Mean Variance Pie(s)

Is it possible using Oracles and Indexers to create a distributed network of validators who calculate mean variance portfolios?

The end product would be Uniswap-MVPie, Sushiswap-MVPie. A defi product that would track the community (distributed network) calculated Mean Variance Portfolio for the top 100 Market Cap tokens.

What are your thoughts and concerns on such an endeavor. Is there already such a service or undertaking in the DeFI universe?

To elaborate and improve on the prior post; the basic idea behind this research is this:

PieDao can expand into optimized portfolio feeds (MVPie). These feeds can be selective in market scope and rebalancing periodicity as well as be targeted for risk. On-Chain Smart Mechanisms exist to allow such feeds to be tokenized assets. Governance mechanisms could take on the form of node operators / validators incentivized by issuance of governance for performing necessary calculations or smart contracts that perform the work on cost efficient chains. Price feeds are intended to create composable tokens based on Modern Portfolio Theory. The service of providing risk targeted portfolio tokens will create value and growth for PieDAO token holders.

A few key components:

Oracle Solution

  • Chainlink is the most popular oracle that has a deep maturity and cross chain integration.
  • Band is built on cosmos which supports custom side-chains configurations as well as cross chain interop.
  • New oracle players like: Nest, Tellor also exist but features are limited.

DAO Infrastructure
Practically speaking building a Portfolio Feed Proof of Work DAO on Cosmos allows for simpler integration between Band and Ethereum and well suited to progress to other chains via Cosmos. Polygon, Cardano, Polkadot, Harmony, and Avalanche are all worth a serious look towards suitability for hosting and organizing mechanisms for this type of activity.

With reasonably low gas fees, portfolio allocation can be the job of a smart contract removing any need for human operated validation nodes… this comes at the price of network participation. A middle way can be found with validation nodes / operators that upgrade to a smart contract only system with tenable network awareness, interest and participation.

Similar projects like Crypto20 and CIX 100 have set precedence in similar on-chain mechanisms but their market participation is low. The question begged becomes: how are humans in the loop is still crucial to token economy success?

Token Protocol
Using protocols like Ocean for a portfolio token puts token issuance within the data utility category. Other protocols like UMA or Synthetix deserve a closer look.

Remaining Questions:

  • Can portfolios be calculated in a validate-able distributed way using floating point methods or will a arbitrary fixed point methods be needed?

  • What role can token assets vs synthetic assets play in this application. Hard assets in the form of original tokens have a better reputation than synthetic assets. Can such a project increase its reputation and integrity by creating a hard asset reserve. Can such a project go “all in” on hard token assets with available layer two or cross chain solutions?

Please feel free to correct anything you think is misstated or misunderstood.

Research Outline:

  • Cost Efficient Portfolio Construction
    • Compute Cost
    • Token issuance cost
    • How will Additional Portfolios be Technically Feasible?
  • DAO Organization
    • How will such a project bind to PieDAO
    • How will DOUGH hodlers be incentivized to support this endeavor
    • What makes this project viable for a large participant base (network effects)
    • On what chain can MVPie thrive to provide efficient Ethereum Access
      • Algorand
      • Cardano
      • Polkadot
      • Harmony
      • Avalanche
      • Binance Smart Chain
      • Tron
    • One what chain can MVPie exist and provide efficient access to the network of chains?
    • Validator Architectures vs Smart Contract Only
  • Portfolio Construction
    • e.g. MVPie-365
      • A MV Portfolio optimized on 365 days daily returns
    • e.g. MVPie-180
      • A MV Portfolio optimized on 180 days of daily returns
    • How will rebalancing be best implemented
    • MPT is good in theory but…
      • Equally Weighted Portfolio
      • Market Cap Weighted Indices
      • Thematic Portfolios
      • Long Short
      • Kelly / Cover portfolios
      • Watada Portfolios
    • How can Liquidity and Yield Farming opportunities be incorporated into final portfolios
    • How can Original Tokens Be Cost Effectively Provided According to MVPie portfolios