Indexed Finance is now just over eight months old at the time of writing, and is strongly placed as the second largest on-chain provider of index products within Ethereum.
The relative size of the index sector has increased significantly since we posted our Q2 roadmap back in April, and both our recent and scheduled upgrades put us in an good position in terms of potential market capture.
Our previous roadmap covered our Q2 2021 objectives: in contrast, this post aims to detail a longer-term set of goals, both necessary and aspirational. We remain a small core team (although we’re very open about the fact that we want to grow!), so we aren’t pegging any set deadlines to these — as we want to grant ourselves the flexibility to tackle opportunities as they arise.
Instead, this roadmap is being categorised into “will do” and “want to do”, with the second being split into two distinct groups depending on protocol partnerships and funding/manpower.
This will be a living document, rather than a set-and-forget that we point interested parties to: updates or setbacks on each point will be logged, and new goals will be added or removed as appropriate.
Our Q2 focus was on ‘evolving the Indexed protocol to further distinguish ourselves from our competitors, increasing the utility of the NDX governance token and indices alike’. The results (stretching into Q3) were as follows:
- The introduction of our extended liquidity mining scheme in May. Using a fork of Sushi’s Masterchef, Indexed has committed to emitting an additional 1.5 million NDX (subject to a confirmation vote by the DAO) over the course of two years, as rewards for both the single-sided staking of select indices and liquidity provision on both Uniswap and Sushi. This hands-off solution allows us to maintain our entire liquidity reward framework from a single contract, and easily integrate with third-party platforms such as Onsen for dual-token rewards.
- The introduction of Nirn in August. Our solution to cross-lending-market yield aggregation, Nirn vaults will allow us to lend out the assets within our index pools via the market/s returning the best returns, alongside the ability to rapidly rotate funds when better opportunities present themselves. This represents an evolution in yield aggregation primitives, and sets Indexed apart from it’s competitors when it comes to the ‘intrinsic productivity’ of the assets within its products, and enables significant revenue generation for the Indexed DAO.
- The announcement of Argent’s support of Indexed as one of the first five protocols supported by their L2 zkSync wallet, launching in September. Using Argent, holders will be able to buy the DEFI5 index using fiat, with minimal gas costs in a lightning-fast environment, all from their smartphone. We consider this to be ‘equivalent’ to a CEX listing for DEFI5: Wintermute will be acting as our market maker in this regard, and we thank them for their assistance.
Those of you that have been following our announcement channel within Discord or our Twitter account are doubtless aware that there are always a handful of other things that we’ve been working on, but the three points above are those that we’re proudest of at present.
Let’s look ahead though, shall we?
“Will Do”: Scheduled Tasks & Upgrades
- L̶a̶u̶n̶c̶h̶ ̶d̶N̶D̶X̶ ̶[̶D̶i̶v̶i̶d̶e̶n̶d̶-̶B̶e̶a̶r̶i̶n̶g̶ ̶N̶D̶X̶]̶ [Done]
It’s been some time coming, but after determining the final parameters needed to establish the proportion of Indexed protocol revenue to be retained by the Treasury versus that distributed to stakers of the NDX governance token, dNDX is ready to go.
We’ll soon be announcing the deployment of the underlying staking contract (and pointing you to an interface where you can interact with it), but will wait two weeks or so before deploying the seller contract that actually converts the underlying assets into WETH for distribution, to let everyone get ‘pre-staked’ before the engine starts running.
For more details on dNDX, read up on the forums here.
UPDATE [25 September 2021]: dNDX is now live. Announcement article can be found here, direct link is here.
- Balancer V2: Protocol Upgrade
We recently announced that Indexed is the recipient of a grant from Balancer, with the stated aim of upgrading the protocol to support Balancer V2. This is fairly wide-ranging in scope, covering three distinct pieces of work.
In order of priority, they are: the creation of a metaoracle to widen the scope of assets that can be priced (and therefore included) in pools, an asset manager for Balancer V2 pools that handles the lending of underlying funds via the appropriate Nirn vaults, and the implementation of a custom Balancer V2 pool that will act as the basis for our existing and future index products.
This work in its entirety is conservatively estimated as taking roughly four to five months to complete with our current team size, not including audits, and represents the bulk of our work for the remainder of 2021.
Latest updates on work that falls under this umbrella can be read here.
