Context
stIBCX has shown considerable growth since its inception, garnering approximately $168k of liquidity since the stIBCX/OSMO pool launched in the beginning of June. To fuel the next chapter of growth for stIBCX and IBCX, the methodology and pool incentives deserve some refinements. Improving the methodology will lead to more adoption of the index token, thus driving more revenue back to the ION DAO via management and redemption fees. In short, the proposed improvements will: ensure the quality of the assets allowed to enter index, enhance the asset weighting approach, for assets to be considered, and optimize the rebalancing frequency. Lastly, during these changes we propose that pool incentives to stIBCX are temporarily reduced by 40% while the index improvements take place.
Detail
Portfolio Methodology
In a previous post on the ION CommonWealth, there was an introduction to the discussion regarding the methodology that should be used to determine the underlying digital assets comprising the IBCX token. The primary goal of this post is to revamp discussions regarding the mechanics of the methodology, and to explore opportunities for improvement to enhance alignment amongst the index’s constituents.
Below is a table highlighting the proposed changes to the methodology and the rationale.
(You can check the initial methodology here: $IBCX Methodology. Suggestion on Operation Methodology of… | by $IBCX, the Interchain Index Token | Medium)
(Sections where there is change has been marked with an asterisk * )
The details in the table can also be found here: https://docs.google.com/spreadsheets/d/1nJOD0_nevOvpX-t8W_kxwL1-TJD7gEXrw60PoVwQSH0/edit?usp=sharing
While there is good faith reasoning to ensure the initial selection of the digital assets comprising the index are selected via objective criteria, to ensure safety and longevity of the IBCX index, we propose an IBCX Governance Committee is formed.
The Governance Committee (GC) will be composed of members who are experienced with Cosmos ecosystem projects as a researcher or ecosystem specialists, etc.
The Committee will fulfill the following tasks
- Cover some parts that the methodology can’t fully cover all judgments
- Tokenomics
- Public Sentiment
- Osmosis Market Data: Check the feasibility of each asset’s liquidity on Osmosis based on each weight in the portfolio
- Analyze the development process & future expectations until the next rebalancing of portfolio projects (based on their outcome/deliverables and the time spent for each shipping)
Once the Committee is established, the rebalancing process will be as below
- The ION DAO dev contributors will make a new portfolio based on the methodology
- The Committee will do a suitability check on the portfolio
- If any noticeable issues are detected, adjustments based on the reports from the Committee
Further details around the Committee will be introduced in a follow-up Proposal on this forum. The Committee could also contribute to the business development of ION DAO and IBCX.
Simplify the Methodology
Under the recent trend, the LSD fi, stIBCX will be able to get much traction enabling further utilization of IBCX’s collateral assets. We believe that forging a market sentiment for stIBCX can bring us a huge synergy between the trend and stIBCX’s potential to grow.
*Data from Aug 14th, 2023
In addition, when comparing the two today, there is a stark difference in user adoption, with stIBCX capturing the majority of liquidity. In terms of liquidity depth, there is 417%+ more liquidity for stIBCX than IBCX on Osmosis. Healthy liquidity can lead to a plethora of second-order effects, such as becoming productive collateral on lending markets like Mars, Umee, etc.
In fact, there is material evidence to suggest stIBCX may serve as a stable form of collateral to be used across lending markets in the Cosmos. Right now, only one singular asset can be posted as collateral on lending markets in the Cosmos. Assume there is volatile price action for any specific token with the Cosmos at one time, then there is the potential for liquidation cascades, posing a systemic risk to the ecosystem at large. However, with using stIBCX as collateral, the risk is reduced considerably.
Furthermore, stIBCX DeFi adoption is a win-win for the ecosystem at large. This will generate more fees for the ION DAO, which takes a 0.55% annual management fee, and a 0.15% redemption fee. The more stIBCX adoption there is, the more LST adoption there is, creating a positive feedback loop for the Cosmos ecosystem. We are collectively growing the pie and potentially introducing more stable crypto-native collateral to the ecosystem.
1 Year Performance of IBCX vs its Constituents (Note that stIBCX would perform very similarly, if not better)
1 Year Performance of IBCX vs its Constituents
Note: this is a backtest and not all constituents were in the fund at the beginning date. The following dates were when certain assets were added to the data:
ION: 2022-09-26
AXL: 2022-09-27
STRD: 2022-09-10
It’s important to mention that for stIBCX to be a success, we need ample governance support from the ION community. At the discretion of a few members from the ION & IBCX community, we propose that STRD emissions to the stIBCX pool are temporarily reduced by 40% (180 STRD → 108 STRD), and. We propose that after the reduced emissions, we give the two IBCX pools on Osmosis some time to compete with one another, and then new incentives will go live following the traction each pool shows. This will align current and new liquidity providers with this new era for stIBCX.
Overall, we look forward to hearing community feedback around the proposed methodology changes to IBCX & stIBCX. We believe that through the improved and refined methodology, we can usher the index to its next chapter of growth.
Target on-chain date: August 23rd, 2023
