IIP 4: Sigma Pilot
Authors: Dillon Kellar, Lito Coen
In the past weeks, we have received many suggestions from within our community and on social media for new indices and other pool management strategies. Many of these are good candidates for the core index pools, which track well-defined market sectors on Ethereum. Others are more speculative, have less well defined criteria, involve new portfolio structures or methodologies, or track smaller cap tokens which are too risky for the current indexing strategy.
We want to enable new use-cases for the Indexed protocol and experiment with new management strategies, but it is important that we maintain a high degree of objectivity in the management of our core indices and that they be subject to minimal risk.
Rather than wait for further development of the protocol that will enable greater public access to deployment of pools or more modular portfolio structures, we believe a new program should be created to facilitate involvement from other communities and increase the pace of innovation for the Indexed protocol.
Sigma is a new program aimed at creating innovative index products on our platform and bringing liquidity to these indices. Sigma will allow investors, financial experts and DeFi communities to collaborate with Indexed to develop new indices and other passive portfolios with custom criteria and methodologies.
A pilot program will run from February to May with an allocation of 600,000 NDX from the Indexed treasury. These tokens will be used to incentivize liquidity on the new pools so that we can accurately gauge their performance and encourage new people to use the platform.
During the sigma pilot program, a section of the forum will be dedicated to new applications. Anyone will be able to submit a request here for a set of tokens to track, an index with custom methodology, or a different kind of automated portfolio manager altogether.
Applications must include:
The criteria for inclusion if the pool will track a general market sector, or the list of tokens which will be included if not.
The methodology to be used, if it is not an index pool with capitalization-root-weighting.
The portfolio structure to be used, if it will not use the index pool contract.
A 5 member committee will manage the Sigma program, with 2 members appointed by the core team and 3 members appointed through NDX governance. This committee will be responsible for setting application rules, judging applications and deploying approved pools. NDX holders will retain the ability to replace the committee through a governance proposal.
Applications will be judged using several factors, including but not limited to:
- Quality of the proposal, including clarity of the criteria and methodology.
- Interest level of the Indexed community.
- Amount of liquidity that will be committed to initialize the pool.
- Feasibility of implementing the methodology, if custom.
Pools which use a methodology different from the current pools will be supported by new keeper jobs where necessary so that they remain autonomous.
For pools which track market sectors rather than specific tokens, the committee will be responsible for submitting updates to the tokens list.
For pools which use the IndexPool contract or otherwise act as AMMs, if small-cap tokens are allowed by the criteria they will be required to support circuit breakers, which will be detailed in an upcoming proposal.
Pools in the Sigma program will have a 0.5% exit fee, which will be charged whenever the pools’ LP tokens are burned. These fees will go to the Indexed treasury to help offset the costs incurred from liquidity mining and keeper rewards.
For pools with custom methodology or portfolio structures, a code audit must be published prior to deployment.
The committee will determine rewards based on criteria such as liquidity committed by the applicants, the interest of the Indexed community in the new pool and the uniqueness of the pool relative to other DeFi projects and existing pools from Indexed. When rewards are assigned, a seven day timelock will begin prior to releasing the NDX. Indexed governance will have the ability to veto the allocation through a standard governance proposal.
Pools will be incentivized through liquidity mining of the pool tokens and LP tokens for their market pairs. All rewards allocated will be distributed over a 90 day period.
If this proposal meets a total of 50,000 votes cast on Snapshot with majority in favor, an on-chain proposal will be created when the Snapshot proposal is complete.