesn’t make sense for this since they lock you in for two week periods, and a fractional reserve style balancer pool would need to be able to un-fraction itself quickly, else it would be completely breakable.

#6

I personally come from a slightly more risk averse standpoint, and as such, while I agree with finding additional ways for our tokens to work for us, I believe that with the bigger target audience of Indexed Finance would feel uncomfortable with a large majority of the underlying Index assets being loaned out and being unavailable at short notice.

I am for the idea from Jimmy2011 (provided the technological aspect being possible, as well as covering the basic security concerns), being that a fraction of the assets of the pool can be put to work.

For example, assuming $10m TVL in CC10, if the DAO has accepted 10% of total tokens put to work as acceptable risk, could we consider something similar to weekly pools that accept a total maximum of 10% of CC10 Supply ($1mil) and perhaps a corresponding NDX value ($1mil) to be locked together to generate yield for these NDX and CC10 holders? On the side, while these CC10 Tokens are locked and the staking pool starts, the reserves backing these Tokens in proportion to their individual weights will moved out of the Balancer pool for staking of course.

This can of course can be replicated across all other future Index Pools, which will allow NDX to hold greater value and additional utility to generate additional income for Index Token holders.

Just my 2 cents.

#7

Saffron will change to constant reward per block, so two weeks period is not a requirement anymore.

To better use of those assets and create value for NDX, a fractional reserve will indeed appear in the system, so I propose we introduce a virtual AMM(vAMM) system, which can virtually records the AMM activity, and our contracts provide actual assets for minting, swapping and burning. I think it should be valid in principle, though there will be a lot of work. Any comment is appreciated.