[PIP-70] DeFi Products revamping

Summary

As part of the newly introduced Product Refinement initiative we’d like to kick this session off with an health check of the current DeFi products offered by PieDAO, namely

This proposal wants to set the basis for discussion around the possible optimization of current DeFi products offered by PieDAO.

Background

The original thesis behind the creation of multiple indices tracking the DeFi space was clear, aimed at unlocking an additional layer of flexibility for holders interested into making more concentrated bets on a specific DeFi segment, could this either be “Blue chips” in case of DeFi+L, or lower marketcaps with higher growth potential for DeFi+S. On the other hand DeFi++ would have offered a balanced exposure to the two sub-indices above.

While this market cap-based segmentation seemed quite neat back in 2020, it somehow started to fade away with the progressive growth of low caps into higher caps territory, with increased complexity on the management of distinct products which could have seen the upgrade/downgrade of assets from one index to the other depending on the specific market cycle.

A fragmentation of liquidity across different products has mostly been characterizing these DeFi indices, both in terms of TVL reached and Liquidity provided by LPs to establish specific pools on different DEX venues.

As a direct consequence of the modular construction of DeFi++ with DeFi+S & DeFi+L as its building blocks, the overall effort still required for the maintenance, promotion and liquidity incentivization of multiple products may be clearly framed as suboptimal, with mediocre results overall when considering the individual Market Fit these products have individually reached

Motivation

As anticipated, the intention is to pragmatically put into perspective the cost/benefit of our products when assessing their performance and potential optimization.

As a rule of thumb, optimization should translate into a more effective use of resources provided by PieDAO (could these be incentives, development hours, bounties, etc.), starting from the assumption that these should always be pursuing value maximization for the DAO.

Specification

We’ve been condensing in the Health-check below some stats on the different DeFi products, in order to draw a benchmark on their Market fit, Revenue streams, Resources required, Liquidity and Performance.

Market Fit: # Holders of our DeFi products is limited and downtrending, possibly denoting a need to adjust some elements of the current offering.

Summary
  • Holders are sitting in the sub-500 range for all indices (only exception DeFi+S which recently had a spike in number of unique addresses holding negligible liquidity, as a consequence to the airdrop proposed by Enso’s Vampire attacks). A slight downtrend can be in general perceived overtime.
  • Monthly trading volume limited at approx $250k/month for DeFi++ (on Balancer within BCP, including only trades involving DeFi++), $286k/month for DeFi+S (on Balancer) & $450k/month for DeFi+L, only product currently traded on multiple DEX venues (Balancer + Sushi).

Revenue: Fees accrued both by PieDAO and by Token/LP holders are modest as a direct consequence of the limited minted/traded volume (Market Fit).

Summary
  • Current fees accrued by PieDAO still result very modest, composed by both streaming fees charged at minting/unwrapping (0.7% on DeFi+S, 1% on DeFi+L) + 0.5% withdrawal fee charged to LP positions exiting the DeFi+S / DeFi+L farms.
  • Swap fees accrued by LP token holders are still quite conservative for both DeFi+S & DeFi+L, where a mere 0.1% is charged on Balancer, 0.25% on Sushi (only applies to DeFi+L).
  • On the other hand DeFi++ token holders accrued an interesting 1% swap fees on both internal trades within DeFi++ (totalling ~$2.5k on the past month) + an additional 1% fee is accrued by BCP holders (DeFi++ “LP” token), still totalling to approx $2.5k for the last month alone.

Operational Costs: Rebalancing time and Incentives represent the main cost, directly proportional to the amount products offered.

Summary
  • Including Incentives to LPs as accessory cost for the different pies, on average we’ve been recording a monthly average liquidity cost per $ of liquidity of $0.013 for DeFi++, raising to $0.017 for DeFi+L, and to $0.021 for DeFi+S.
  • Cumulatively, on a monthly basis approx $30k of incentives are paid to LP providers of these DeFi products (value at yesterday DOUGH spot rate of $0.23).

