Readdressing the dNDX reward token decision

Hi everyone,

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)
  • DAI
  • WETH
  • 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.


So I’m guessing that this change in stance around buybacks of NDX is coming from the assumption that the yield-aggregating indexes will significantly increase the revenue captured by the indices since it will be more than just burn fee’s. By my own calculations (probably incorrect), the current total fee’s captured is in the $30k - 40k range.

I think it would help to have an estimate of current and projected revenue generation in order to make an informed decision.

On the choice between NDX, WETH, DAI as the reward token, I agree that rewarding in NDX could create a strange feedback loop that rewards large holders with even more NDX, which might cause an even larger spread in voting power between the avg user and a select few. In this same line of thinking I believe it would be best to reward in DAI or WETH (whichever has the least slippage for the indices), this would allow users to spend the rewards however they wish, including buying more NDX. I’m not a fan of the index of 3 since it would be one more step to burn or trade it and may need it’s own liquidity pool.

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In my view, the core team should represent the interests of the DAO, not trying to prod it to vote in any particular direction. As this decision has already been made by NDX holders through the original snapshot, I think it’d be wrong for the team to be pushing for a re-vote, just as a matter of principle.

Now, since dNDX has not actually been deployed yet, the DAO can still change its mind, but I think someone other than the team should trigger that vote, and we’d probably want to require higher turnout on the second vote than the first in order to accept the result.

I’ll admit I’m not entirely sure how to handle this. I agree that switching to a different token given the new vaults could make sense, and the DAO may want to reconsider given the new information, but I worry about setting a precedent where proposals are created multiple times until a desired outcome is reached. Clearly that’s not what is happening here, but if we choose to do a re-vote on this issue, why not the next one?

We can’t really estimate that until the new vaults are deployed and have been active for a while, unfortunately.

This point about “what constitutes a democratic right to override a previous decision” is a good one, and one that was originally thrown up near the beginnings of Indexed, if you recall: “we should vote on whether to include NDX in one/all of our indices”.

This actually had a vote (that I started, back when I was a community member) - and it lost - although for some reason it’s not showing up historically on the Snapshot archives: I know I’m not hallucinating this. A second vote on the topic never happened, but it’s an example of something that could be consistently revisited, provided enough time has passed or there’s a material change in circumstance.

Without wading into geopolitics, this particular question is somewhat reminiscent of the Brexit referendum: a decision was made, new information’s popped up, and the fundamental issue hasn’t been signed into code/law yet.

I’ve been - rightfully - called out on Discord for being a bit flowery in the OP, which I’m grateful for because it suggests that people are trying to engage. I’ll write some follow-up posts in this thread explaining what I think the pros/cons are for each option (rather than edit the OP), but fundamentally, @d1ll0n is right on two points:

  • The proposal should be made by someone not on Core, and
  • If the vote doesn’t exceed 289k votes in total, the original decision holds.

I would ask that people ask explicit questions they want answered in here, so that everything’s in one place. I don’t want to push my preferred option here, since that turns me into a tyrant. I’m also on the fence about whether I should even vote on this, given that I’m the one that brought it up.

It’s a very interesting thread. Thank you for that. New information is of character that could affect the initial voting so I don’t see a precedent here. One could say: I bought on the assumption there will always be only 10 mil ndx max supply and then found out there is an inflationary option. Printing more ndx imo is not sustainable long term. Ndx should be treated as a scarce resource especially now when still available in the treasury. Having an option now to print leads to more relaxed monetary policy in the mid to long term.
The issue with the turn up remains tough. Perhaps extended amount of time for spreading the word is one way kind of building up to the voting as well as extended voting deadline minimum 2 weeks I would say.

There’s one point here I want to knock on its head, just in case there’s a misunderstanding about where the reward token for dNDX comes from:

Assets that are set aside for revenue are converted into NDX - assuming that NDX remains the choice - on the open market. No NDX is minted for the treasury, or indeed disbursed from the treasury for this purpose.

I may have misread this, and your point is a more general one about the ability of the DAO to mint more NDX if the need arises. Nonetheless, it’s a separate issue.

