Status: Proposed Authors: Hamzah Khan (Head of DeFi, Polygon Foundation), @AsifKhan (DeFi Team, Polygon Foundation), @Mringz, @Ahuja Created: 20th September 2021 Discussion to: https://gov.indexcoop.com/t/iip-89-launch-polygon-diversified-index-pdi/2709

This is the first of two votes required for a new product to be on-boarded to the Index Coop.

A passing vote here signals the Index Coop's intent to further research the PDI feasibility resulting in a product prioritization score.

FOR - Pass PDI through Decision Gate 1. Begin work to research & assign PDI a product prioritization score.

AGAINST - Do not pass PDI through Decision Gate 1.

DG1 is a signaling step to gauge community sentiment. It is NOT subject to quorum requirements. The full-text Polygon Diversified Index proposal exceeds Snapshot’s character count limit. Below is an abbreviated proposal. Refer to 'Discussion to' to read the full proposal.

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Simple Summary

The Polygon Foundation and members of Index Coop would like to re-propose the Polygon Diversified Index (PDI). The index will showcase the top-performing projects built on Polygon based on a new risk-adjusted methodology that provides exposure to the polygon network eco-system. The index will serve to give holders exposure to the leading protocols deployed on Polygon.

Abstract

After the initial feedback from the original Polygon 10 Index proposal. The Polygon Foundation team and contributors from Index Coop decided to re-propose a new Polygon Index that gives investors better and safer exposure to the Polygon network ecosystem.

After considering initial feedback and conducting further due diligence on the underlying projects in the first P10 proposal the authors decided to develop a new methodology that optimizes the index allocation based on return/volatility factor which will be described in further detail below.

We envision this Index to be a moderate Set deployment based on the need to migrate Set/IC features from mainnet to Polygon. The initial technical requirements have been outlined below.

Motivation

The launch of this index will mark the first scaling solution native product from Index Coop, both showcasing the innovative culture at Index Coop and marking the beginning of Index Coop’s expansion to other chains. If launched this will be the first native Index token on the Polygon network.

Specification

Overview

This product will contain a collection of ERC-20 (POS) tokens that will be created and managed on Set Protocols’ recent Polygon deployment. The Index will capture broad exposure to the most influential Polygon network projects.

Product Differentiation

Polygon is able to provide blockchain developers an ultra low-fee environment which has led to the development of entirely new classes of dapps. We believe that the Polygon Diversified Index (PDI) has the potential to capture the best of these projects as well as offer a holistic, sector agnostic snapshot of the innovations occurring in the Polygon ecosystem. Ethereum needs to continue to scale in order to reach the average consumer, and scaling solutions such as Polygon will play a critical role in helping usher in that vision.

As of this post, no native sector Index product exists on Polygon. This will be the first cross-chain sector index supported by Index Coop. This will also be the first Index that gives exposure to a blockchains' network eco-system of projects and protocols.

Index Composition

Token	Allocation %
WMATIC	15.0
AAVE	15.0
SUSHI	15.0
LINK	15.0
BAL	6.0
QUICK	5.0
KNC	5.0
SAND	5.0
MANA	5.0
SX	5.0
DG	3.0
GHST	3.0
DFYN	1.0
QI	1.0
MUST	1.0

Back-test Data

1. Daily return % for the index for the past 100 days (limited to start since the launch of token with the shortest history - QI)

2. Daily Return % - Zoom-in to the first 20 days

3. Cumulative Return % for the index for the past 100 days (since the launch of token with the shortest history QI)

Size of opportunity

Polygon has seen large amounts of liquidity and trade volume and has established itself as the undisputed leader in scaling infrastructure. According to Nansen AI, Polygon boasts 1,300,000 daily active addresses, processes around 6,200,000 daily transactions (~62.5 tps). The large size of the daily active addresses and the recent spike in the number indicate an engaged user base and an ecosystem that is building on its momentum.

Another way to think about the potential market size is the following - Polygon, on Twitter, boasts approximately 700K followers. Followers of Polygon are highly engaged crypto enthusiasts. They provide for a potential pool of investors that are interested in following the progress of the Polygon ecosystem. PDI will provide a great entry point for these Polygon supporters to engage, track and benefit from the Polygon ecosystem and its future development.

As an example, a 10% penetration of this twitter pool base translates to 70K unique holders. At a $1000 average investment per user, the AUM can potentially exceed $70M. A similar penetration of the daily active addresses will yield a potential AUM double this number. While the numbers are estimates, this goes to show that Polygon is a thriving ecosystem that deserves an Index product (with low frictional costs) that should track the development and success of the important projects within the ecosystem.

Copyright

Copyright and related rights waived via CC0.