1. Who is the interested party for this collateral application?
2. Provide a brief high-level overview of the project, with a focus on the applying collateral token.
$DPI is an ERC20 index fund. It represents 100% asset ownership of the underlying tokens. The intention of the fund is to allow ownership of key governance protocols within the DeFi Space. This could be thought of as wrapped DeFi (wDeFi). Such a structure has the benefit of providing asset exposure while minimising the downside risk due to individual projects failing.
TokensSets are ERC20 tokens that directly represent a basket of the underlying components, which are fully collateralized (assets held in 1:1 collateralization in a smart contract like Wrapped Ether). The supply of the DPI token is based on issue and redemption. Tokens can be issued by depositing the underlying collateral to mint and can be redeemed by burning the Token and retrieving the underlying constituents. TokenSet pools can be rebalanced, where constituents and weights can be adjusted through trades on DEXes.
3. Provide a brief history of the project.
$DPI was launched in mid September 2020 as a joint project between DeFi Pulse and Token sets. On the 6th October the INDEXcoop was launched to produce a community managed organisation focusing on the creation and adoption of Index funds.
Set labs and DeFi Pulse are founding members of INDEXcoop with vested holdings (28% and 2% respectively). The remaining INDEX tokens are are being distributed to the community (1% to DPI holders on 3rd October, 9% as liquidity mining DPI:ETH pair) or being held as community treasury.
The fund is currently composed of 11 governance tokens based on their circulating market capitalisation :
The current market cap for $DPI is ~$18 M USD vs $3 Billion for the underlying tokens. As the fund is based on a market cap allocation it currently contains ~ 0.4% of the circulating tokens for each and every underlying component (e.g. 4,400 $MKR, 145 $YFI…)
The key benefits of using $DPI as collateral is that it can be directly redeemed to the underlying tokens (worth a combined $3 Billion USD) while being protected from the downside of a single project failure.
This means that the DPI token should smooth out the overall performance and the volatility of the underlying tokens.
Further details on INDEX funds and how they are constructed using the and behave can be found here: https://overanalyser.medium.com/ . The v2 Set protocol smart contract design pooled structure of the fund means that collapse of a single component can not result in the pool being drained of the other tokens. Rather the combined value of the pool would drop based on the affected tokens value. This is unlike Balancer or Uniswap pools where price collapse results in draining / rug pulls.
The INDEX community is currently looking at ways of releasing some of the potential yield contained within the underlying governance tokens. This may include taking part of the total DPI underlying assets and staking governance contracts (e.g. YFI), or lending it via other protocols (e.g. cUNI, aREN…). If such a change to the fund structure takes place it will add some smart contract and liquidity risks compared to just holding the native tokens. Current discussions are looking at a combination of lock ins of $DPI and INDEX staking as risk management strategies if we decide to take this route:
As DPI numbers are based on issuance and redemption, the availability of extrinsic productivity (i.e DPI vaults) is expected to make holding DPI more attractive and so help increase the number of DPI minted and the total market cap available for locking into a vault (MakerDOA or otherwise).
Governance of underlying tokens
As proxy holders of a significant proportion of available tokens, the INDEXCoop community has the opportunity to participate in the governance of other protocols. This is currently being discussed within the community.
To date the INDEX community has focused on internal governance. However, we see opportunities to help protocols grow over the longer term.
4. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.
5. Link any available audits of the project. Both procedural and smart contract focused audits.
Set’s V1 contracts have had upwards of $27M locked and have been live for 18 months. Set’s V2 contracts (including $DPI) have had upwards of $18M locked and have been live for 3 months.
V1 Smart Contract Audits:
- PeckShield Audit [January 8th, 2020]
- Trail of Bits audit [April 8th, 2019]
- ChainSecurity audit [February 18th, 2019]
V2 Smart Contract Audits:
- OpenZeppelin [September 2020]
6. Link to any active communities relating to your project.
Since forming in early October, the main community activities have been within our forum and discord. Forum https://gov.indexcoop.com/
7. How is the applying collateral type currently used?
At the moment the collateral is mainly used as a diversification tool for passive ownership of the underlying tokens. $DPI has been listed as collateral on CREAM. The INDEX community is applying to other communities (Compound, Aave) to have it added as collateral to make the DPI a more productive asset to encourage long term ownership and growth of AUV.
8. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?
9. Where does exchange for the asset occur?
The primary market is by the issue and redemption of DPI from the underlying tokens via the Tokensets contracts. https://www.tokensets.com/issue/dpi
The main secondary market is on the ETH-DPI pair on uniswap. this currently has a $23 M pool depth (obviously boosted by the liquidity mining programme in operation until 6th December).
The Concourse team has an open source version of an arbitrage bot that mints and redeems automatically.
There are other secondary markets and the Community is working on further listings.
10. (Optional) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.
11. (Optional) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.
12. (Optional) List any possible oracle data sources for the proposed Collateral type.
Many of the assets in the DeFi Pulse Index are already supported by MakerDAO oracles. There are two options for oracles: having a dedicated feed for the DPI itself or taking the sum of the underlying.
EDITs - Arbitration to Arbitrage x2, “Elastic supply” removed and reworded to say that DPI token numbers are based on issue and redemption - Intention is to avoid confusion with Ampleforth / YAM. OA 09nov20 etc.