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

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

FOR - Pass PAY through Decision Gate 1. Begin work to research & assign PAY a product prioritization score. AGAINST - Do not pass PAY through Decision Gate 1. DG1 is a signaling step to gauge community sentiment. It is NOT subject to quorum requirements.

The full text PAY proposal exceeds Snapshot’s character count limit. Below is an abbreviated proposal. Check out this forum post to read the full proposal.

============== IIP: 58 Title: Pulse Aggregate Yield Status: Proposed Author: Pulse Inc. & @Matthew_Graham Created: 2021-06-28 Discussions-to: https://gov.indexcoop.com/t/iip-58-launching-pulse-aggregate-yield-pay/1969

Simple Summary

The Pulse Aggregate Yield (PAY) - Previously SYI - is designed to capture the best risk adjusted yield on USD stable coins within DeFi. PAY aggregates yield across DeFi into a single ERC20 token that can be readily traded.

As part of Index Coop’s DG1 process, this IIP is an opportunity for the Index Coop community to vett the product and signal intent to pursue launching PAY in partnership with the methodologist.

Motivation

PAY appeals to investors seeking to hold a portion of their portfolio in USD stable coins. The PAY product is designed for holders to passively earn and compound stable coin returns. By purchasing PAY, holders eliminate the problem of having to maintain a diversified productive stable coin portfolio. For those of us who typically like the simplicity of holding a single stable coin position, PAY will become the go to tradeable ERC20 token.

By being the aggregator of yield, PAY solves many problems for holders;

• Not enough time to keep up with the fast paced DeFi ecosystem problem
• Ability to comprehend and understand the various risks associated with each product
• What to invest in to maximise returns given the associated risks

For people who would elect to use a single protocol to earn yield, PAY offers the ability to gain access to a diversified productive stable coin portfolio in a single transaction.

DeFi users of all sizes can gain access to a broad diversified portfolio of productive stable coin assets in a gas efficient manner via a DEX. Users who would otherwise construct and manage a portfolio can now purchase a single product. This use case is particularly appealing to DAOs seeking to diversify a portion of their treasury. DAOs gain by saving the time and overhead costs associated with managing a portfolio whilst indirectly gaining access to specialist product managers.

The opportunity is to create a product that continually aggregates the best risk adjusted returns on USD stable coins into a seamless user experience. PAY is the go to money market product of DeFi.

Index Coop - Core Value Proposition

PAY provides a unique opportunity to automated yield aggregation, simplifying user experience just like how FLI revolutionised leverage trading. The vision for PAY is to aggregate the many stable coin yield generating strategies into a single tradeable ERC20 token.

Key reasons for Index Coop to launch PAY:

• Offer a product targeting stable coin market
• Diversify revenue with the inclusion of a market cycle neutral product
• Build integration / deep relationships with DAO treasuries
• Generate a potential significant AUM and revenue for the Index Coop
• Pioneer the first freely, readily tradable yield aggregator token in DeFi

Specification

Size of Opportunity

The market capitalization of stable coins grew at ~940% in the last 12 months alone and is currently worth ~$84.7B. Stable coins make up ~4% of the entire crypto asset class and to give this context, DeFi makes up ~5.88%. PAY enables Index Coop to target this ~$84.7B stable coin market without competing with any of its existing products.

In just two V2 Yearn vaults, USDC & DAI, Yearn has over $750M TVL yielding between 12%-15%. The Idle finance DAI vault which is an automated DAI compounding strategy utilising Aave & Compound with IDLE incentives has over $95M locked in it. If a new start up DAO can bootstrap a product to $95M, just think what the established Index Coop can achieve with the introduction of Liquidity Mining incentives and V3 concentrated liquidity bands. An automated way of depositing capital into a PAY pool on V3 has the potential to be a very lucrative investment.

The most comparable product to PAY, Yearn Lazy Ape Index (YLA) by Powerpool, offers investor access to the Yearn vault strategies and achieved a TVL of $10 million+ within one month of launch. Unlike YLA, PAY has the ability to integrate non Yearn vault strategies to optimise returns. Given Index Coop’s greater size, reputation and market penetration, the introduction of PAY represents a substantial opportunity for Index Coop to further grow AUM.

Looking past what others have achieved, initial feedback from a select few DAOs indicates PAY has significant market appeal. A handful of reputable DAOs that were contacted expressed high interest in using PAY as a diversification tool for their treasuries. The DAO Treasury market size is worth over $8B, if 10% was allocated to stables and 25% of that found its way into PAY that is worth $200M.

Product Differentiation

Within DeFi there are many yield aggregators that offer single stable coins strategies but there is yet to be a product developed that aggregates across the ecosystem holistically. PAY harnesses the most lucrative innovations in DeFi. An asset manager like Yearn can develop a new vault, or Idle Finance / mStable can bootstrap stable coin vaults with their governance token and PAY will harvest these opportunities for investors seamlessly. With Uniswap V3, the opportunity for automated concentrated liquidity for stable coin pairs creates another source of yield that can be utilised by PAY.

There is no product on the market that aggregates yield like PAY does into a single tradable ERC20 token. The same way Metamask & 1inch became go to aggregators for large traders, PAY is the go to productive USD stable coin product. The vision for PAY is to become the USD stable coin allocation in any portfolio.

Liquidity Analysis

Unlike other Index Coop products, PAY is predominantly maintained by either depositing or withdrawing capital from various protocols. There is the option to utilise on-chain liquidity for some products, however others do not trade on secondary markets. aTokens & cTokens representing capital deposited in the respective protocol are available on DEXs like Curve but imUSD is most easily attained by depositing directly into mStables vault. During the initial phase of PAY long life, we have optimised the design to best suit existing Set Labs functionality.

Methodology

Within PAY, capital is deposited across three risk tranches and is further diversified within each risk tranche to create a portfolio that minimises idiosyncratic risk and is optimised for returns. To determine which product is selected within the portfolio; all USD stable coins yield generating assets undergo a risk assessment process and then the risk adjusted score is ranked for each respective risk tranche. The highest scoring assets within each risk tranche are selected.

Prerequisites for undergoing risk assessment:

• Product must be available on the EVM compatible blockchain
• USD nominated

In determining the risk score for each product the following factors are considered:

• Total Value Locked ($M)
• Proven Product (time)
• Risk Protection
• Complexity
• Impermanent Loss
• Audits

The risk score determines which tranche the product fits within. In determining which product is to be included in PAY, the absolute return is calculated and then multiplied by the risk score to rank the products. The highest ranking products within each risk tranche with adapters built on Set Labs are included in PAY.

There are three tranches in PAY and within each risk tranche capital is allocated across multiple products. The number of products at launch is three per tranche. The number of products per tranche can change to facilitate rebalancing and as AUM grows optimising for returns.

Initial Composition

Based on early June 2021 market conditions, the table below shows the composition of PAY and the expected returns generated by each asset within the fund.

Note:

1. All Incentivized returns are to be sold on market and redeployed increasing the vaults value
2. Current Set Lab Integrations - Aave, Axie Infinity, Compound, Kyber & Yearn