Decision Gate 1: Bankless BED Index

This is the first of two votes required for a new product to be onboarded to the Index Coop. More details listed under Decision gate 1 here.

Similar to Maker's collateral onboarding process, a passing vote here signals the Index Coop's intent to further research BED feasibility resulting in a product prioritization score.

• FOR - Pass BED through Decision Gate 1. Begin work to research & assign BED a product prioritization score.
• AGAINST - Do not pass BED through Decision Gate 1.

==========The full text for BED is below==========

iip: 22 title: Bankless BED Index status: Proposed author: Ryan Sean Adams(@RyanSAdams), David Hoffman(@TrustlessState), LemonadeAlpha (@LemonadeAlpha) discussions-to: https://gov.indexcoop.com/t/iip-22-bankless-bed-index/1076 created: 2021-02-26

Summary

Bankless would like to propose that the Index Coop manage a Set based on an index of Crypto’s most investable assets, BTC, ETH, and DPI, in equal weight.

This construction—known as the BED Index or Bankless BED Index—seeks to give safe, passive access to a vehicle which captures equal-weighted upside from the most promising use cases and candidates around the theme of blockchain as a generationally disruptive technology: store of value, programmable money, and decentralized finance.

BED methodology

1. Scope: The index includes the top 3 investable assets with real usage and large capitalizations around the theme of blockchain: BTC, ETH, DeFi (DPI).

2. Weighting: Neutral construction, equal weight

3. Rebalancing: First Friday of every month

Motivation

The BED index is meant to track crypto’s top 3 investable assets. The proposed index is a full portfolio solution intended for beginners, or as part of a core-satellite construction for more advanced investors. Bankless brings a strong reputation and expertise to the table and has an audience which represents the core personas this index seeks to serve. We have referred to this construction as the Bankless portfolio in the past.

The BED meme, a theoretical index now potentially brought to life by Index Coop, has captured the hearts of the Ethereum community. BED and Bankless have great brand recognition amongst our target personas and we expect Bankless can use it’s media platform spanning video, podcasts, and articles to educate newcomers on the assets in the BED index.

The composition is:

• 33.3% Bitcoin
• 33.3% Ether
• 33.3% DPI
• Rebalanced the first Friday of every month

Core value proposition - Customer

• Set and forget, self-driving crypto exposure
• Betting on assets that allow for independent banking (bankless assets)
• Low cost to hold with regular diversification

Core value proposition - Index Coop

• Supports DPI AUM
• Large Total Addressable Market (TAM)

Component justification

$ETH (~$200b) is economic bandwidth and the reserve asset of DeFi, so a heavy focus on ETH makes sense for any initial investment in decentralized finance. This is an investment in ETH as a store-of-value, commodity, and capital asset.

$BTC (~$1T) is the largest cap crypto money and currently a reserve asset of crypto banks. Some exposure is essential, but too much means an underweight position in DeFi. Having a portion in BTC with monthly rebalances captures some of the benefit of the volatility vs ETH.

$DPI (Components = ~$30b) DeFi is growing and a carefully curated set of DeFi money protocols with massive potential, and use of monthly reblances captures the volatility.

Research

Size of opportunity:

Ultimately, this index could be the preeminent bundled crypto product. We expect that this portfolio is suitable for the vast majority of crypto participants. Reaching several billion in AUM over the next 5 years is not unreasonable.

Differentiation

BED is different from any product in the crypto ecosystem. Piedao’s BCP has a similar construction (non-DPI DeFi weighting), but has not captured the attention of the market (~$5m AUM).

BED has a similar construction to CGI with key difference being gold in place of defi. There is potentially slight cannibalization between CGI and BED.

Potentially, there is some competitive crossover with DPI, but ultimately, they are different products (and, of course, BED includes DPI).

On-chain liquidity analysis

All assets are available in DEX’s with deep liquidity.

Methodology:

The general goal of an equal weighted index is to represent the performance of its constituents in equal proportion to one another. In comparison, the degree to which the performance of a constituent of a market capitalization weighted index is represented in the index is dependent on the size of the constituent.

For example, a market capitalization weighted index tends to be highly representative of a small number of its largest constituents. The equal representation enabled by an equal weighted index provides wider exposure to the index constituents than its market capitalization weighted alternative.

The underlying index is rebalanced after the close of trading on the first Friday of each calendar month. The Fund is rebalanced in accordance with its Underlying Index.

Market requirements:

• The components must have a Large cap valuation $25b+ [If an Index, the corresponding token market caps must have a sum of >$25b]
• The components must show signs of heavy usage either as a network (btc, eth) or smart contract theme (DeFi)
• The assets must have sufficient liquidity for initial inclusion and rebalances.

Technical requirements:

• Available on Ethereum blockchain
• Trust-minimized assets
• The token must not be considered a security by the corresponding authorities across different jurisdictions.

Safety Requirements:

• Assets and themes within Bankless BED Index should have vast, well-established safety guarantees.
• Any network/protocol must have conducted sufficient security audits and/or security professionals must have reviewed the protocol to determine that security best practices have been followed.

Index Maintenance

BED is maintained monthly in two phases:

Determination Phase

The determination phase takes place during the fourth week of the month. It is the phase when the changes needed for the next reconstitution are determined.

Reconstitution Phase

Following publication of the determination phase outcome, the index composition will change to the new weights on the first friday of the following month. I.e components will be added or removed.

Fees

0.35 % Streaming fee (.175 to Bankless, .175 to Index Coop).

Author background and commitment:

Ryan Sean Adams is a crypto investor & co-founder of Bankless. He’s an open finance maximalist who propagates the message of financial sovereignty. His mission is to onboard the first billion people to crypto through memes, media, and education.

David Hoffman is the co-founder of Bankless, a content studio with a newsletter, podcast and YouTube channel focused on education on how to live a life without banks.

About Bankless:

Our financial world today is run by analog banks. Crypto money provides an alternative. The option of self-sovereign money & banking. In a world where private keys act as money and code makes that money programmable, the entire money system changes. So Bankless is about banking less. And less banking. And less dependance on banks. We are the Bankless Nation.

Newsletter

Twitter 2