Elliott Watts
The Index Coop
Published in
22 min readSep 10, 2021


August has seen the Index Coop grow from strength to strength both from a financial standpoint and also as a community. We are having deep discussions around the future of the DAO and its organizational structure named Index 2.0. Financially the DAO has seen continued growth throughout August. Gross profit for the first time since inception has been positive showing a profit of $164.8k up 172% in August, this is a direct result of lower Liquidity mining costs for DPI which were reduced by $268k.

The DAO treasury remains strong and has seen significant growth as a result of recent Index Token appreciation, this currently stands at a total of $85.3m. INDEX price closed at $43.84 which has increased by 47.3% since July. The treasury holds $76.7m in INDEX tokens (90.0%), $7.29m in USDC (8.5%), $602.5k in DPI (<1%), $544.9k in ETH2x-FLI (<1%), $72.9k in BTC2x-FLI (<1%) and $54.9k in MVI (<1%) see below.

The Index Coop is actively looking at ways to diversify our treasury holdings to better manage market downturns. There are continued discussions with investors for OTC treasury sales to increase our stable coin holding, of which we are actively utilizing the stable coin asset allocation guidelines and making them productive. The Index Coop has seen continued growth since genesis, with revenue totaling in excess of $2m. Revenue has grown to $545.2k in August, this increase is most notably a result of ETH2xFLI showing great product-market fit.

The leveraged product suite is claimed on the final day of the month and it should be highlighted that fees not claimed are negligible. Coupled with strong revenue growth, It was positive to see a significant reduction in liquidity mining costs within the month, the greatest expense to the DAO, ultimately resulting in better capital efficiency.

Key takeaways;

  • Index 2.0 workshops
  • Community strategic raise
  • Aave listing vote for DPI
  • Data and LDI Index’s have been concluded upon
  • Autonomy and ownership discussion
  • Liquidity mining on UniSwap V2 has been turned off
  • Governance token distribution review

Treasury funding

The treasury continues to receive periodic income from a vested token contract, with 238.9k INDEX tokens becoming available between now and October 2021, another 1,425k tokens in the following year, and 950k tokens in the final year. The 1-year vesting contract started with a balance of 2.38M INDEX tokens and has been drawn down periodically as tokens are made available. The table below details the remaining balance within the 1-year vesting contract that will be released to Index Coop treasury. At today’s prices*, the remaining balance within the total vesting contract is $101.9m. The Index Coop uses these funds to create products, fund working groups, and promote the DAO. These funds are used to secure the future success of the organization. Amounts vested can be seen below;

P/L analysis

The Index Coop profit or loss account continues to improve monthly with streaming fees for August hitting an all-time high at $545k, the DAO has recently hit an important milestone and has exceeded $2m in revenue generated to date. ETH2xFLI performed well in August totaling $348k in fees a 107.8% increase from July. In light of this, the Index Coop is currently developing further leveraged products in partnership with DeFi Pulse. The remaining products which were revenue-generating in August being DPI, BTC2x-FLI, and MVI saw growth across the board, DPI up 35.9%, BTC2x-FLI up 22.7% with MVI also performing well with revenue generated increasing 157% although from a lower base (Refer to product performance below for more detail).

The P/L currently shows a loss of $6.8m. This is largely a result of LM incentives since genesis which were initially needed to bootstrap new products to enhance user experience. The community has decided to reduce incentives on a scaled basis; the main discussion points are around the sustainability of liquidity mining programs, given that costs far exceed revenue generated. August saw a large reduction in liquidity mining incentives from 12,758 INDEX in July to 3,000 INDEX for August which contributed this month to $65.5k in LM incentives, going forward DPI will no longer have a LM program. At the date of writing, this has not significantly impacted TVL. The next largest cost (excluding contributor rewards) to the DAO is MVI liquidity mining rewards which are currently being revisited and expected to cease within the not too distant future.

When excluding liquidity mining costs from the P/L, the Index would be generating a loss to date of $1,412k, this is a positive outlook for the future given that the first three months since genesis streaming fees were very low in comparison to August. Tapered LM costs and strong revenue growth set the building blocks for a successful financial future.