Liquidity Pools: Overall, LP liquidity is quite fragmented across multiple products, with no deep-enough pool able to effectively minimize slippage at increased volumes.

Summary
  • The 70/30 liquidity pool established on Balancer for DeFi+S totals approx $425k at current rates (both sides), of which 94% staked.
  • The 70/30 pool on Balancer for DeFi+L totals approx $0.5m at current rates, of which approx 85% staked. Only $60k liquidity is currently provided to the DeFi+L/ETH pool on Sushi (both sides), highlighting the liquidity fragmentation on such index.
  • On the other end, as mentioned DeFi++ currently relies on approx $1.7m BCP liquidity on Balancer, which represents its only liquidity pool (of which approx 60% are staked).

Performance: Limited TVL reached despite the beyond excellent performance scored by these products, also vis-a-vis any competitor in the market.

Summary
  • TVL (Total Value Locked) likely represents the more tangible issue of these products, at current rates sitting below $1m for both DeFi+S and DefI++, while at approx $1.3m for Defi+L.
  • Returns since inception have definitely been satisfying, accounting at current rates to 3.45x for DeFi+S, (10.7x @ATH), to 2.1x for DeFi+L (4.9x @ATH), and to 2.52x for the balanced allocation offered by DeFi++ (6.18x @ATH).

Based on the above, several factors would seem to point toward the consolidation of the 3 different products into 1 new DeFi index, which would certainly allow for:

1. Better concentration of TVL
2. Improved allocation of LP liquidity and incentives
3. Minor maintenance/rebalancing efforts and costs by PieDAO
4. Optimized effort for its active promotion across the DeFi ecosystem

Proposal

The proposed solution would elect DEFI++ as the unique DeFi index, while discontinuing DeFi+L & DeFi+S. This process could take place over multiple progressive steps, as better recapped in the diagram below.

The $DeFi++ initial allocation at STEP 1 would be the following, resulting from the 70/30 weighted balanced allocation of DeFi+L & DeFi+S respectively:

As an additional point to consider, this evolution would also provide a valid target product to consider for the migration of the BasketDAO liquidity currently held in their DeFi index $BDI, shall the acquisition move forward as per ongoing discussions.

Next Steps

Shall this proposal be approved, the following steps would also need to be expanded in order to facilitate this initiative:

  • Creation of a legacy product page for product deprecation (DeFi+S / DeFi+L)
  • Definition of a policy for the migration of liquidity from decommissioned products to the new DeFi index
12 Likes

Important point here. I think underscored by the obvious - gas fees are a huge point of friction for any L1 product. Combining the indicies also should help to speed up oven deploys.

This is a really great analysis btw, thanks for sharing.

5 Likes

#ThumbsUp

1 Like

Feels like a natural move to have only 1 defi product. It will improve how we can promote it, how we present our products. Having less complexity in the defi products will, imo, favor its adoption.

I’m in favor :+1: . @gabo We should gauge sentiment to understand if the community agrees on this being the path to take, so we can start assessing the next steps.

I actually still like the idea of separate DeFi indices to allow for more granular control, but the points made about liquidity fragmentation and additional costs outweigh the potential benefits.

Agree with proposal. Looking forward to rebalancing / redistribution.

I don’t think this really solves the fundamental problem, but I don’t have a better solution. The way I see it is:

(1) Most of these tokens are governance tokens that don’t drive fundamental protocol revenue to the token.

This is a historical issue due to SEC/regulatory concerns around giving protocol users both governance (common enterprise) and revenue (profit, derived from effort of others).

Given the Ethereum L2 focused roadmap, we have a few broad problems:

(2) Mainnet will never be cheap enough to make L1 indices work for anyone but whales.

