Understanding PowerIndex: pooled tokens usage
In this article, we describe how PowerIndex uses pooled governance tokens and what value it generates for PIPT and CVP holders
PowerIndex is a decentralized ETF-like DeFi index, consisting of 8 different governance tokens (GTs). PIPT is a share of the index.
Read more about PowerIndex and PIPT:
- Understanding PowerIndex: Introduction & Basics
- Understanding PowerIndex: the PIPT token magic
- Understanding PowerIndex: liquidity provision
Building a capital-efficient index actively using pooled tokens
One of the main DeFi drawbacks is capital inefficiency:
“Most projects are trying to replicate traditional finance, and I simply don’t think that’s the right way to do it, traditional finance works because of fractional reserves, we can’t do fractional reserves on defi, so we will always be capital inefficient. Traditional finance solutions will mostly fail in DeFi.” — the quote from the interview with Andre Cronje
DeFi doesn’t use fractional finances, requires overcollaterization, and dApps often store a lot of tokens on contracts without any value generated from that. Decentralized indexes aren’t an exception — they aim to store at least hundreds of millions of dollars of value in the coming year.
If an index is not using pooled assets for creating value for index users then it is completely inefficient.
This was our basic point — we need to develop PowerIndex tech in such a way to allow it to use pooled tokens to generate additional value to the index holders. It is important for two reasons:
- Fully utilize capital which is pooled into the index contract
- Distribute all this produced value to PIPT holders and as a consequence make owning PIPT more attractive than owning a share of any other index on the market. It leads to the positive feedback loop and attracts more liquidity into the PowerIndex
PowerIndex has two main options for using pooled tokens and offers both of them to each PIPT holder.
Meta-governance — using pooled tokens for voting.
The decisions on how these pooled tokens will vote are made by CVP token holders (and PIPT token holders, as well as PIPT, contains a 12.5% share of CVP).
Meta-governance is an attractive function as it allows PowerIndex to solve several issues in one. First of all, it allows all PowerIndex LPs to vote in any composite protocols mining CVP tokens at the same time. So, being a PIPT holder you can (1) own a basket of assets (2) vote in any of the composite protocols just owning PIPT — you don’t need to buy additional CVP for that (3) Mine inter-protocol voting power token (CVP) participating in LM program.
PowerIndex meta-governance function allows it to contribute to solving Voters’ Apathy problem in index composite protocols. In the case of huge TVL in PowerIndex, the index and its users became a serious player in the governance of composite protocols. It is a great power which is underestimated now. We invented the idea of meta-governance in August 2020 with the aim to pool voting power and add a new level of decision-making to the ecosystem. Read more about the PowerPool team's current vision of the meta-governance concept.
Vault-like strategies for pooled tokens
All pooled tokens are the capital of the index, provided by the community. Understanding, that PowerIndex TVL can reach hundreds of millions of dollars in some perspective we initiated research devoted to seeking an answer for the question:
How can PowerIndex use this capital for generating real cashflows for index token holders?
This is why we implement Vault-like strategies for tokens pooled in the PowerIndex contract. Our community members can suggest their strategies via proposals, and if the community will approve them we will be glad to implement them after proper testing and audits. Currently, we developing Vault-like strategies for:
- YFI. The strategy is based on collecting rewards for YFI staking and voting.
- AAVE. The strategy is based on staking AAVE in the staking contract and earning APY for that.
Note, that all profits from these strategies will be distributed to the PIPT holders. All PIPT holders deposited their PIPT tokens to one of two LM options (1) PIPT staking (2) PIPT/ETH trading pair will be eligible for it. Also, we have strategies for several other index tokens but they are under development and it is too early to share the details with the community.
Conclusion
PowerIndex efficiently uses the capital in pooled the contract for generating additional value and cashflows to index users (PIPT holders). It allows our users to earn cashflows just by holding a basket of DeFi tokens and participate in the governance of 8 protocols as well. Pooled assets must and will work.
