Power Index Proposal: Team Statement

Power Index Proposal: Team Statement

A proposal by Delphi Digital was recently published on the Power Forum. It relates to adding a brand new product - a self-balancing GT index into PowerPool protocol. Below is our team statement on the proposal.

As soon as we learned about this new product idea, our team contacted Delphi Digital and discussed it in detail. Internally, we quickly gave this product a catchy name - the Power Index. In this article we’re publishing a follow-up to our discussions with Delphi Digital, as well as our view on its architecture, development, and implementation into the PowerPool protocol.

The article is divided into four sections:.

  • The DeFi Index proposal is devoted to summarizing the key ideas of the Delphi Digital proposal for our community.
  • Our opinion on the proposal, team comments and additional findings on this idea.
  • The Technical Implementation section is devoted to our plan of delivering it to the market.
  • Closing Notes contains some additional remarks, not included in the main text.

All citations in the text are taken from the original Delphi Digital post.

The Defi Index proposal

As it was published in the original proposal, Delphi Digital suggested the creation of a smart governance token index, consisting of 8 governance tokens, one of which is CVP token. The exact composition of this index has to be defined by the PowerPool community.

The index can be implemented as a kind of Balancer pool (with several major architecture upgrades that we will disclose later in this article), consisting of eight governance tokens. The initial shares of each token are proposed to be ⅛ or 12.5%. All governance tokens that are pooled in this pool will be used in voting in their corresponding protocols based on the decisions of CVP token holders.

Balancer Smart Pools is proposed as a technical solution for this idea due to its flexibility and ability to meet the requirements of the fast-changing DeFi landscape:

Smart Pools have other attractive features such as adding or removing tokens, pausing swaps, and of course adjustable weights/fees.

This index is a multipurpose product. It is a web3.0-grade ETF product (the BPT token clearly represents a basket of GTs), it also acts as a liquidity pool for exchanging governance tokens and an instrument to pool a large number of governance tokens into the PowerPool protocol. In addition to that, it provides multiple win-win integration opportunities with other DeFi protocols.

Bootstrapping and maintenance incentives

Each product, depending on the liquidity supplied by its users, has to be properly bootstrapped and maintained. The basic bootstrapping strategy is based on the fact that there are already a lot of governance token holders:

Another thing that potentially mitigates this concern is that there are a lot of investors who hold popular DeFi governance tokens like YFI, LEND, SNX, etc. in their portfolios already. Now these investors can deposit them into the pool, receive similar exposure, and yield farm those assets.

Because of this, the launch of the pool and attraction of liquidity to it is proposed to be based on a CVP liquidity mining strategy. Governance token holders will be able to deposit their tokens into the pool and mine CVP, which has voting power utility at the meta-governance layer.
To maintain shares of governance tokens in this pool, we propose a special feedback loop in the form of dynamic CVP rewards based on the pool composition:

The PowerPool idea has a reflexive mechanism built in where if the scarce supply and 1/8th target threshold for fees keeps driving the price higher, APY from the liquidity mining rewards also rises with it, potentially allowing us to taper this longer over time.

It is that simple - if the Power Index has an ideal composition, liquidity mining rewards increase to the maximum possible, and if not - it decreases based on the real pool composition. It is a way to maintain the pool state near the target shares, which were initially defined by the PowerPool community.
The yVault strategy is mentioned as another option to facilitate Power Index bootstrapping. It is noted that yearn.finance is a liquidity router that can supply liquidity to any protocol, where it can be efficiently utilized using yVault:

Here’s a vault strategy we believe could be attractive for all three parties: YFI holders, PowerPool Liquidity Providers/Farmers, and long-term CVP holders. Take the PowerPool LP shares which represent a pseudo DeFi ETF and throw it into a vault strategy farming PowerPool’s CVP. Yes, the vault strategy sells the CVP it earns, but you keep the permanent liquidity and the yield from the vault will only keep making it deeper over time also being reflexive. Thus, the value generated from the vault strategy selling CVP = the amount of new permanent liquidity added to the PowerPool.

