Index Coop integrates UMA for optimistic token rebalancing
Tldr; Index Coop, the DAO focused on making structured crypto products simple and accessible for all, has integrated UMA. The optimistic oracle will help Index Coop rebalance its index products, improving the protocol’s decentralization and efficiency.
Key takeaways:
- Index Coop has become the latest DAO to integrate UMA’s optimistic oracle to improve its operations.
- The DAO specializes in making DeFi accessible through diversified token baskets, and it will use UMA to rebalance products in a trust-minimized fashion.
- This update will improve decentralization and sustainability for Index Coop’s token products.
Index Coop now uses UMA’s optimistic oracle to validate and enforce methodologies for its products. The integration will also help the DAO automatically execute reweighting and rebalances for its index products in a trust-minimized, efficient, and transparent manner.
Index Coop is a key fixture in the Ethereum DeFi ecosystem. The DAO oversees Index Protocol, an EVM-based protocol that turns different strategies into ERC20 tokens. With Index Coop, users can get exposure to a strategy, like diversification, yield, or leverage, by holding a single token. As with traditional index products, Index Coop frequently needs to rebalance its token baskets. The OO can help here as it can be used to make a trust-minimized reweight for each product, before the product then rebalances via a Dutch auction.
With the OO integrated, the DAO can now optimistically validate rules for proposing and executing token reweights and rebalances. Anyone can propose or dispute rebalances, which also increases transparency.
Index Coop’s integration comes after a series of DeFi’s leading DAOs have deployed UMA’s oSnap solution for optimistic governance. It shows that the OO is extremely flexible, and it’s increasingly helping DeFi’s top DAOs embrace decentralization.
How the optimistic oracle works
UMA is Web3’s optimistic oracle. It can be thought of as a decentralized truth machine, used to verify any kind of data and trustlessly record it on the blockchain. The OO uses a game theoretical mechanism and economic incentives to ensure that most proposed statements are accepted as true. In dispute cases, $UMA tokenholders vote to solve disputes and get rewarded for voting correctly.
The OO can verify any kind of truth about the world and serve it to smart contracts. This means it’s extremely flexible. The OO secures a wide variety of Web3 projects, including the prediction market Polymarket, the decentralized cover protocol Sherlock, the intents-based bridge Across, and a host of DAO treasuries via oSnap.
How Index Coop will leverage UMA
In Index Coop’s case, the OO will help the DAO optimistically validate and enforce rules for rebalancing index tokens. Index Coop offers users access to tokenized DeFi strategies, and it frequently rebalances components inside its token products.
With the OO integration, reweighting and rebalancing rules defined in the product’s methodology are posted to IPFS and rebalance transactions are optimistically validated against these pre-defined rules. For example, Index Coop offers diversified exposure to Ethereum liquid staking tokens with an index token called dsETH, which rebalances every six months. To rebalance the index, a proposer crafts a transaction to adjust component weights according to the methodology posted on IPFS. Their proposal would then be verified by the OO. If no one disputed the proposal within a challenge window, then rebalancing would begin onchain. In the event of a dispute, the proposal would get deleted.
$UMA tokenholders simply resolve bond allocations between proposers and disputers — they can not execute rebalancing events for the DAO.
Index Coop’s OO integration shares some similarities with an oSnap integration, except it will help the DAO validate and enforce methodologies for its products rather than validate governance decisions passed on Snapshot.
The OO will make Index Coop products more efficient and transparent and minimize trust. Using the OO offers the DAO a better alternative to external methodologists and legacy DeFi infrastructure. Additionally, anyone will be able to propose or dispute rebalances, which further improves transparency and minimizes trust.
Looking to the optimistic future
UMA had a strong 2023, highlighted by oSnap’s growth in the DAO ecosystem (now securing over $285 million for DAO treasuries) and Across’ rising dominance in the cross-chain interoperability space (now accounting for roughly 30% of bridging volumes*). The OO is proving the power of optimistic systems, and Index Coop’s integration is another sign of its usefulness across Web3.
UMA believes that the future of the Internet needs to be built on decentralized foundations. The OO can help teams make onchain executions while staying true to Web3’s core values. To learn more about how Index Coop is aiming to make DeFi more accessible, visit the project’s website.
To integrate the OO into your project, say hi on X or Discord, reach out to us at integrations@uma.xyz, or fill out our partnerships form.
*This figure is based on Across’ supported routes and tokens only. It also excludes canonical bridges.