In the next 2 years there will be a serious reckoning for how protocols built on L1 and designed for L1 will manage governance (many use off-chain signature solutions which still relies on mainnet holdings) and buying liquidity (which is ultimately what this proposal is about).

(3) Liquidity will continue to split until a battle tested, trusted cross-chain liquidity solution is formed (which may never form).

I think more fundamentally, before we discuss product revamping, we need to work on the foundation.

How will PieDAO shift to L2s? Should index products live exclusively on L1 no matter the cost? How will PieDAO grow its membership/holder base as they became L2 native (many will never touch mainnet)? What are the benefits of purchasing liquidity? How much liquidity are we purchasing?

So I would vote against this proposal only because I think product revamping should not be the priority.

I would reconsider if there was a specific plan to make DeFi++ the most liquid non-BTC/ETH containing cross-L2 index token; but even then, I think the governance-revenue problem (1) is the elephant in the room that pieDAO isn’t equipped to fix. Will AAVE ever be $300 again? If so, why? We just saw Yearn do an entire rebuild of its tokenomics. Will DeFi++ switch to veYFI? Lots of questions.

Maybe this isn’t the right proposal to ask these haha.

8 Likes

I agree with the overall idea here, but I do want to point out a few things in know particular order:

  • The number of transactions required should be minimized if at all possible. I personally LP and I don’t really want to unstake, remove old LP on Balancer, add funds to an oven, wait for baking, re-LP, re-stake. If any step there could be remove or consolidated I think a lot of people would appreciate it. This is compounded by the fact that I, and I’m sure others, LP for both DEFI+S and +L.

  • The eDough bridge for claiming rewards directly as veDough is not yet complete. Will this impact that at all?

  • Two features of Piedao are talked about a lot on the site but don’t amount to much in practice - Yield and meta voting. Will the consolidation make voting participation in other protocols more likely and/or easier? If not maybe we should remove that advertising or down play it.

1 Like

I was a big fan of the granularity of separate DEFI products but they did not work as expected.

In order to move forward fast, we need to free ourselves as much as possible from what’s dragging us behind. The way I see it, we have limited resources and I would choose to spend 3x the time making a single product significantly better than spending the same time and resources on 3 different ones.

Stay lean and having a few extremely well-curated products instead of many is the only strategy in my view. Extra bandwidth can be used to launch new products instead of maintaining low market-fit once.

@cmercado4u some of the observations are probably better discussed in another thread but I wanted to at least give my 2 cents on some of the points.

The proposal is intended to reduce operational overhead on maintenance and allow for communications/marketing to be focused on one single product to push rather than multiple. The regulatory concerns Defi tokens have on distributing revenues and how this affects the performance of the index is more related to the defi thesis as a whole than this specific proposal.

Indexes need to live where both the security model and liquidity are high, however, the **distribution of those indexes needs to be focused for the most part on L2. Mint on L1 → Bridge → Sell on L2 is today the only viable option looking at the liquidity requirements for rebalancing these products.

A few words on @adam’s as well. In general, I get the concern about the number of transactions, it sucks that eth is expensive and it’s becoming prohibitive to make a full round of tx. Should the proposal go through I want to remind people would not be forced to migrate or even exit LP. The most likely scenario of decommissioning is that the pies are frozen at current allocation, moved to a legacy website for people to interact with them, and rewards on LP go to zero. The only liquidity which needs to be necessarily migrated would be the one already present in DEFI++ today. Shall the sentiment be pro consolidation, I believe there could be a way to provide a migration as a service for the ones willing to pay a bit for it.

This proposal does not affect the eDough bridge and does not change yield or meta voting per se, which are always mutually exclusive and where the community has always picked yield over meta-gov.

In conclusion, buckle up guys, it’s time to get our offering in shape.

5 Likes

@Gabo, thank you for the work on this issue. Very well stated and I find it hard to argue with your analysis. Yes, gas fees are high but PieDAO right now is on L1 and these indices are performing sub-optimally. I therefore think it important to shore them up, especially now with BasketDAO coming on board.