The all-in-one governance tool

All governance token holders providing assets to this pool will receive additional value as they can not only farm tokens but also participate in governance of different protocols:

In addition to the CVP rewards they’ll receive, farmers can now take part in fast, cheap governance proposals all in one place across their entire portfolio, boosting engagement that wasn’t there before.

Taking into account layer-2 integration and the possibility to participate in voting with negligible gas costs, it is unquestionably a very strong and unique feature of the Power Index.

The permanent voting power treasury

The proposal develops a previously published idea of Delphi initially dubbed a “Blackhole for Governance tokens”. The idea is based on the fact that during a liquidity mining program the main income is based on LM rewards in the form of CVP and not on fees. As the Balancer Pool design includes exchange fees, it is proposed to collect these fees into a special treasury contract, which will hold them (a portfolio containing tokens of the Power Index) infinitely. It will be a portfolio of assets, belonging to a protocol itself representing permanent voting power.

Current CVP distribution as an advantage

Delphi’s proposal rightly points out that a high, fully diluted CVP market cap can be an advantage to a liquidity mining strategy and possibly can help to bootstrap the protocol:

The PowerPool idea has a reflexive mechanism built in where, if the scarce supply and 1/8th target threshold for fees keeps driving the price higher, APY from the liquidity mining rewards also rises with it, potentially allowing us to taper this longer over time.

Final notes: strong integrations and the future family of Power Pools

As it was proposed by Delphi, Power Index can be just the first step to build a whole ecosystem of different indexes consisting of governance tokens. If the first Power Index gains sufficient traction, indexes for other sectors of the market can be released.

The final part of the proposal is devoted to highlighting the necessity of strong integrations with other Defi products to deliver it to the market in the proper way. The ongoing PowerPool integrations with xDAI and Boardroom have been mentioned.

More integrations are necessary though to really help PowerPool gain enough traction to make the move from exciting experiment to an innovative project with a lasting impact on the space. An integration with exchange aggregators such as 1inch, Debank, and Dex.Ag could end up funneling some meaningful volume to PowerPool if its pools attract the depth some of these farming initiatives have had in the past.

Our view on this proposal and discussion

First of all, our team is grateful for such an impressive idea and all discussions and brainstorming that was made to polish, integrate it into the PowerPool technical roadmap, and create an efficient bootstrapping strategy based on the current market state.

The proposal explores a lot of small, but critically important details. It discusses the Power Index from different sides, highlighting incentives, bootstrapping strategy, value proposition, and key recommendations to make it successful. From our point of view, it can become a core PowerPool product when properly implemented.

We see it as a complex product, targeting various audiences of Defi users. From the one side, it is a classic financial ETF product that can be used for investors and traders to seamlessly operate with a basket of assets. From the other side, it is a very solid solution for performing the mission of PowerPool - pool governance tokens and establish a meta-governance layer within web3.0. Other use cases include a market for exchanging governance tokens for one another with deep liquidity, yVault-style fund management strategies, and usage shares of pools (BPT tokens) as governance token-based collateral in various Defi products. Without a doubt, there are other applications for this solution - in this article, we only discuss a few of them.

It is important to note that the necessary incentives to maintain this pool were proposed. We are on the same page with Delphi on this point - it is important not only to launch a product but also to maintain it effectively from the first day of operation.

Power Index is a community-driven product from its origination in the form of the governance forum proposal. The pool composition (which tokens will be initially formed this index) as well as its future changes will be based on CVP holders’ decisions. So, it will be a flexible solution, which meets community demand to rearrange the token set or share of particular assets in this pool. The technical implementation of the product and the bootstrapping process will be discussed in the next section.

Also, we want to note that implementation of this product doesn’t mean that we will close operation of our GT Money Market (the solution, tested in Alpha, Beta and Gamma rounds, available on Ethereum mainnet and two L2 networks). We see a good synergetic effect for both products here, and definitely will add the BPT token of this pool (the Power Index ETF share, talking in financial terms) to the PowerPool money market. So, liquidity suppliers of Power Index and all BPT token holders will be able to lend these tokens or take a loan using them as a collateral.

One of the biggest features of PowerPool is that it is a meta-governance protocol, collecting GTs, majority GT holders, minority GT holders, and Protocol Politicians in one place and providing the necessary tools to plan and execute decisions across the protocol. Talking about Power Index governance, it perfectly fits the modular nature of the actual PowerPool governance system.