It should also be noted that contributor rewards this month have risen significantly to $887.8k as a direct result of full-time members vesting contracts. The vesting cliff for three members was reached on 28th August and a number of index tokens were claimed from this contract and as a result. This is included within the P/L for this month. Due to the nature of DAO accounting the Index Coop currently only records transactions in the P/L when tokens have left the IC wallet i.e cash accounting. In the coming months, the DAO is working to implement the accruals basis to ensure better accuracy, accountability, and transparency by adopting this model. We dive deeper into the analysis of contributors in the key cost review section below.

The Income Statement above is presented in USD and records the USD value of each transaction at the time each transaction occurred. For instance, if INDEX tokens are transferred from the treasury to a merkle contract for distribution to contributors, the USD value of the transfer to the merkle contract is recorded. The tokens are priced using CoinGecko USD closing price on the day the transaction occurs.

The streaming fees for each product are detailed below:

  • DPI streaming fee is 0.95%. This is split 70/30 between the Index Coop and DeFi Pulse. The total streaming fee has been shown within Revenue within the income statement, and the DeFi Pulse share is shown as a cost.
  • ETH2xFLI and BTC2xFLI, the Flexible Leverage Index series, each have a streaming fee of 1.95% (195 basis points). The revenue generated from the streaming fee is split 60/40 between the Index Coop and DeFi Pulse respectively. Similar to DPI income, revenue has been shown in totality, with the DeFi Pulse portion shown as a cost.
  • MVI streaming fee is 0.95%

Token Flow Statement

The below token statement was created last month and has seen some interesting movement since genesis. We have separated out $INDEX transactions and stable coin transactions. The remaining tokens within the treasury do not have significant movement month on month, these will be shown in the full token flow statement in the year-end financial statements.

The token flow statement $INDEX section mainly shows the disbursement of contributor rewards from the Index Coop wallets along with liquidity mining incentives. The receipts represent mostly Index token amounts distributed from the vested treasury working group wallet. It is worth noting that the inflow and outflow are denoted in $INDEX tokens. When reviewing the stable coin token flow all transactions are in relation to the treasury diversification which was completed and raised a total of $7.75m. There is a nuance within the token flow statement due to the nature of the financial backing system that shows internal transfers as disbursements and receipts, an example of this is the movement of $500k from the treasury to the operations account.

KPI Review and Product performance

The Index Coop is continually improving on Key Performance Indicators (KPIs) month on month, with AUM growing to $348.4m. DPI continues to be the main contributor, with a current market value of $193.2m. ETH2x-FLI has grown to $121.6m without incentives, BTC2x-FLI has increased to $9.1m AUM, the Metaverse Index (MVI) has seen impressive growth over the last month with AUM now standing at $21.6m. BED, which was launched on 21st May, totals $3.1m remarkable given its infancy in the market. The Index Coop predicts steady market growth in AUM over the coming months.

We have seen over the past few months TVL recover from its slump following the mid-May market downturn. We expect TVL to grow significantly in the future especially given the recent bull market conditions, coupled with an increase in product offering expected in the coming months.

The Index in total has exceeded its previous highest TVL balance from mid-May, notably due to increased product portfolio but also due to good product performance. It is also extremely positive to see that TVL has not been impacted by the shutting off of LM incentives which were ended during August for DPI. The only incentivized supply being MVI which is likely to be curtailed in the coming months from discussion within the community given current MVI profitability levels.

Aggregate trading volume

We have seen aggregate trading volume increase slightly throughout July and August with the 7 days moving average peaking at $29.7m total trading value. This is positive growth and shows that as LM incentives have been turned off for DPI it has not had a significant impact on total trading volume highlighting good liquidity for the trading pairs.

Total Unique holders

We have seen total unique supply holders increase over time to an all-time high of 24,052 on the 31st of August which shows an average holding across all products of $14,485.30. This is impressive growth, AUM along with individual address holdings is expected to increase in the coming months, significant assets have been allocated to growing the DAO along with new product releases in the pipeline.

