[Proposal] Buying DeFi Pulse Index (DPI)

[Proposal] Buying DeFi Pulse Index (DPI)

Basic Summary

The following is a proposal for the Kyber treasury to invest into the DeFi Pulse Index (DPI).

The Index Coop, notably jcooper, miza 6, bax86, Matthew Graham and myself, the Coop ambassador towards Kyber, have previously mentioned this opportunity, both on this forum and during Kyber community calls. On both occasions, the reactions from Shane and Lợi and were positive and so looking forward to build further on this!

The DPI is a capitalization-weighted index that tracks the performance of the top DeFi tokens. It is currently composed of 14 popular DeFi tokens available on Ethereum, including KNC! The methodologist behind DPI is Pulse, Inc, creators of DeFi Pulse and the criteria for token selection can be found here.

DPI is the most popular DeFi index product with, at the time of writing, ~$ 200M of market cap. It is charged a 0.95% annual fee for the management of this product. It covers the costs with portfolio rebalancing and the implementation of the methodology.

DPI is built on top of Set Protocol and managed by Index Coop. Index Coop is a decentralized and autonomous asset manager governed, maintained, and upgraded by INDEX token holders.

Motivation

The main purpose of this initial investment into DPI is to help grow Kyber, by getting exposure to top DeFi projects. A greater and more diversified treasury can help Kyber to protect downside and drive utility and adoption. Also, should the need arise in the future to sell treasury assets DPI can be quickly sold with minimal slippage as opposed to a natrive token at size.

Besides creating a stronger treasury, this proposal would strengthen a partnership between two DeFi powerhouses, Kyber and Index Coop.

DPI is an efficient way to get exposure to the DeFi sector. The index gives exposure to all the component tokens while only having to hold one single token. The top 7 tokens of DPI represent ~90% of the Index portfolio (Uniswap, Aave, Maker, Compound, Sushi, Yearn and Synthetix). It is more efficient to pay the 0.95% annual management fee than do the implementation alone, spending with gas and development costs to do the rebalances.

DPI has performed in line with BTC and ETH since inception, at the cost of a 1-2% increase in volatility depending on the benchmark. The correlation of DPI with ETH is 0.77 and with BTC is 0.54. It is a way to diversify a bit from only holding ETH.

We would be available to produce more in depth analysis by request.

Specification

There are several methods available for purchasing DPI that would result in minimal impact to KNC.

This initial proposal is to gauge support, if it is decided that it would be in the best interest of the community, we can determine the best way to implement the sale.Some examples, direct buy through Token Seats, Bonding Curve, Marketmaking Partners, Balancer pool.

For large trades TokenSets offers investors the ability to “Buy” DPI via exchange issuance. Investors are able to send ETH, receive DPI and in the background the individual underlying assets are purchased. The “Buy” functionality draws on the liquidity of the underlying assets within DPI.

A bonding curve was recently utilized by FEI/Tribe for a $25 Million purchase using PCVSwapper code. This is audited code written to buy DPI on secondary markets. We can specify a value and frequency to minimize price impact. This would require a Chainlink Oracle. Other alternatives are a custom Balancer pool or we can work with our Market Making partners.

Again, this proposal is to open discussion on if Kyber should diversify its treasury, we can discuss “The How” as a next step. We are open to discuss what would be the best implementation strategy.

Voting

We intend this as an open dialog, please let us know what questions or concerns you may have. Depending on the feedback from community about this post, we would suggest a snapshot with two options to vote:

Would you support a purchase of 2.5 Mill KNC of DPI as treasury diversification?

Or

No buying of DPI

2 Likes

Hey Kyber Friends. Please let me know if we can answer any questions. We love having you in DPI and would like to continue to grow our partnership!

1 Like

A question came up in discord, Why would we want to do sell our token just to potentially buy the competition?? A great question and I tried my best to respond! Let me know your thoughts.

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Yes that Question was raised by me, I still see no benefit for Kyber whatsoever with the current % allocations to UNI and Sushi particularly.

1 Like

Yes thanks again for that question!