The PowerPool governance system can use different sources of votes: CVP tokens, BPT/UniV2 LP tokens, locked tokens in the Beta/Gamma vesting contracts, Vote Boost contract votes (it is the special contract, where user can lock his tokens and get an additional voting power for that), xDAI and Matic root contracts (it allows users to vote using corresponding L2 networks and save on gas costs). So, all protocol users can vote in a convenient way, providing liquidity to Balancer/Uniswap pools, being Beta/Gamma testers or users of L2 networks. Launching Power Index, we will add a BPT token of this pool as an additional source of votes, so all Power Index liquidity providers will be able to vote in PowerPool governance.

Technical implementation and product roadmap

To build Power Index with all necessary functions (such as a possibility to vote in Defi protocols using pooled tokens and change pool composition on community demand) our team forked Balancer and implemented all necessary changes to it. It also includes a brand new UI/UX, which will fit the functionality of the pool.

Using this fork, it is easy to launch new Index Pools and also establish additional trading pairs for CVP and other GTs on the platform, if it will be demanded by the PowerPool community.

Launch of the Power Index is planned to execute in several phases. On the Phase 0, we await a proposal from Delphi regarding the Power Index launch. At Phase 1, the initial composition of the pool (talking in the simple language - which tokens will be in) will be established. During Phase 1, PowerPool team will launch a small “test” Baby Power Index in the Ethereum mainnet to demonstrate this product to the community and its integrations with our governance system. It will be capped, but publicly available to everyone. If the community decides to allocate certain CVP rewards for participation in pool testing, the activity of testing this pool will be rewarded.

If this idea will be initially accepted by PowerPool community, the liquidity mining program for Power Index will be designed by mutual efforts of PowerPool, Delphi Digital, and any other interested parties (we wait for all participants in brainstorming on our Power Forum in the special section, which will be launched soon).

Finally, once we will receive the results of the security audit of the Balancer fork (Power Balancer, as we defined it), it will be uncapped and open for liquidity provision and mining CVP tokens. As the PowerPool team, we will make a call to all our supporters and protocol enthusiasts to share their ideas for integration of Power Index with any other Defi instruments and protocols.

Closing notes

As a closing note, we want to point out that PowerPool is a community-driven project so will Power Index exist or not is based on CVP token holders decision. This also applies to the liquidity mining program and all other activities, ongoing on product testing and launch. Please, join our Power Forum, and share your ideas there, create proposals and help us to build the meta-governance protocol for web3.0.

8 Likes

I’m confused about one thing. Is this Index created for trading or governance purposes? My assumption was PowerPool wanted to build around governance functionalities. But this Index seems to focus on liquidity mining only. Am I misunderstanding it?

New ideas are good while its not harm. I think we should focus on creating sustainable token economy and stop grant large and free token bags which are going directly to dump on LPs.

2 Likes

Seems that yes, you misunderstood this. Such an index is not only a good Defi product but also will be a tool for pooling a LOT of GTs, which will be used for voting by CVP holders. Definitely support this proposal

Completely agreed, but Beta and Gamma have 6 months of lock-up + vesting period. Maybe we need even to extend them?

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while token have no real use cases it is very harmful to increase circulation supply from any source

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Couple thoughts here

I think the key point most individuals commenting here are missing is that this could be a blackhole of liquidity for powerpool to start attracting token holdings. When one trades an ETF asset the underlying tokens itself don’t need to be handed over so the protocol retains the voting power while the ownership of the asset moves to a third party. Why does this matter? Because if we are to realistically vote and make changes on protocols such as Compound, there needs to be a very high amount of those tokens resting in a CVP controlled pool. Without incentives, individuals will not do that. This proposal at its crux solves for that challenge. Here is how I see it bringing value to existing Pool token holders

  1. Increases the TVL on the short run - which should increase eye balls on the project without high marketing costs

  2. Increases shareholder activism via CVP holdings because each CVP token can now have a higher amount of influence on constituent protocols

  3. Catches on retail users that simply want exposure to the space without necessarily holding individual tokens

I would be all in for this proposal because its a sly marketing move that will also eat into the lunch of projects like Set protocol. I don’t see this being competitive to them. Actually instead of eating the lunch, it may just expand the pie for everyone involved. Set Protocol could be a distribution mechanism for the Powerpool index token.