- Formal Verification & Audits
We have operated up until this point without any ‘blue-chip’ audits on the core contracts for Indexed pools, but rather investigations by friendly parties such as Daniel Luca (ex-Consensys) and Mudit Gupta (ex-Polymath, currently Sushi). This was a decision that has been validated in retrospect by eight months of uninterrupted usage across six distinct pools and several thousand users. However, in light of our producing tools that are designed for more generic usage by the wider DeFi community — i.e. intra-protocol, such as Nirn — we have recently engaged Certora, a company specialising in the formal verification of smart contracts.
The work of formally verifying the Indexed codebase is scheduled to start in earnest with the engagement of their engineers on the Nirn protocol as of the 4th of October 2021. Thereafter, we will be integrating the Certora tool into our CI/CD pipeline and utilising it heavily going forward for all future code.
However, while formal verification is a powerful tool, it is only as useful as the specifications provided. To this end, we will also be engaging with auditors more frequently going forward, time and funds permitting.
- Advanced Scoring Strategy Indices
All of the ETF products currently offered by Indexed utilise scoring strategies that are — in some way or another — underpinned by the market capitalisation of the underlying assets: DEFI5 uses FDV, DEGEN uses circulating market cap, and so on.
The scoring strategy mechanism that Indexed utilises to determine the weights of the assets within our pools is far more flexible than this, however, and once Nirn has been verified and the full range of vaults becomes available, there are two ‘types’ of indices in particular that we want to introduce to demonstrate the extensibility of the scoring strategy, in part because we want to do them anyway, and in part to entice strategists to hop on board and think about interesting weighting methodologies going forward. The two are:
a) An interest-bearing stablecoin index (e.g. USDC, DAI, RAI), with each of the assets vaulted in their respective Nirn vaults, with each asset weighted according to the average interest rate seen by its vault over the previous week. While this won’t see the APY achievable by — for example — Curve or Yearn, it represents a ‘safe’ stable instrument. Once launched and sufficiently liquid, we will phase this index into the Future of Finance Fund index in lieu of the DEGEN index component that is currently there.
b) A hedging index comprised of ETH and Nirn-vaulted stablecoins, with assets weighted according to — for example — the aggregate value of the Crypto Fear & Greed index over the previous week: rotating into stables in times of extreme greed and vice versa. This is an example rather than a fixed decision: provided that the data used to produce the relevant scores can be sourced on-chain, any metric is fair game.
We’re looking into the possibility of introducing strategist fees for successful proposals, sourced as a fraction of the exit burn fees associated with the resulting index (rather than introducing a management/streaming fee: a decision which we feel sets Indexed products apart from its competition).
- DAO-Approved Token Treasury Sale
Indexed has performed its core purpose (the provision of efficient, high-performing index products) well since inception, and mostly free of angel capital; barring an early $90,000 investment from Molly Wintermute utilised by the core team for gas costs and various incidentals such as audits, and a $250,000 OTC sale of tokens back in February that has only been utilised by the IGC thus far.
Given our ambitions — in terms of audit, growing network effects, paying additional core and community contributors, legal advice regarding the structure of our products for listings, and so on — it is quickly becoming the case that an infusion of liquid capital is required. To this end, once dNDX is launched and distributing protocol revenue to stakers, we intend to begin arranging the details of a multi-party round for a sale of NDX for stablecoins.
All details relating to this sale will be subject to — probably fairly intense — DAO discussion, such as dollar amount, vesting period, discount, approved counterparties and so on. In order to provide ourselves with a sufficient runway to organise this properly, the core team performed a smaller sale of tokens from the portion of tokens allocated to the founder team at a slight discount to spot to various parties friendly to the DAO.
- Metagovernance Upgrades
Metagovernance was enabled via Proposal 4 for the tokens administered by the core controller that are supported by Governor Alpha (i.e. the UNI and COMP that are in the DEFI5 and CC10).
This functionality has not yet been used for the purposes of voting on proposals put forward by either Compound or Uniswap, primarily due to the fact that Compound has since migrated to Governor Bravo and Uniswap shifted their Governor Alpha to a new address. Once our Balancer V2 work is completed, we will put forward proposals to update our metagovernance setup and begin actively seeking to participate in the votes for those protocols.
- Administrative/Protocol Upgrades
The upgrade to Balancer V2 is the most important aspect of the evolution of Indexed pools in the near term; however, there are two specific changes that we wish to make to the index controllers to improve their efficiency and remove some barriers that we set up when they were created.