Product Revenue — DPI, ETH2xFLI, BTC2x-FLI and MVI

We have seen good product growth over the last month with revenue generated for the month hitting an all-time high of $545k. DPI whilst it is the DAO’s flagship product it does not on a monthly basis generate the most revenue for the Index. The leveraged trading series — most notably ETH2x-FLI had a surge in fees generated, during a bull run in the market, which has seen fees surpass that of DPI. Increased market optimism will likely see further growth in this product for years to come.

We expect revenue to exceed $2.5m for the financial year to September 30th YTD when taking a forward-looking view on the DAO. Given the success of the leveraged series, current plans are in the discussion and proposal phase to develop the leveraged trading series within the Ethereum ecosystem. Further discussion can be found here with talks of an inverse FLI series on the horizon, along with further products being developed in partnership with DeFi Pulse which can be found here.

Whilst product performance for the leveraged series is promising with ETH2x-FLI on a gross profit level being positive for the first time, it is worth noting that there are additional costs not captured in the Index Coop’s financial statements. Currently, there are a number of rebalancing and gas costs for the leveraged series which are currently paid for and maintained by Set Labs, this however is expected to be passed to the Index in due course. The treasury team is currently working through a cost analysis to measure the impact this is likely to have monthly on the profitability of the products.

Competitor comparisons

In this section, we will look at the performance of our products relative to our competitor’s offerings. We compare each product on various metrics and look at the fees generated to the founding community. Comparison metrics include:

  • Assets Under Management
  • Liquidity within Ethereum ecosystem
  • Daily Trading Volume
  • Annualized Product Fees

Drawing from the below infographic, we can see that DPI and ETH2X-FLI are the market leaders in revenue generation, daily transaction volume, and overall market liquidity, highlighting product-market fit and brand reputation. ETH2x-FLI is significantly outperforming in both fees and liquidity, all AUM is unincentivized. ETH2x-FLI has grown substantially since its launch and is expected to exceed $1.5m in annualized income.

The common theme between the two charts is that there is a clear distinction between small (PieDAO), medium (PowerPool), and large-cap (DPI) products. Typically products with high liquidity generate more trading activity, but the important outliers are the products that outperform in terms of revenue generated relative to trading volume. The leveraged products are an example of this; they have lower levels of liquidity but generate a higher annualized revenue. Both products are in their infancy and expected to increase in liquidity, trading volume, and revenue over time. MVI has seen a large increase in fees generated from previous months, although it is worth noting that it has greater levels of liquidity than other products such as PIPT and DEFI+L and greater AUM.

Key Cost review

Contributor rewards

The Index Coop has numerous ways it rewards contributors, from full-time ‘employees’ to one-off contributors. For example, some full-time members are given fixed monthly rewards coupled with vested tokens (this is discussed and analyzed in more detail below), whilst others are remunerated based upon the monthly output. Community rewards have grown from $240k in July to $887.8k in August. We can see below a visualization of rewards since genesis.

Contributor rewards have increased significantly from July as a direct result of the full-time contributor retention plan which includes vested tokens some of which have hit their 6-month cliff in August. A number of tokens were withdrawn from the contract and as a result, appear as a cost during the month. These were exercised on 28th August 2021. The total cost of this to the DAO at the date of the transaction was $419.5k (11,158 * $37.6) this represents only a small portion of the total amount vested into the full-time contributor rewards structure.

In summary, the compensation package is $5k per month, plus vested tokens (two-year lock-up period) at 0.15% of total supply over 2 years for each contributor (total 0.90% of INDEX supply allocated to 6 Index Coop members). Three members hit their 6-month cliff on 28th August and have claimed their tokens, as discussed above. There has recently been an additional member added to this retention initiative, head of analytics, the remuneration package is slightly different more information and discussion on the topic can be found in the links below;

Web3 Engineer — Full-time offer

  • $12,500 USD in INDEX per month (150,000 USD per year)
  • 0.075% of total INDEX supply (7,500) vesting over 2 years with a 6-month cliff.

