Understanding PowerIndex: index fees and cashflows for PIPT and CVP holders
By reading this article you will understand fees charged from PowerIndex users and how PIPT and CVP holders can receive cashflows
PowerIndex is a decentralized ETF-like DeFi index, consisting of 8 different governance tokens (GTs).
Read more about PowerIndex and PIPT:
- Understanding PowerIndex: Introduction & Basics
- Understanding PowerIndex: the PIPT token magic
- Understanding PowerIndex: liquidity provision
- Understanding PowerIndex: pooled tokens usage
- Understanding PowerIndex: the value of Index governance
How does an index generate monetary value (or simply — future cashflows) for its users?
In PowerIndex there are two mechanisms to generate cashflows:
1.Vault-like strategies. As we describe in the previous article Understanding PowerIndex: pooled tokens usage index was initially developed as a capital-efficient solution using pooled tokens for different purposes. One of these purposes is generation cashflows for PIPT holders using Vault-like strategies for composite tokens.
2. Fees. Index charges an entry fee, exit fee, and swap fee for provided services. All charged fees are accumulated in the special treasury contract named Permanent Voting Power. During the month of operation, Baby PowerIndex generated ~$2600 in composite tokens. Check out the treasury contract. Note, that these fees were collected from the MVP index with a tiny cap of $550k.
How these cashflows are distributed and who is eligible for receiving them?
The cashflows generated from Vault-like strategies are distributed only to PIPT holders. In order to get these cashflows PIPT holders have to stake their PIPT in the PIPT staking contract or provide liquidity to the PIPT/ETH Balancer pool. The motivation for that is to make PIPT more attractive to hold than any other share of decentralized indexes available on the market. Also, PIPT holders receive a 0.2% swap fee from all trades in the index.
It means that PIPT holders not only hold a curated basket of assets, but also all cashflows associated with it.
The fees are collected mainly for CVP token holders (PIPT token holders receive only 0.2% of the swap fee). This Permanent Voting Power treasure is aimed to become a community-owned treasury for rewarding active CVP holders. The algorithm for rewarding CVP holders (who is eligible to receive these funds?) isn’t established yet. The idea of the PowerPool team is to reward those CVP holders who have locked their tokens using the VoteLock function and actively participate in voting on proposals. As we stated before, there is no democracy without rewards. It is our view on how to solve Voters’ Apathy on the meta-governance level. However, only the community can make such a decision (as all collected fees belong to the CVP community).
It means that if the community would approve this idea, CVP token holders would be able to receive cashflows by locking their tokens and active participation in governance.
It can work as a positive feedback loop — the better CVP token holders govern the index, the more TVL index will have and trading volume generated, which leads to rising collected fees. And in the opposite, poor decision-making will lead to decreasing TVL, trading volumes, and lowering the rewards for CVP holders.
Currently, entry and exit fees are set to 0.1% and swap fees to 0.3%. Note, that only 0.1% of the swap fee goes to the Permanent Voting Power contract and 0.2% remaining in the pool for the benefit of all PIPT holders. Fees can be changed at any time via governance proposals.
Links:
PowerPool website: https://app.powerpool.finance/#/mainnet/pools/shared/
PowerIndex main website (coming 25 November): http://powerindex.io/
