SIP suggestion: sDPI (DeFi Pulse Index)

SIP
#1

Author: OverAnalyser
Discussions-To:
Status: Draft SIP for discussion
Created: 2021-03-13

Simple Summary

Create sDPI to follow the pulse.inc methodology used for the on-chain fund DPI. This would run alongside sDeFi.

Abstract

This draft SIP proposes adding support for minting and exchanging the following synth: sDPI with a 1% trading fee.

Motivation

To create a synth that matches the largest on-chain DeFi fund. This will allow the creation of sDPI:DPI pairs on DEX’s to improve the liquidity of DPI. Improved liquidity will assist traders wanting exposure to the DeFi sector and so increase DPI AUV and trading fees for sDPI / Synthetix stakers. In addition, there may be liquidity mining of CRV tokens for a curve pool.

Specification

The synth would be created in the same way as other L1 synths (/L2 synths). The Synth would use the chainlink price feed for DPI.

This price feed is based on the INDEXcoop .com DPI on-chain product based on pulse.inc methodology (market cap weight of the circulating supply of included DeFi governance tokens). As an acknowledgement of the methodologists role in this product, 20% of the trading fees on sDPI would be allocated to pulse.inc.

Trading fees would be 1% inline with other synths and there would not be an associated iDPI.

Rationale

DPI is the largest most liquid DeFi fund and has established itself as the industry benchmark. Creation of the sDPI synth will open up low slippage trades via sDPI:DPI liquidity pools and cross asset swaps and so reduce trading friction within the DeFi Sector. This should increase AUV and trading volume.

Test Cases

TBD.

Copyright

Copyright and related rights waived via [CC0]

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#2

Additional information from the proposer.

I’m heavily involved in INDEXcoop who manage the onchain $DPI token based on pulse.inc methodology. I’m always looking for ways to increase its liquidity, utility and AUV. Given the growth in curve pool pairs, and the coupling of curve pools and Synthetic swaps, I see this as a win for everyone involved SNX stakers, INDEXcoop, pulse.inc, traders and holders.

Since joining INDEXcoop, I’ve been writing about different on-chain DeFi funds and how they compare in structure and behaviour.

Introduction to DPI

DPI is based on market cap weights, this is the most common form of Traditional Finance structure for EFT index funds (and likely the easiest for most people to understand). The methodology was created and is maintained by pulse.inc (associated with DeFi pulse .com). This methodology has token weights assigned by token number (and so the $ percentage for each component reflects changes in individual token prices) with monthly rebalances to track token issuance/burn, the only subjective part of the index is the inclusion parameters into the methodology.

DPI
Market cap $ 126 M
90-day average volume $ 5.75 M
Composition 28 Feb 2020
AAVE 23.4%
SNX 16.4%
UNI 25.7%
MKR 8.9%
BAL 1.8%
COMP 8.3%
CRV
KNC 1.8%
REN 3.7%
Sushi
UMA
YFI 6.0%
1Inch%
BNT
LRC 4.1%

As it has a similar (although fluctuating USD%) composition compared to sDeFi both funds produce a similar performance over time.

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Aims
The main gain from this SIP, for both INDEXcoop and Synthetix stakers, is that the creation of sDPI opens up low slippage trades between sDPI and DPI (i.e. a Curve pool) which improves liquidity, and trade volume for both tokens. The creation of a curve pool is also likely to attract CRV liquidity mining incentives which is a benefit to liquidity providers.

My proposal includes the allocation of a share of the synthetics trading fees to pulse.inc. to acknowledge the use of the DPI methodology in this product. While there is nothing stopping a DeFi protocol from implementing the proposed strategy without such a fee, I believe that it is better to build bridges between communities and to capture DeFi pulse / pulse.inc as an enthusiastic partner. Obviously, pulse.inc would only receive income if sDPI generates income for SNX stakers.

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