Hello Aave community
We from Index Coop would like to ask for your support in listing DPI as a collateral asset.
What is the link between the author of the AIP and the Asset?
I go by Lemonade Alpha and I am a core contributor for Index Coop.
Provide a brief high-level overview of the project and the token
DeFi Pulse Index is a basket of 13 popular DeFi tokens available on Ethereum. The methodologist behind DPI is Pulse, Inc, creators of DeFi Pulse. The criteria for token selection can be found here. DPI is the most popular DeFi index product with ~$130m AUM.
DPI is built on top of Set Protocol and managed by Index Coop. Index Coop is a decentralized and autonomous asset manager governed, maintained, and upgraded by INDEX token holders.
Explain positioning of token in the AAVE ecosystem. Why would it be a good borrow or collateral asset?
DPI would make an excellent fit for collateral in the Aave ecosystem because it allows for a large pool of dormant capital (>$100m in unincentivized DPI AUM) to find a productive use. Additionally:
Significant Borrow Demand: There is significant desire from whales to lend out the DeFi Pulse index and to use the DPI as collateral to borrow stablecoins for farming, going leveraged long/short, and implementing structured products (e.g. carry trade).
Low Volatility: Because indices are a basket of tokens, they represent less volatility than the component assets by themselves
Efficient Sector Representation: Adding an index as collateral also gives exposure to all the component tokens while only having to add in a single token, thus saving gas in Aave’s system
Liquidity via Primary and Secondary Markets: Minting and redeeming represent the primary market of the indices, but many users can buy and sell indices on the secondary markets - mostly Uniswap. The price on the secondary markets are kept at Net Asset Value (the market value of all the underlying components) through a network of market makers that redeem the tokens when price is below NAV and vice versa.
How is the asset currently used?
Currenlty, DPI is available for collateral in CREAM and can be used to provide liquidity on Uniswap (eligible for INDEX rewards).
DPI is minted and redeemed by arbitrageurs who are reacting to fluctuations in demand. DPI may also be minted for the purpose of investment and likewise redeemed for the purpose of divestment via an exchange-issue process.
Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)
Mkt Cap: $125,692,235
24 hr Volume: $12,944,962
Social channels data (Size of communities, activity on Github)
Contracts date of deployments, number of transactions, number of holders for tokens
- 9, Sept 2020
- 96,997 Transfers
Set’s V2 contracts have had upwards of $200M locked and have been live for 6 months.
V2 Smart Contract Audits:
- OpenZeppelin [September 2020]
DPI is the first index product released by Set Protocol and has been functioning securely since its launch in September. Anyone can permissionlessly issue the DPI token by depositing the underlying component tokens and can redeem the DPI token for the underlying components.
Only the Index Cooperative is able to make decisions regarding the index composition and the rebalancing process. Governance over the Index Cooperative is decentralized with the community making critical system decisions.
In the current version of V2, rebalances do not have any lockup times so that does not pose a risk.
DPI is backed by the component ERC20 assets leading to exposure to the market risks of the underlying tokens. Because DPI is a basket of tokens, the volatility of the DPI is significantly less than each individual token as seen in this graph below:
DPI price will be derived from the prices of the underlying components. Rebalancing happens once a month where weights and the underlying assets can change and as a result, oracles must be available for the assets that are added.
The liquidation process can happen in two ways. Liquidators need to liquidate on Aave and then either sell DPI on the Uniswap market or redeem the underlying assets and then sell them.
The Concourse team has an open source version of an arbitrage bot that mints and redeems automatically. It is possible to build a liquidation bot that does the mint/redeem and liquidate function on Aave in 1 transaction.
We derived the variables of the interest rate model based on the rates DPI’s component assets have on the main Aave market. Slight adjustments were made to reflect the lower volatility of DPI due to it being a basket product and the Set market being a segregated market.
|Utilization Optimal||Base||Slope 1||Slope 2|
DPI risk parameter values were also derived from referencing the values for DPI’s component assets. Adjustments were made for lower volatility of the DPI, multiple liquidation models (Uniswap and redeeming), and segregated markets were taken into consideration.
|LTV||Security Margin||Liquidation Threshold||Liquidation Bonus|