PIP 16: DeFI Index with Compounding Yields

Currently DeFi Index investors are missing out on the the protocol yields. I think there is an high demand for an index like DeFi++ that includes those.

Technically it could be done by constructing an index that is of the same allocation as DeFi++ but for each token that has an yield bearing version it is replaced by exactly that.

This index could have the following replacements:

  • KNC by xKNC
  • SNX by xSNX
  • YFI by yYFI
  • LINK by yaLINK

As soon as a sufficiently safe yield-bearing alternative exist, it will replace the original token in this index.

I’m unsure about a name. Any suggestions?

Here I collect some suggestions from this thread and twitter:

  • DeFi+Yields
  • DeFi+y+ya+x
  • yDeFi++
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Maybe we need to distinguish between yields that are farmed e.g. by yearn delegated vaults (yaLINK), and yields that are native to the protocol (xKNC, xSNX, yYFI). I think it would be reasonable to only include the latter.

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Love it. I also prefer protocol native returns only because it does not risk the principal under normal circumstances.

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Likewise. I’d hodl it…

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How about a “DeFi+y+ya+x” type of format for the name?

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Sounds like the missing piece of the puzzle, would likely be in high demand and bring users to pie.

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Defi+Y (Defi +Yield) The DAO might want to formalize naming nomenclature so we don’t end up with a Xbox One X/Xbox Series X confusion. This will confuse beginners or lite users even more.

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I like DEFI+Y a lot

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I’d like to see this moving forward, if there are no other tokens available I would suggest either including aTokens to the mix or roll out the Pie with the identified ones.

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Following up on this proposal, you can find on this [spreadsheet] (https://docs.google.com/spreadsheets/d/1P_Y79Lx1MidXPYo9jtopqh4oAvqhtjGlUnP7dOD2nXo/edit?usp=sharing) and below a recap of underlying yield-bearing assets which could potentially recreate the DEFI+L allocation to form a yield-sweet DEFI+Y+L pie!

The criteria currently followed could be summarized as:

  1. maximization of APR
  2. minimization of protocol-risk (i.e preference for more stable and tested solutions - aka. AAVE - where existing vs. more yield-rich but risky ones).

Shortlist of Underlying Assets
Here the alternatives of underlying assets shortlisted:

Proposed Assets
Screen Shot 2020-10-14 at 16.36.29

resulting in a total APR of 3.13% for the entire DEFI+Y+L.

DEFI+Y+L Pie Allocation

Points to be confirmed:
a) All existing yield-bearing equivalents of AAVE seem to still represent LEND.
b) the yYFI characteristics are still under scrutiny to confirm its compatibility as an underlying asset

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I’d like to see people weigh in on the risks for this 3% reward. The pie is 40% exposed to AAVE, plus 16% AAVE tokens on Cream. Even if we agree it’s the less risky platform there is still the possibility of black swan.

Of course the risk profile is up to the investor in the pie, but after seeing the return I’d be leaning towards DeFi+Y swapping out some of the low return assets (LINK and MKR 0.1%) and being a different pie altogether, with a focus on greater return.

Repost


Thanks @gabo for the allocation.

The original idea of this proposal was a Pie with protocol-native yields (i.e. yields that are based on actual earnings of the protocol). This would be like a re-investing dividend index. Your allocation is nearly completely composed of lending yields. If yYFI would be removed, it would be all lending yields.

It is a slightly different approach to the original idea. But I think it is fine and I’ll support it, as long as the lending yield tokens are used as a crutch. It should be communicated that if viable native yield solutions exist, those would be used instead.

BTW Why is xSNXa not considered in your spreadsheet?


The main question we should ask ourselves is wether this should be DeFi+L with yields or some other selection alltogether (based on highest yield etc.). I think it would be good if this is “DeFi+L with yields” because

  • if we select tokens only on yield (e.g. remove MKR) we might select tokens that are performing worse
  • tokens like MKR have internal yields through token burn so I think it is ok to have them with a low yield
  • It is better to communicate. “DeFi+L without missing out on yields” sounds better than “Some tokens that currently have high yields”. The latter would be a different product IMHO.
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I like the idea of having DEFI+L+Yield and using yield tokens (aave/compound) as placeholders while waiting for better ways to tokenized those protocol-native yields looks like a good step forward.

From my limited understanding, xSNX system hedge the sUSD debt exposure using ETH and ETHRSI6040, while that is interesting there is a significant possibility the edging mechanism fails and you end up having less SNX than your initial balance.

xKNC for instance does not have this problem.

To your point earlier, I agree it is better to communicate. “DeFi+L without missing out on yields”.

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hey @alexintosh - xSNX is definitely more complex than xKNC is or xAAVE will be, but I think that a hedging mechanism is necessary for any product that seeks to earn SNX staking yields…the nature of the Synthetix system and sUSD debt sort of demands it.

I recognize that the community may be looking for a longer track record for including more advanced staking derivatives. Maybe we can revisit after xAAVE is released and xSNX has a bit more of a track record?