Index

Title: Launch the Index Coop USDC Yield Index (icUSD) Status: Proposed Authors: @0Xdunerider Reviewed By: @mrmadila @anthonyb.eth Created: 9th Jan, 2024

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Summary

This proposal seeks to launch the Index Coop USDC Yield Index (icUSD). The icUSD index tracks the performance of variable-rate USDC lending across over-collateralized protocols on the Base network. The product provides diversified exposure to the largest USDC lending markets while prioritising security, transparency, and liquidity.

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Motivation

1. Protocol Revenue and TVL Diversification:
   The icUSD index offers diversification benefits by generating protocol revenue and increasing total value locked (TVL) through variable-rate USDC lending. This diversification is particularly valuable as it reduces reliance on products correlated with general market performance, thereby enhancing resilience during market downturns.

2. Strategic Partnerships:
   The icUSD index project is supported by Circle, the issuer of USDC, enhancing its credibility and distribution potential. Circle’s partnerships with leading platforms and distribution channels are expected to expand the utility and adoption of USDC, benefiting icUSD through improved liquidity and broader demand for easy to access USDC yield. Additionally, several platform distributors have expressed interest in icUSD integrations.

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Methodology

The icUSD index includes protocols meeting these criteria:

• Eligibility Criteria:

  -   Maintains a minimum of $25 million USDC deposits across all chains over the trailing 90 days.
  

  • At least one third-party audit and open-source smart contracts.

  • Supports variable-rate USDC lending with over-collateralization.

• Weighting:

  • Based on aggregate protocol USDC deposits across all chains.

  • Weights for shared pools (e.g., Aave V3, Compound V3) are allocated proportionally on their contribution towards the protocol’s overall USDC deposits.

  • Managed vaults (e.g., Morpho) are allocated weights based on vault’s USDC deposits.

  • In protocols featuring isolated pools and managed vaults, such as Morpho, the protocol’s allocation is split proportionately across eligible vaults with at least $2,500,000 in deposits and greater than a 5% share of eligible vaults.

• Capping and Diversification:

  • No protocol exceeds two-thirds of the total index weight.

  • Protocols with a minimum 2.5% market share among eligible candidates are included.

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Composition

Protocol Composition

The icUSD index will initially include the following protocols and their respective weights:

Protocol	Weight (%)
Aave v3	62.71%
Morpho	20.79%
Compound v3	11.93%
Fluid	4.57%

Markets Composition

The icUSD index is diversified across the following markets, with allocations based on the composition of underlying lending pools:

Market	Composition (%)
Aave v3	62.71%
Moonwell Flagship	13.86%
Compound v3	11.93%
Fluid	4.57%
Re7	2.44%
Steakhouse	2.18%
Gauntlet Core	1.21%
Gauntlet Prime	1.10%

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Commercials

• Fees: The icUSD index will charge a 0.75% streaming fee. This streaming fee may be amended periodically based on market conditions or other factors. Revenue from this fee will be distributed to the Index Coop DAO Treasury, net of any revenue share agreements or disbursements to potential product revenue token (PRT) holders.

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Maintenance

• The Index Coop USDC Yield Index (icUSD) undergoes a full reconstitution and rebalancing quarterly on the final Thursday of each calendar quarter to ensure accurate representation of the underlying protocols. The process begins with a Reference Date on the Tuesday preceding the final Thursday of each calendar quarter.

• During reconstitution, constituent eligibility is reviewed, and adjustments are made based on updated data. Rebalancing recalculates constituent weights according to the latest data. Eligible new protocols may be added, while those no longer meeting requirements are removed.

• In extraordinary situations, such as a protocol hack or significant regulatory action, the Index Committee may make immediate adjustments, typically effective the following day at 12:00 UTC. The committee also monitors all protocols for significant changes, such as smart contract updates. If eligibility or accuracy is impacted, action may be taken outside the scheduled reconstitution with at least two business days’ notice unless urgent action is required.

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Product Changes

• Methodology Changes:

  • Material changes to the index methodology will require approval via a standard governance vote, ensuring transparency and alignment with community expectations.

• Deprecation:

  • If icUSD fails to achieve a TVL of at least $25 million by June 30, 2025, Index Coop core contributors may deprecate the product. This decision can be enacted with a simple forum announcement.
  • In the event of deprecation, the product will be 100% rebalanced to Aave Base USDC [0x4e65fE4DbA92790696d040ac24Aa414708F5c0AB].

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Voting

FOR

A vote FOR this proposal indicates support for launching the Index Coop USDC Yield Index (icUSD) as part of the Index Coop product suite, enabling users to access diversified exposure to USDC variable-rate lending opportunities.

AGAINST

A vote AGAINST this proposal indicates opposition to launching icUSD, maintaining the current suite of Index Coop products without this addition.