I believe we have some very good products, but it will always be necessary to evaluate where we are, and strive to improve.

I will be voting to approve this proposal. Good work!

3 Likes

Hey all, thanks for the feedback!

@cmercado4u I totally see your points. As also @alexintosh somehow pointed out, this proposal should rather be seen as a building block for a more comprehensive promotion of our DeFi product(s), which should clearly include a L2 strategy as a catalyst to entice a broader audience.

@adam regarding your point on the Yield maximisation feature, I think this proposal would very well cope with the Yield strategies revamp outlined by @Wave here.
As I recently commented, I would totally be for an extension of that proposal to cover the perimeter of this new $DEFI index, instead of DEFI+L only, shall the DeFi revamping move on :ok_hand:

Proposing to feel the pulse of this proposal though a poll

Should PieDAO undergo a revamping of its DeFi products?
  • Yes, DeFi++ ftw!
  • Nope, better as is

0 voters

2 Likes

100% for condensing it all into 1. step 2 will be exciting should the BasketDAO acquisition goes as planned.

1 Like

Following up to the preference emerge from the preliminary poll above, please find below some additional details on the proposed next steps.
A Snapshot vote for this PIP# is expected to be running from beginning next week, Feb 14th, until Feb 20th 2022.

Decomm & Migration plan

PieDAO will stop maintaining, incentivizing and promoting the products decommissioned. This process is intended to outline the expected steps and actions on possible different scenarios.

Decommissioning Process

  • PieDAO will cease the following activities for DeFi+S and DeFi+L
    • Rebalancing
    • LP incentives and liquidity provisioning
    • Marketing
    • Listing within active PieDAO offerings
    • Removing Oven functionality — if applicable
  • Deprecated products will
    • Be displayed on a specific page on the site (under construction)
    • Redeeming the underlying assets functionality will remain available

Holder paths

  • DeFi+S and DeFi+L Holders can decide to

    • Hold
      • Keep their tokens (DeFi+S and/or DeFi+L)
      • Keep their LP positions
    • Migrate
      • Migrate to DeFi++
      • Exit LP positions to migrate
    • Redeem
      • Burn the token and receive its underlying assets
  • DeFi++ Holders will need to take no action. Their token underlyings will be updated seamlessly.

You can HOLD

You can choose to keep your position as is. The DeFi+S and DeFi+L tokens won’t disappear.

The decommissioned products will maintain the full Redeem functionality from a dedicated page for deprecated products in PieDAO’s site, or directly in the token’s contract.

You can MIGRATE

Migrating your DeFi+S or DeFi+L tokens to DeFi++ will require holders to use their tokens to issue DeFi++

Migration Window

A 20 days long migration window will be scheduled, to allowing the migration steps below:

  • Issuing DeFi++ with single entry token will be possible from both DeFi+S and DeFi+L during such migration
    • e.g.: If you Issue DeFi++ with DeFi+L, a portion of that single asset entered will be sold to buy the other underlying required to match the new DeFi++ allocation
  • Swap Fee (1%) within DeFi++ will be disabled during the window, allowing for a single token entry in DeFi++ at not additional charge
  • Exit Fees (0.5%) will be disabled during the window, from the DeFi+S/ETH and DeFi+L/ETH Balancer pools, allowing LP positions to be exited at no additional charge

DeFi++ Intervention

After the migration window, the Dev team will proceed to intervene on DeFi++ in order to:

  • Upgrade DeFi++ to the PieVault template
  • Migrate the existing underlying assets from DeFi+S and DeFi+L directly to DeFi++ (to become directly collateralized by 14 underlying assets)

You can Redeem

If neither migrating or holding is an option for you, the redemption option will always remain available at the PieDAO legacy subsite. This functionality will allow burning your Pie in order to get the underlying assets in return.

A snapshot vote is now open Snapshot

1 Like