Smart Contract Engineer

  • $7k in INDEX per month
  • 0.15% of total INDEX supply (15,000) over 2 years with a 6-month cliff.

An estimate of the full-time reward per member is estimated in the below graphic — this is taken at a snapshot in time using the 31st August closing token value.

Contributor rewards make up 35.6% of total expenditure excluding the vested contributor rewards paid in the month, these grew significantly as a result of increased Index token price upon payment. This analysis can be seen below.

Analysis of contributor rewards payment structure

Currently, contributor rewards are shown at the token’s value on the date the transaction is made. An example of this is July rewards paid in August (most paid on 7th August with additional payments made on 27th), creating a disparity between the award amount, which is determined using a 20-day moving average, and the actual token price on the date of payment. This has been analyzed in the table left.

As we can see from the analysis, there are several different payment dates within the month. August showed upward price movements in comparison to the 20 day moving averages the awards were granted on. As a result, the actual cost to the index as reflected in the financial statements is $468,285. This has resulted in contributor rewards being $151.4k higher than at the time of the reward. The Index is planning to release a schedule that shows the impact of this price movement. From when contribution rewards have been granted vs actual payment date to determine net effect throughout the year. This contributes and explains to an extent why we see large swings in contributor rewards. Note that this table does not include the vested tokens which were claimed on 28th August totaling $419.5k

When reviewing the current structure of the DAO contributors have relatively low levels of ownership but significant context when it comes to decision making and voting on proposals. The above system and structure need to be adjusted to best serve the contributors and the overall mission of the DAO. Coupled with autonomy discussions a revised remuneration structure for all levels of contributors is in the pipeline and will be communicated during Index 2.0 workshops over the coming weeks, this will enable the DAO to retain top talent at all levels.

Liquidity mining

Liquidity mining in August dropped significantly 58.8% from July figures. In August, the community pivoted on DPI liquidity mining (LM) strategy, offering 2,000 INDEX to incentivize the transition to Uniswap V3, LM from a business perspective, enables our customers can buy our products easily, with low friction, as close to the NAV as possible with the lowest cost, including gas, slippage, and price impact. The move to Uniswap V3 requires much less liquidity, between 3x and 5x less looking at MVI and DPI, to deliver that same experience. Thus, allowing costs to be reduced dramatically, providing more capital efficiency for the Index. In addition to this, the DAO has approved the incentivization of 1,000 Index on polygon to incentivize liquidity on that market, allowing users to move DPI on the polygon bridge.

At the end of August, we can see LM being turned off for UniV2 and V3 with the only product continuing to use liquidity mining being MVI. As we can see below incentives were turned off on 13th August with some LP tokens still remaining in the contract although not attracting yield.

Since rewards were halted on DPI, we have seen un-incentivized supply remain relatively consistent, suggesting that the TVL of the DPI-ETH V2 Uniswap pool is more greatly influenced by price movements than the QTY and ultimately the reward value of LP token within the pool.

MVI remains incentivized given the product is still in the early stages and is needed to ensure the user experience when purchasing. This is a topic of discussion within the Index Forum with the general view to reducing this over time. Below we can see APY on a monthly basis for MVI.

APR on 31st August was 22.8% and to date, the Index Coop has spent $592k in liquidity mining, with $30k worth of revenue generated. This, therefore, suggests that for every $USD of revenue generated the Index is spending $19.62, this is not sustainable. However, the DAO expects profitability to increase in the short term and liquidity to decrease resulting in better capital efficiency.

August liquidity and the forward-looking view are summarised in the table below.

Impression mining

Impression mining costs have fluctuated significantly month on month, with the current spending totaling $18,006 a sizable increase from July; the increase is a result of incentives placed upon impression mining to support the release of BED where impressions were rewarded 2x.

The rewarded amounts are being refined on a monthly basis and change regularly with social impressions reducing from $10 per 1,000 impressions to $8. A team is working on creating a database tracking impressions and the impact this has on key metrics. Measurable targets are essential to ensure impression mining is growing public knowledge of and interaction with Index Coop products. Metrics such as conversion rates to purchase products, website visits, Discord interaction, and ultimately return on investment are all being considered.