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One resource that’s useful here to calculate how much revenue is available from exit-fees thus far, in dollar terms, is this repo produced by @fnery:

@Kuza - this might be helpful to spit out some figures for current amounts: it calculates the amount of revenue generated between two dates. As it stands, with current market prices, there’s been US$45,390 generated from the launch of DEGEN to today:


This figure has to be viewed in light of the liquidity available for NDX on, e.g. Sushi - the most liquid market we’d be able to access with the least hassle through our Narwhal router.

NDX right now is priced at $3.10 - making a $45,390 DAI trade into the Sushi NDX market would lead to slippage of ~29.5%, returning 10,284 NDX at an average of $4.41:


That’s basically a free arbitrage opportunity for someone holding NDX spot to sell into.

I’ll drop some more thoughts later (with some very back-of-the-napkin figures for vault profit, although @d1ll0n is right in that it’s very much a wait-and-see effort).

Internet signal is causing me some grief on this farm…

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Thanks @Norsefire, this is what I was hoping to confirm since I wasn’t sure my $30k - 40k estimate was accurate for current exit fee’s collected. I understand that until the vaults are live we wont have real data for them, but I’m operating under the assumption that it will increase the amount of fee’s collected by the treasury.

My concern is that if we are already encountering high slippage buying NDX at our current level of adoption, this issue will likely only get worse. Here are my concerns with NDX as the dNDX reward:

  • High slippage ultimately hurts the profits/IL of our NDX/ETH LP’s.
  • It’s likely that the indexes will outpace the growth of NDX further exacerbating the slippage issue.

Also, it’s of my opinion that we want to avoid creating such large arbitrage opportunities on our NDX pairs since it’s not our users that benefit from it, some might but not the majority.

If we reward in DAI it eliminates the slippage issue and makes it easier for users to keep track of how much they’ve been rewarded, it also removes the rewards from market fluctuations. DAI or WETH would also allows users to spend their reward without needing to sell into the NDX/ETH LP.

Since most of our users are looking for longer term investments, it’s not such a stretch to believe that they feel the same way about dNDX, rewarding in DAI allows them to be long term holders of NDX without the need to time collecting/selling their rewards with the market.

@Norsefire i’ve been following this while on vacation, I was not a voter in the original proposal however I would vote my NDX towards WETH as my first choice and DAI as an alternate. The point about unintended impacts to the NDX LPs makes sense to me and seems like a compelling reason to justify the reopening of the prior decision.

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Right, I’m back in civilisation.

I want to mention two things here: potential revenue generated by vaults and some pros and cons that I can see for the various token options.

The latter wasn’t properly discussed beyond Discord last time, so I want it written somewhere in stone so people are fully aware, should someone choose to create this vote.

Potential Vault Revenue

The way that vaults work fee-wise is that, by default, 5% of the yield generated by productive assets is claimed as revenue. There is also a reserve ratio of assets that are not put to work in lending protocols, in order to enable gas-efficient withdrawals and cross-protocol transfers. This is - again, by default - set as 10% of the deposited assets. More details on these figures will be made available upon the release of the aggregator.

As an example, consider a DAI vault with 10,000,000 DAI deposited, earning a constant 2.3% over the course of a year (figure taken from the Aave vault):

  • 9,000,000 DAI deposited across protocols,
  • 207,000 DAI yield generated,
  • 10,350 DAI fee revenue generated

This already constitutes just under a quarter of the exit fee revenue produced so far.

If we were to take all of the assets that are in DEFI5 right now as an example and migrate them into their respective vaults, we would see the following (yield rates are pulled from an aggregator test script):

Asset Vaulted Yield ‘Native’ Revenue US$ Amount
UNI 186,222.84 0.44% 36.87 619.87
AAVE 5653.08 0.4% 1.017 268.59
COMP 3647.64 2.83% 4.64 1809.64
CRV 783,155.12 1.87% 659.02 981.93
MKR 159.23 0.03% 0.02 50.05
SNX 23,235.38 7.3% 76.32 714.35
Total 4,444.43

These amounts are low, but it’s worth remembering that the majority of the yield here is going to the holders of DEFI5 itself (as it should do), and these tokens have quite low yields at present anyway. None of these figures are fixed in stone, mind - we all saw yield rates collapse recently: that trend could reverse, continue, or crab along.