Btw : I would be keen on contributing liquidity to the index pool and syndicating via some partners.

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Amen the token economics here are horrible!!! Other than that great project lol :joy:

Man, what do you mean when you say “token economics”? Initial token distribution or the functions of the token itself. The integration of governance power across different protocols looks great and to be honest it is something unique on the market now. Clarify your statement, please.

I am FOR this, but please see the comments below.

The Delphi’s proposal was not to ADD GT index, but to REPLACE the lending protocol by the GT token index.

But what is really nice:

  1. Power Pool team still launching the money market
  2. This will be a FORK of Balancer, not just a pool on Balancer

I. Need to aggregate liquidity from at least 7 leading GT - great, but need much more details.

Suggestions:

  1. Looks like the most efficient way to quickly aggregate the liquidity is to communicate directly with the project teams and offer them the advantages we discussed earlier (decrease minority holders apathy etc) and potential rewards (see below) for helping us to collect their GT holders
    Best case - they can add a special section on their website or govn page with CVP staking button

  2. To make a proper community engagement for Power index structure voting we need to create a publicly available matrix with key data on 20+ DeFI GTs with volumes, liquidity, volatility, token metrics and explanations of why these metrics are important.
    I would even propose to allow voting only to those community members who passed a tutorial and a quick exam on how to use the key parameters of the abovementioned matrix to make desicions on ETF structure

@powerpoolAdmin Structuring ETF looks easy from the surface and thats why the ETFs are so popular in the classic world. But this is not a simple thing - the devil is in operations/back office management!
I am a bit surprised that while having IB background @anildelphi and other Delphi guys are so relaxed about practice of structuring and management of ETF.

Questions:
a. What is the methodology to select the top-7 GT?
b. How many DeFi projects have you already contacted?
c. What if you collect the required 12.5% liquidity for 5 GTs and fail to collect it from 2 GT?
d. What if for 1-2-3 GTs the holders decided to remove significant % from the Power Pool? any defensive measures proposed?

II. Maintain the proportion of GT tokens in the pool - need more details (see below)

Suggestions:

  1. Good idea with dynamic rewards!
    But I would propose to lock the GTs for 30 days in the pool at least for bootstraping period. We may increase the CVP rewards to stimulate the GT holders to lock them.

Questions:
a. “Here’s a vault strategy we believe could be attractive for all three parties: YFI holders, PowerPool Liquidity Providers/Farmers, and long-term CVP holders. Take the PowerPool LP shares which represent a pseudo DeFi ETF and throw it into a vault strategy farming PowerPool’s CVP. Yes, the vault strategy sells the CVP it earns, but you keep the permanent liquidity and the yield from the vault will only keep making it deeper over time also being reflexive. Thus, the value generated from the vault strategy selling CVP = the amount of new permanent liquidity added to the PowerPool.”

This part is not obvious at all. Sounds like we are using the Yearn brand here as a buzzword. From the surface it looks like the effect from CVP sell off will be much higher than the effect from the increased liquidity -> mining rewards (denominated in USDC) will drop -> less motivation for GT holders to put it into Power Pool

Do you have any ad-hoc calcs proving the hypothesis?

III. The permanent voting power treasury - needs to be implemented for sure. Great Idea.

Suggestions:

  1. Lets consider taking 0,25% entry and exist fees (0,5% in total) in nominated in respective GT

IIII. Current CVP distribution as an advantage - this one is very raw and not obvious

Suggestions:

  1. Increase lock ups for Beta and Gamma
  2. Put a voting proposal for Beta and Gamma only to decrease their rewards (30k for Betas, 20k for Gammas)
  3. Or distribute the delta (50-30 and 50-20) to early LPs with same lock up
  4. Or even better - decrease the beta and gamma rewards and distribute a part of them to early LPs in a way that total rewards are less than 10 mn CVPs
  5. Locked tokens can participate in voting/proposal creation
    6. Move 30-50% of 80 mn CVPs into special foundation which will be used to reward the leading project teams. This will allow for the project teams to accumulate additional voting power in their projects and will stimulate them to help us aggregate minority liquidity of their GT in Power Pool