Specifically, we wish to remove the minimum and maximum bounds of market capitalization for assets included in an index, as well as increase the weight at which unbound tokens are migrated to the token seller contract from 1% up to approximately 2.5%. These moves are designed to both loosen the restrictions that macro market conditions can have on the members of an index and speed up the process under which tokens are removed and replacements are given their ‘true’ weight.
“Want To Do”: Dependent On Other Protocols
- Chainlink Price Feeds
In order for products to be more widely integrated into the Ethereum ecosystem (i.e. as borrowing collateral on Aave), Chainlink price feeds are necessary: they’re now a critical part of DeFi infrastructure. In order to qualify for a Chainlink feed for a given index, we have two options: either go about it the regular way (i.e. have sufficient liquidity and volume on a daily basis on a DEX), or appeal to a custom implementation from their Feed team.
In the first instance, we are at least an order of magnitude away from the volume required for DEFI5, our largest index. In the absence of wider public awareness (and trading) of the DEFI5, this is a good thing, as it means that the volume is linked to the NAV of the underlying assets, and only ‘spikes’ in times of significant market volatility, when arbitrageurs play their part. In particular, the DEFI5 is comprised entirely of tokens that already have Chainlink feeds: we are in discussion with Chainlink Labs regarding the potential for constructing feeds as a weighted aggregate of existing data.
- Increased Cross-Chain Presence (Bridged and Native)
To date, we have operated purely on the Ethereum mainnet, with incentives generously offered by Quickswap for a number of our indices that are bridged over to Polygon. Given the recent launch of Arbitrum One, we are seeking to do the same there in conjunction with Swapr, and are also in discussions with parties on Avalanche and xDAI.
We are also particularly interested in creating native indices for chains such as Polygon: i.e. deploying the Indexed infrastructure separately on a new chain and enabling products such as (for lack of a better name) “POLY10”, an index of the largest Polygon tokens by market capitalization. However, Indexed is first and foremost an Ethereum DAO, and some thought needs to be put into determining how success stories on separate chains — e.g. Polygon — would port back to Ethereum to benefit members of the DAO: one current line of thinking involves redeeming exit fees to WETH and bridging them back to the Treasury.
This work presupposes the existence of a metaoracle (alluded to above) that would allow us to source prices from various DEXes and other sources, and as such is queued until after the Balancer V2 upgrade is complete.
- Nirn Vault Cross-Protocol Integration
As an evolution of yield aggregators, Nirn is well placed to be utilized by any DeFi protocol that has capital sitting idle: the underlying vaults are designed to be plug-and-play, with no baseline streaming fees on the underlying, no withdrawal fees, and no minimum lockup period.
We have seen interest from a handful of parties in the month since launch, pending its formal verification and the subsequent lifting of the whitelist, which will open the gates for — at present — a hundred distinct vaults for nearly all ERC20 assets that can be used as collateral at present. The core team already utilizes Nirn, using it to earn yield on its stablecoin reserves, and the capital within Indexed pools will be similarly deployed (subject to approval by the DAO).
One particular point that we intend to advertise heavily is the fact that the performance fee (as a fraction of yield generated) of a Nirn vault can be shared by protocols that integrate it. Were a protocol such as Zerion — as an example — to advertise the DAI Nirn vault for idle capital on its site, we can split the resulting revenue over time in such a way as befits their relative contribution to vault TVL. We’re particularly interested in onboarding business development contributors that are capable of carrying the torch with us in this regard.
- Incentivising TVL Via NDX Reserves
The header above sounds a lot like ‘more liquidity mining’, but it’s slightly more nuanced than that! In the absence of a performance fee on the underlying TVL of an index (with the DAO earning its revenue through exit fees and — soon — Nirn revenue), it’s worth exploring the degree to which the NDX within the Treasury can be utilized to incentivize strategists and various creatives to widen both our suite of products and public awareness thereof.
One train of thought at present involves rewarding parties that propose and implement new indices and/or drive significant sustained TVL towards the Indexed protocol by way of a portion of either exit fee revenue or ‘bounties’ of the NDX token, either as-is or in the form of a KPI option via UMA to ensure that perverse incentives aren’t created, whereby someone creates an index, places their own capital within it, and then claims a reward after a set period of time has passed.
This latter option is one that we’ve periodically talked about with UMA for a good long while now (and we thank them for their patience!), and remains — in our eyes, at least — the best option presented for utilizing the power of the Treasury to generate wider participation from creators rather than the typical user that we are targeting to use our products as part of their crypto investment strategy. We are, of course, open to all suggestions on this front!
