The idea for a bribe-based index is simple, launch an index of small DAOs/protocols that can mint new index tokens in return for a higher percentage weight of the index. There is a graphic at the bottom which better illustrates the model with an index called Bribe Index Fund and a token called, $BRIBE.
- Drives demand for new indices
- Diversifies DAO treasuries
- Adds new revenue stream for DAO
- Adds liquidity to index token
- Supports DAO through meta governance
Indices are a great way to passively drive demand for a token. It’s a big reason why up-and-coming DAOs/protocols would love to be added to indices like $GMI or $DPI. Now, how much better would it be if the DAOs and token-holders could play an active role in the size of representation within those indices? This incentive then drives demand for minting the index token.
In exchange for bribing the index for a higher weighting, the DAO would now hold index tokens. And since most DAOs suffer from treasuries bloated with their native token, they would simultaneously be diversifying their treasuries.
The index and DAOs could further support each other with a staking contract. The first option would be to simply allow the DAOs to stake the index token which would receive a portion of the fees collected by the index. The second option would be for the staking contract to accept LP positions to support a liquid market for the index token. Again, the DAOs would then receive a portion of the fees collected by the index.
Meta governance is another way the index could support the participating DAOs. The index could adopt a mandate of supporting the objectives of the DAOs and voting to support proposals that would be mutually beneficial.
This is where each index could differentiate themselves within this model.
- What criteria will be used for adding tokens?
- Is there a limit to the percentage allocations that can be bribed?
- What is the mandate of the index in meta governance?
- What percentage of fees will be shared with participating DAOs?
I have been looking for an index protocol that would be interested in partnering and experimenting with this model.
Welcome @0xWinger, what an excellent post to the Brethren court. This idea intrigued me, there are certain aspects I really love, incentivising LPs with the product revenue itself instead of outside incentives which creates a sustained positive feedback loop and the mint bribing for higher % allocation, both mechanisms I had not really thought of but sound pretty novel.
I know LPs are essentially paying themself with their own LP on the former, but I guess the incentive is that they are creating a more liquid market with the hope that the product would gain further traction/adoption and further bribes, increasing fees for them.
Interested in the metagame here, I imagine the way we avoid bad actors is the inclusion criteria set by the DAO. Due to the nature of the bribes though I’m interested in how often these would take effect, would minting itself trigger an automatic interaction to rebalance the index (which maybe could be manipulated?) or would it would be periodic e.g. every month all the bribes are totalled and a rebalance is executed based on the outcome.
Let’s dive in, Galleon is all up for experimenting
Your first two paragraphs are spot on. No clarification needed there!
Yes, I think the index needs to articulate the criteria for inclusion and the intention for participating in governance. It would stand as the charter of the index so participating DOAs know what to expect.
I envisioned periodic rebalancing. First, automatic rebalancing could get chaotic with multiple DAOs bribing simultaneously. Second, periodic rebalancing would allow for all token holders to participate in the bribes as opposed to whitelisting treasury addresses. I think getting DAO communities involved could generate even more interest as opposed to restricting the bribes to DAO vs DAO.
If we move forward with periodic rebalancing and the inclusion of all token holders, I see the system using something like a staging area, or escrow. The tokens are sent to bribe the index with the intention of minting new index tokens and are placed in a staging contract to accumulate all bribes over the course of the specified period. Then, as you say, all bribes are totalled and the rebalance is executed.
Thanks for diving into this also, I’m pumped!
Awesome idea, love it! I feel like this can be something with great value once fleshed out. And mate, this fits so well with the piracy. Arrr!
Some factors to consider:
- The gas costs (if the index is on mainnet) and asset decay for rebalancing will be very high considering that the index will likely have high turnover and the underlying liquidity would be low.
- There’s a trade-off between making the thematic scope broad in order to increase eligibility and narrow in order to create buy interest. I’m uncertain of the market demand for an index where the participants had to ‘bribe’ their way into inclusion.
- Presumably, the protocols would need to hold their minted tokens and not sell them. That should be made clear.
- For realistic AUMs, the streaming fee income amounts are unlikely to be meaningful to most worthwhile protocols.
Great points that certainly need addressing since I may not have made it clear in the original post.
To your first and second bullet, the idea would be to do as much outreach to protocols up front to gauge interest in the concept. The index would then launch with this cohort of tokens that meet a very specific and defined criteria for inclusion. I agree that high turnover would be bad and this would also keep the index from being comprised of projects based solely on their ability/willingness to bribe their way in. (This brings up a good point about the value of a bribe - normalizing the bribes across changing market caps or TVLs is a worthwhile goal, I think.)
Yes, we expect minted tokens to be held. Maybe the index only counts bribes as valid if the tokens are LP’d and staked?
And it’s true, the streaming fee may not amount to much (and hopefully no protocol would expect it to be a significant revenue source). But, there’s always the possibility the index grows and increases their token value and diversifies their treasury!
But avast ye! I’d be three sheets to the wind if this ship was able to help any of those scallywag protocols increase their booty!
On a side note, from a technical point of view, I believe that this index is actually possible to create on Set Protocol infrastructure today which is promising.
@JosephKnecht made some great points, the inclusion criteria would be very key here. It doesn’t matter even there is a really novel product mechanism if no one wants to invest in your product because the quality of projects is low or the theme is too vague. Maybe a select few DAOs that represents each vertical (NFT/Metaverse/DeFis etc) could be interesting and create a bit of a narrative war.
In any case, I do like the idea - there’s a lot to work out prior to a GIP here, but consider Galleon very interested in implementing a product like this, we like the innovation. I’d recommend we have a call to blast through some details further, everyone interested is welcome (and I’ll drive setting it up)