V. Final notes: strong integrations and the future family of Power Pools - right direction, but lack of the concrete steps to be made

Suggestions:
1. Please see paragraphs I.1 and IIII.6 above: We need to integrate with at least 15-20 leading projects with GTs + we need to reach out those projects which still have no GT like dYdX
2. Re the index: should start from the index as proposed as we need to accumulate deep liquidity and not to dilute it among 5-10 different indexes
After that - blue ocean of ideas: “ETF with accent on risky GTs”, “ETF with accent on largest GTs”, “Tier 1 GTs”, “tier 2 GTs”, DEX ETF, AMM ETF, Infra ETF etc etc etc

Questions:
a. What is the Team’s plans of how to work with the projects? How we can help?

VI. Additional ideation for utilization of CVP’s meta-voting functional

Suggestions

  1. Synthetic borrowing of GTs from the pool to vote (e.g. borrow COMP to vote in COMP proposal) - obvious and strong use case
  • Synthetic instrument, allowing bridge (flash) borrowing of selected GTs from Power Pool.
  • Collaterized by ETH or stable coins or CVP.
  • Lets call it pToken - the token which reflects that (i) the borrower has the collateral, (ii) there is enough volume of GTs in the Power Pool.
  • The selected GT stays inside the Power Pool / doesnt move anywhere (to maintain the proportion) but issued pToken is accapted by respective project to participate in voting
  • All the fees collected go to the Governance Blockhole

-> this would allow the deepest integration within the ecosystem
-> this will increase CVP platform adoption among whales
-> additional strong use case for the money market part of CVP, integrating the CVP’s money market and the Power index
-> CVP is the only platform on the market issuing “debt derivatives” on GTs!

Questions:
a. This is when the help of numerous alpha/beta/gammas required to quickly validate this idea. I hope there a lot of testers with dev background, so lets unite our forces to discuss whether this is possible or not

VII. Additional features required for Power Index Mainstream adoption:

Suggestions:

  1. Seamless entrance/exit: user should be able to “buy the index” for USDC, USDT, ETH from Power Pool App - this is needed to attract a waaay larger group of potential liquidity providers - those who DONT yet possess any GT, DONT have time/capacity to deep dive into DeFi, but DO WANT to get exposure to DeFi
    This is to compete with APY.Finance and Idle.finance, while also increasing the total size of the market
  2. User needs to track his returns/balances in a convinient way. Currently available solutions like Zapper, DeBank, Zerion are far from what we need (at least for those users who are not involved in DeFi but want to get exposure, i.e - a large part of our target audience)
  3. Still we obviously need integration with Zapper, DeBank, Zerion
  4. Add the Power Pool token to other pools on Balancer and other platforms (Uniswap, etc)
  5. Margin trading on dYdX
2 Likes

You posted good ideas. Do you want to participate in the working group, dedicated to this index?

Sure, thanks. you can DM me in discord group

IIII. Current CVP distribution as an advantage

  1. we have to do this obviosly
  2. and 4 both good
    5 ofc

We thought to do it via our money market, but let’s consider using pool for that too

  1. We plan to launch the “pool share” vs USDC (or DAI) pools on our Balancer fork to allow trade it.
  2. We already talking with some of these platforms to make seamless integration. If you can help/facilitate process for some of them - you’re welcome
  3. The same as “2”
  4. Definitely, yes, we plan to do it. It is void idea to make Power Index without possibility to trade it
  5. Good idea, we thought regarding some instruments based on it, but it wasn’t so defined

Very exciting. Would be curious what needed to be added/edited to Balancer’s code in the fork, in order to support arbitrary governance functionality. I would imagine there are some tokens that just cannot “govern from a distance”, e.g. they need to be themselves staked in order to participate in a specific governance system.

Is there enough flexibility in this proposed model to account for those types of governance tokens?

Also, after liquidity mining ends, is there enough incentive to keep LPs in the governance ETF?

1 Like

I was referring to the testing rewards which seemed to dump the price pretty hard! Other than that, great project from what i know, which is very little.