A complete guide to understanding PowerIndex
You will understand PowerIndex, PIPT, and CVP by reading this article
AMM: automated market maker
PIPT: Power Index Pool Token. The derivative ERC20 token of the Pool, allowing to claim a share of the pool and de-facto acting as a basket of ERC20 tokens (analog of BPT token in any Balancer Pool)
CVP: Concentrated Voting Power ERC20 token
BPT: Balancer Pool Token
Univ2 LP: an abbreviature for any Uniswap version 2 pool token
UPI#…: Understanding PowerIndex article series, written especially for the community to understand PowerIndex before its launch
TVL: total value locked in Defi protocol
PIPT-ETH: secondary market pool for PIPT, launched on Balancer
Foundations of PowerIndex
PowerIndex is a smart pool based on Balancer AMM with upgraded functionality. It contains 8 Defi governance tokens and is entirely governed by the community. The community provides liquidity to the contract and mints PIPT tokens performing this operation. PIPT can be considered as a liquidity provider token of this pool (BPT or Univ2 LP), representing the pool’s share:
It stores a curated portfolio of Defi assets stored on a contract, acting as an ETF-like Defi index which can be used for different purposes:
- Meta-governance. All tokens, stored on the pool contract can be used for voting in their native protocols.
- Fund-managements strategies. Pooled tokens (the pool capital, belonging to its community) are used in Vault strategies and generate cashflows for holders of this portfolio
- Token swapping. This pool can be used as any other liquidity pool for swapping tokens. The main feature is that end-used can directly swap governance token to governance token, for example, COMP to UNI or SNX to AAVE in one transaction
Read more about the basics of PowerIndex in UPI#1: Introduction & Basics article.
The pool share — PIPT (PowerIndex Pool Token)
PIPT is a token representing pool share. By owning PIPT, the user owns a share of the pool (as in any liquidity pool). So, PIPT is a right for claiming the user’s share of 8 Defi governance tokens from this contract and can be considered as the token “containing” 8 other tokens inside.
PIPT can be used for different purposes, including investment in a basket of Defi tokens, receiving cashflows generated by the pool, and voting on proposals:
Note, that the PIPT voting function is based on the share of CVP, locked in the pool. The native PowerPool token — CVP (Concentrated Voting Power) is the only governance token in the PowerPool ecosystem.
Read more about PIPT functions in the UPI#2: PIPT token magic article.
You can mint PIPT by providing liquidity to PowerIndex. Liquidity can be supplied using any of the supported governance tokens (single-side liquidity provision option, it will be activated after the pool attracts enough liquidity). Another option is to use ETH, USDC, USDT and several others supported assets (in this case the contract will buy the token portfolio for you on Uniswap and supply these tokens to the PowerIndex contract):
Read more about options for liquidity provision in the UPI#3: liquidity provision article.
Pooled tokens usage
As it was mentioned before, PowerIndex stores all supplied tokens on its contract. PowerIndex is a capital-efficient Defi product and uses pooled tokens for generating additional value for PIPT token holders:
- Meta-governance: pooled tokens are used for voting based on decisions made by CVP token holders. PIPT token holders can also vote as PIPT contains a share of CVP stored in the pool. An example: YFI governance integration and ecosystem partnership.
- Vault strategies. Pooled tokens are used for generating cashflows for PIPT holders. An example: YFI and AAVE strategies based on staking in the staking contracts.
Read more about the value provided to PIPT holders by using pooled tokens in the UPI#4: pooled tokens usage article.
PowerIndex is entirely governed by its community. It means that users can change token set, token weights, and index fees:
In the case of high TVL, it is a big power — index users can influence markets of pooled tokens as adding/removing token results in buying/selling it from/to the market.
Imagine a $100m index and the case for removing a token with a 12.5% share in it — it will result in selling $12.5m worth of this token.
Even decreasing token weight by 2.5% can influence its market. Read more about the value of the governing index in UPI#5: index governance article.
Index fees and cashflows for PIPT and CVP holders
Index charges fees from token swapping and capital provided. These fees are accumulated in the Permanent Voting Power treasury and will be used for rewarding CVP token holders, actively participating in governance. Also, the index generates cashflows for PIPT token holders actively using the pool’s capital in Vault strategies:
Learn more about index cashflows and fees in UPI#6: index fees and cashflows for PIPT and CVP holders article.
Liquidity Mining Program
Index liquidity providers can receive CVP rewards participating in the liquidity mining program. It offers as much as 1m CVP for the first month:
Month 1: 1,000,000 CVP
Month 2: 700,000 CVP
Month 3+: 400,000 CVP
Note, that as CVP is also an index component reward (denominating in USD) will grow with growing the liquidity in the index. Index acts as a liquidity sink for all composite tokens driving their capitalizations. The reward allocation divided between PIPT staking and PIPT-ETH Balancer pair (secondary PIPT market):
Also, CVP holders can participate in the CVP-ETH Uniswap liquidity mining program. For the first month rewards are set at 182k CVP per week and for the following months at 91k CVP per week.
Learn more about the liquidity mining program in UPI#7: Liquidity Mining Program article.
What is the best way to get PIPT? Do I need to buy it?
We advise you to mint PIPT directly by providing liquidity. PIPT price at the secondary market can differ from the fundamental PIPT price, based on the value of a basket of 8 tokens. For example, if the PIPT fundamental price is 1$ you probably will buy it at 1.05$. Is it worth it? You can add liquidity using ETH, USDC, USDT, and other assets if you aren’t owning governance tokens.
Would PIPT grow with PowerIndex TVL?
No. PIPT growth is connected with the growth of the Defi market in general as its price is based on the price of a basket of 8 governance tokens such as UNI, COMP, AAVE, YFI, etc. But, CVP value can grow as its value is connected with the success of PowerIndex. This article provides a comprehensive explanation of CVP value capturing mechanisms.
What is the best strategy for CVP mining?
It depends on your risk tolerance. If you are ok with IL (Impermanent Loss) you can provide liquidity to the CVP-ETH Uniswap pair or PIPT/ETH Balancer pair. If you want to use a conservative approach, you can use PIPT staking and receive APY in CVP + index-generated cashflows just for holding a basket of “blue chips” Defi assets.
PowerIndex website (coming soon): powerindex.io
PowerPool website: https://powerpool.finance/