Impression mining is seen as a tool to further the success and overall exposure of the Index Coop to ensure future longevity of the DAO and product success for years to come.

Key developments within the month

There has been a number of developments within the month in relation to a number of key topics, most notably the start of autonomy discussions, restructuring of key aspects within the DAO, and discussions around contributor remuneration. We have also seen developments in product development with DATA and LDI (Llama Diversified Index) that have been approved by the community and are in their final stages of production.

Listing of DPI on Aave

The main motivation around the listing of DPI on Aave is by appealing to a larger basis and increasing the versatility of the product, ultimately increasing AUM. The Aave community unanimously with 100% of the vote being for the proposal. With Aave currently making up 20.88% of DPI, it was seen that there is no better way for Aave to support DPI’s widespread adoption than to enable DPI to be utilized for borrowing and lending. With DPI trading since October 2020 and a 90-day average trading volume of around $7.2m was a great market fit for Aave to implement.

This makes Aave the first major lending protocol to integrate an index product into its platform. DPI is becoming a DeFi standard and adding DPI would dramatically increase support for these efforts. The product on Aave was only released on 21st August and has seen small uptake, this is expected to increase in the coming months. The snapshot vote by Aave can be seen here

Autonomy Discussion — Finance of the Future

As background, the Index Coop uses Gnosis Safe and multi-sigs to manage the community’s finances. The simplicity of this approach enables an easy transition towards autonomy. A phased transition of responsibility is expected within the community. The intent is to provide a foundation to allow the community to define the most efficient operating model for Index Coop” — Autonomy pre-reading

The Autonomy discussion has been something the DAO worked towards for a number of months. There is a need to consider how we move away from specific group ownership. Currently, the treasury funds are controlled predominately by members of Set, in order for complete autonomy, the keys to the treasury have to be distributed to the community. From a financial perspective, the first community workshop was lead by the Treasury working group, People organization, and Community along with the funding council. This workshop has set the foundations for the autonomy of the treasury, it also allowed us as a community to clearly outline the deliverables for each of the working groups, providing transparency and accountability.

It has lead to discussions around internal controls within the DAO. If we are to have full autonomy then there should be significant safeguards put in place to protect funds and the integrity of the DAO. The current Multisig signers are detailed below we are looking to increase the number of Index Community members on the multi-sig.

Based upon the above the workshop suggested that more Index Coop contributors should be added to the Treasury wallet and then in time remove some of the Set Labs signers. A multi-sig handling upwards of $80m requires more security than other wallets holding lower values. The Treasury working group has suggested the below timeline for action. This is a potential example of how this may look ad it should be noted this has not been finalized by the community.

Each time a new person is to be added to the Treasury multi-sig wallet, an IIP must be submitted and the community must vote to include this person on the multi-sig.

From the discussions at the finance of the future workshop, there were 3 common themes that were discussed and broadly agreed upon. Those were; the dissolution of the Funding council as an entity and merging the multi-sig into the operations account with the responsibilities of the funding council such as budgetary approval and review being passed over to a yet to be formed Index Coop Leadership Council. This council will consist of elected community members to ensure goal congruence for the DAO as a whole.

Secondly, a long-term aim is to transition ownership of the community treasury multi-sig to the leadership council. The community is keen to get the keys from set labs and provide more ownership and autonomy of the DAO’s funds from a financial standpoint.

Thirdly, the general desire to form an Index Coop leadership council. Following the dissolving of the Funding Council the community has suggested implementing an elected Leadership council, the exact shape and function of this group has not yet been confirmed however it will be made up of elected members of the DAO from a variety of different working groups and backgrounds. The DAO as a whole is still working through a number of workshops and the finance of the future was just one aspect, here is further reading on the topic.

