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.
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
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.
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.
- 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).
- 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.
- 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.
- 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.
- 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
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.
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