If you’ve been involved with Indexed for any length of time, you’ll be aware of our plans to launch dNDX: the mechanism through which the NDX governance token can be locked up in exchange for a claim on protocol revenue.
This has been delayed past Q2, and I’d like to quickly explain why, and use that as a lead-in to a proposal for a revisited vote on one of the parameters, specifically the token which protocol revenue is handed out in.
We received the audit for dNDX a while ago (late May, early June if I recall), and whilst there are no errors within the code itself, we’ve been wondering if there’s any value in extending the applicability of dNDX tokens to express preferences (i.e. staking them towards votes for including a given token in an index) rather than simply holding onto them.
On the ‘holding onto them’ topic, dNDX tokens are themselves tradeable, with the heavy caveat that you need to burn exactly the same number of dNDX tokens as you received when you initially staked NDX in order to unlock said NDX. This means that the loss of a single dNDX token (through dust, wallets that become inaccessible, someone buying a bunch of it on an open market and then refusing to sell it) corresponds to an inability to unlock SOME amount of NDX. This isn’t a shocker of an insight, as it’s per the original design, but it does mean that it is purely - and unsurprisingly - cashflow that incentivises people to keep a secure hold of their dNDX in its current form.
The above may be ‘enough’. Nonetheless, we temporarily put dNDX deployment to the side, and moved on to something else…
It’s something of an open secret if you listened to our Sushi Onsen AMA, or have caught snippets within the Discord, but we’ve been working on a next-gen yield aggregator, with the intent of using the wrapped interest-bearing tokens issued by its vaults as proxy assets within indices such as DEFI5. This will allow us to ‘flip’ the existing indices into yield-bearing variants without deploying V2 - but otherwise identical - versions of the underlying pools. We’ve been pretty tight-lipped about the underlying details, but the reason we’ve been relatively dark lately is because we’ve been pretty much working non-stop on it.
Of note is the fact that this aggregator:
- Works as an entirely standalone product,
- Is sufficiently flexible as to guarantee truly optimal rates of return,
- Claims fees on generated yield as dNDX revenue.
If I have time at the end of my EthCC talk, I have a few slides that officially introduces it to the world. If not, the slides will be going online anyway, with the whitepaper to follow on launch (although we’re aiming to launch during EthCC anyway, so this may be moot).
The introduction of this aggregator opens up a much wider revenue stream dependent on uptake, and it’s this final point that brings me to the actual topic of this thread.
When the parameters for dNDX were decided, the vote for reward token settled on NDX itself (i.e. stake NDX, receive NDX). This represents buy pressure on the NDX markets that are set as the route through which we melt revenue assets (i.e. index tokens from burns, vault fees from the aggregator).
In the best case scenario, this represents upwards price pressure on NDX as people hoard and restake it for additional claims on revenue. In the worst case, all NDX disbursed is immediately market sold, representing a net-neutral movement modulo slippage and swap fees on e.g. Uniswap and Sushi.
That slippage is my concern if the yield aggregator becomes responsible for significant funds. There is currently:
- $60,000 NDX/ETH liquidity on Uniswap V3,
- $90,000 NDX/ETH liquidity on Uniswap V2,
- $225,000 NDX/ETH liquidity on Sushi, and
- $4,600,000 NDX/BNT liquidity on Bancor (with rewards due to end imminently)
Given the range of assets we will be ultimately trying to convert between when the yield aggregator is live, we cannot easily make use of the Bancor liquidity without going around the houses (it doesn’t, for example, support DEGEN or DEFI5).
With what is remaining/available for us to use, the ~$50,000 that we have accumulated in exit fees thus far would - if all sunk into NDX at once for distribution - scorch the remaining markets in terms of slippage. The resulting price pump could well be then taken advantage of by people who have simply been holding onto NDX spot, rather than that higher price being redeemed by dNDX stakers.
Incentivising an NDX/ETH pool somewhere to encourage the addition of liquidity feels counter-productive, as we’d effectively be paying people to make the choice to NOT engage with dNDX, for the sole purpose of hitting that market with trades that are ultimately intended for dNDX holders.
So, given all of the above, and the fact that dNDX isn’t out yet, I feel it’s worth having another Snapshot vote to confirm whether we still want to go ahead with NDX as the reward token, or something else. I was admittedly a massive bull on the NDX decision (and voted as such) up until recently, but all of the above has led me to a bit of a Damascene moment.
The way I see it (blinkered as I am), there are four options:
- NDX (i.e. confirm the original choice)
- An index of the three in some proportion
These are basically the same options as were available in the first vote, with the introduction of a ‘combo’ for those that would like to receive some NDX as part of the reward asset.
I’d also like to get a stronger mandate for this choice than we did in the previous vote (289k NDX total votes cast), since it impacts the tokenomics of NDX heavily going forward, more so than any other parameter of dNDX. We can also make use of ranked-choice voting this time around, with thanks to Snapshot for enabling this.
I encourage you all to drop your thoughts or questions here: this is a fairly big one in terms of impact, so there’s no voice too small.