Pros & Cons Of Reward Token Choices

Here’s what I think are the good and bad sides to each of the choices that were presented in the previous vote insofar as their selection as reward token goes:



  • Original choice as confirmed by the DAO on Snapshot
  • Shunting sufficient volume into e.g. the Sushi market through dNDX revenue could render it eligible for increased Onsen rewards
  • Makes it ‘easier’ for people to restake rewards received for additional dNDX, should they choose (saving them an additional swap)
  • NDX slashed from early dNDX unlocks is immediately ‘ready’ for distribution


  • Over time, will increase the disparity between large dNDX stakers and smaller ones (concentrating voting power)
  • Significant slippage incurred on the liquidity pools at their current size - dragging the price on whatever market is used far above the average.
    • Impact of slippage may be sold into by people holding NDX spot, possibly dragging the price below where it was when the revenue swaps were made
  • The introduction of dNDX will force holders to decide between providing liquidity or dNDX staking - the potential for significant volatility within the LPs could well deter the provision of any additional liquidity even if holders choose not to stake for dNDX
  • ‘Dust’ NDX within the wallets of small dNDX stakers is effectively burned (this could also be a pro, depending on your viewpoint).



  • Able to accurately graph the rate of return per staked NDX in dollar terms
  • Deep liquidity - we won’t make a dent in slippage in WETH/DAI pools (assuming that we route all revenue assets through WETH first)
  • Arbitrageurs will be unable to exploit price shifts in the reward token triggered by revenue swaps (see deep liquidity)
  • No need for stakers to time collecting/selling their rewards based on market conditions


  • DAIs pegged nature means that upswings in the price of NDX or ETH (if selected) would be missed out on
  • Imposes another swap requirement on stakers who wish to purchase more NDX (or anything else) with their rewards
  • If significant amounts of NDX are slashed from early unlocks, the same slippage concerns as highlighted above will manifest when NDX is sold (dragging the price down rather than up)



  • Exposure to upwards price movements from ETH
  • Able to accurately graph the rate of return per staked NDX in Ether terms
  • Spreading out slippage from multiple assets: every revenue asset we’ll be converting from (DEFI5, DEGEN, wrapped vault assets) has their own liquidity pool.
  • WETH is the intermediate swap asset if we select NDX or DAI - choosing it reduces the gas cost of converting revenue assets.


  • See DAI Cons above (except the first)



  • Contains all three of the above - a bit of everything for everyone!
  • Would be ‘in the spirit’ of Indexed - they’re our primary product, so why not have one as our primary reward token?


  • How to weight such a pool/what scoring strategy to use?
  • Would require a - likely incentivised - pool if we wanted to allow the option for people to sell the reward token on the open market, rather than burning them.
    • From the perspective of the average holder, adding this as a further hoop to jump through to receive the reward token they ‘want’ is overly complex.
  • Likely due to be constantly out of balance due to people pulling out their preferred asset, leading to reverts within the pool if someone tries to burn for more than 1/3 of one particular asset. Cue many complaints.

Okay, this was long. But that’s pretty much all I have to say on the topic, unless someone would like some clarification on anything I’ve said here.

At this point, it’s in the hands of the DAO: if someone not on the Core team wants to create a vote on this via Snapshot with all of this in mind, they’re welcome to. If one isn’t created, then the NDX decision holds.

Finally, I’m recusing myself from any vote, as I sense something of a conflict between my role on Core [as a facilitator] and the fact that I’ve just posted an absolute novel on this topic.


Thanks @Norsefire for putting so much thought into this.

After ruminating on this for a couple of days I can’t see one option which IMHO strikes me as clearly superior to the others. Therefore, I echo @d1ll0n’s concerns as I’m not sure I am convinced that these new developments warrant setting a precedent by triggering a re-vote.

I understand the concern about concentrating voting power if the dividends payment token is $NDX, but with enough motivation (and not too much work?) one could just convert any of the other options into $NDX…

I’d just add that personally, I’m less keen on the ETH/DAI/NDX Index due to liquidity concerns and favouring keeping things simpler with the other options.

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