- Collateral, Perpetuals and Options
Index products, by their nature, are good candidates for financial derivatives: they represent a hedged bet on a market sector, with lowered aggregate volatility, and as such we want to increase market exposure to our indices as the underlyings for such instruments.
We alluded above to the fact that we wish to get tokens such as the DEFI5 and CC10 listed as collateral on platforms such as Aave and C.R.E.A.M. (which will admittedly create a bit of token-ception, since that would make them eligible for a Nirn vault…), and the existence of competitor products on these platforms suggests that there is product market fit. As before, however, this particular avenue is reliant on a Chainlink feed for the relevant index.
We have had success with getting our indices listed as the underlying for perpetuals: MCDex launched a DEFI5 perpetual on the Arbitrum testnet in May, and this will be available for mainnet use once they have concluded their whitelisting phase.
We are also in discussions with protocols such as Hegic and Opyn regarding the creation of on-chain options (imagine, if you will, a 20x long on DEGEN…), however the latter also has a Chainlink feed as a requirement. This roadmap should really probably just be “Chainlink, please give us feeds, we’ll do the rest.”…
- Ethereum Push Notification Service Integration
When it comes to governance of a protocol, it’s fair to say that most people don’t know what options they have available to them, and when those options arise: you generally need to have your finger on the pulse of Discord or Twitter to know when things have happened or there’s a call to action. To this end, we’re particularly interested in the potential applications of EPNS for the purposes of informing members of the Indexed DAO about changes to index composition, the opening of new Nirn vaults, liquidity mining shifts, on-chain/Snapshot votes and so on.
This is more of a ‘nice to have’, but integrating with EPNS to allow us to send push notifications to holders of the NDX token will — with sufficient uptake of the EPNS app itself — make communication of our progress, goals and governance easier to do on a day-to-day basis.
“Want To Do”: Dependent On Funding/Manpower
This section is more of a call to action than anything else: we’re a core team of three full-time contributors at present, amongst a DAO of over 5,700 NDX holders. We currently have roughly half a dozen community contributors working on things such as index competitions and the State Of The Index: a weekly article diving into the performance of one of our products and a brief summary of news relating to each of its component assets.
Index products (and passive portfolio management techniques writ large) aren’t necessarily sexy, but at Indexed we see them as vital. More importantly, we think it’s important to provide index products in as decentralized a fashion as possible: with no central operator, no holding fees, open-sourcing as we go and generally building neat primitives along the way. There’s demonstrable market fit, and enough work to keep us busy for years, given the chance.
If you like the sound of any part of what we’ve described in this roadmap, we could use your help! We’re eager to grow the team, and happy to pay well for good work, whether it’s from individuals or DAOs that focus on growth and analysis. Specifically, here’s what we’re looking to improve upon:
- Increased Marketing Presence, Analytics and Educational Material
It’s not unfair to ourselves to say that the biggest weakness of Indexed at present is down to public awareness (and, to a lesser degree, network effects). We consider ourselves lucky enough to be working on a protocol in a sector that’s inevitably destined for major growth: we just need the eyes. There are a host of things that we can do to improve this: Twitter threads about the indices themselves or Nirn, improved analytics on platforms such as Dune that highlight various KPIs, podcast advertisements/appearances and so on.
If you’re reading this, you’re probably already DeFi native — and that means you can probably contribute to this in some vein. Let’s talk!
- Additional Solidity Developers
We have months of work to do, and one Solidity developer. We’ve set aside a significant war chest to pick up an additional two or three developers, and doing so would speed the progress of the roadmap significantly, as most of it is infrastructure.
Specifically, we’re looking for developers that are comfortable with the Balancer ecosystem and oracles, but more generally if you’re capable of slinging Solidity and at a loose end: we’ve got a whole bunch of neat primitives we want to build, so come and build them with us!
- Ergonomic UI Update
Since launch, we’ve iterated the Indexed UI a couple of times: mostly to introduce new functionality (extended liquidity mining, Nirn vaults etc). There are a number of things that we’d like to improve upon in terms of information presented and overall flow for the average user: to that end we have recently hired a designer to revamp the interface from the ground up, freeing our React developer to focus on implementation rather than designing everything himself and then coding it up.
We’re looking for additional React developers to help out here, so if you’re skilled in that department, come and knock on our door — we’ll make it worth your while.