Treasury diversification and Community Raise

The Index Coop has deployed a strategic capital raise which has been a great success to date and has onboarded some key investors in the DeFi world. This was completed to diversify our treasury and helped to gain over $7m in USDC. The motivation behind this was due to the fact the treasury is almost entirely constructed of INDEX and Index Coop products, a result of the automatic vesting of community treasury tokens on a block-by-block basis from vesting contracts. There is still some capital left to allocate to potential investors and the DAO is actively in discussion with a number of interested parties.

The above capital raise happened a few months ago, due to token price the community capital raise was not pursued. However, as a way for contributors of Bronze Owl and above to increase their holding within Index and further community ownership of the DAO, there will be the opportunity to purchase up to a maximum of $100k worth of Index tokens per contributor. Index Coop is offering similar terms to contributors through a Community capital raise which is expected to be actioned towards the beginning of October. Conducting a community sale that ensures all Gold, Silver, and Bronze contributors have access to the same deal terms as previous investors help to cement long-term incentives across our entire organization. This will see an increase in Index token holdings by contributors and will also pave the way for increased community ownership of the DAO; which is a current topic of conversation and discussed in more detail below.

Governance and token distribution

Index Coop’s governance token distribution is akin to that of a startup, but there is no “founder” with over 50% of the tokens to serve as a legitimate representative of the “employees” (contributors). While this is more “decentralized”, this opens up the possibility of governance-based attacks on the DAO as well as governance legitimacy crises” post regarding index distribution

As part of our current Autonomy discussions as a DAO and the launching of Index 2.0 governance and token ownership is at the forefront of the conversation. At the Index Coop there are a number of stakeholders in the protocol those most notably are as follows;

  • DeFi Pulse
  • Set Labs
  • Index Coop Community members
  • External Institutional Investors
  • Market purchases by anyone in DeFi

Between this group of people and organizations, we hold the voting power to the DAO, recent work by the analytics team and a number of contributors has highlighted the concentration of voting power to a small pool of people and organizations. The index is currently discussing ways to redistribute some of the ownership of the DAO to its contributors to enable more community ownership.

The DAO faces a number of issues in relation to the above distribution there is significant control by a number of entities that are not directly involved in the day to day runnings of the Index Coop, for example, if most key actions ratified through IIPs that require token votes, but those same actions are executed by contributors, who only own 0.5% of the total INDEX supply. Situations could therefore arise where large token holders can override the views of the DAO’s contributors as a whole which threatens the effectiveness of the organization. The DAO is working together to openly discuss a way to best approach this issue.

Creation of Operations account and stable coin reserve

An important milestone within the treasury working group has been reached with the successful implementation and creation of the operations account and subsequently a proposal to allow the TWG ability to deploy its stable coin reserve strategy. Allowing parts of the treasury to become productive, generating a return of the stable coin holdings. The main vision is that the operations account will be able to fund and manage working capital. The amount of working capital to hold in this account is an iterative process, starting small and increasing with time as the DAO is comfortable with how the account is operating. The first initial injection of capital into this account is the $500k of USDC with $250k being diversified to DAI upon receipt for diversification purposes.

The role of the Operations Account is to:

  • Identify the primary sources and uses of funding
  • Set and maintain target levels of stable coin and high-quality liquid assets like ETH
  • Provide alternative responses or remediation plans to various scenarios
  • Plan to deal with temporary, short-term, and long-term INDEX price disruptions
  • Operate within working capital risk tolerance levels with oversight from the TWG

In addition to the above roles and following on from the Finance of the Future discussions it will be absorbing the Funding council wallet so will also take on the responsibility of funding working group proposals.

This stable coin reserve follows our initial analysis of funding usage and begins the process of establishing a working capital management program. Further reading around specific strategies and guidelines can be found within the stable coin asset management guidance.

For any insights that you wish to be seen within this article please reach out to @Elliott within the Index Coop discord forum and we will endeavor to include this in our next iteration.

Disclaimer — The information presented in this report has been generated using information from Etherscan, Coingecko and internal Index Coop documents as at 31st August 2021. This article does not constitute investment advice and should not be relied upon. The information within has not had an external audit.



Elliott Watts
The Index Coop

Core contributor at the Index Coop with a background in TradFi - Chartered Accountant