[BIP - 2] Accelerated Proposal for nDEFI

Proposal

The purpose of this proposal is to approve with the community the path to take for our first soft synth product ahead of its launch. We have outlined below the direction we think the community has chosen to take and welcome feedback before we post a governance vote to formally approve the nDEFI basket (nest) and the way it will work.

This proposal will be fast tracked to ensure a vote can be completed before the launch of nDEFI as many of the items have already been discussed with the community or agreed previously. After spending one day in the concepts section it has been moved to the governance proposals section of the forum for 3 days before going to snapshot vote.

Background

The ETF (Exchanged traded funds) industry has grown to over $6 trillion worldwide since it started 27 years ago. It makes up more than 15% of the estimated $95 trillion global stock market, which demonstrates the incredible market demand for diversified holdings that can be utilized for “set and forget” automated financial strategies.

‌The total market cap for the crypto markets today is around $2 trillion, and only $1 billion of that total is estimated to be related to crypto ETFs. At the market’s current size, this figure would need to reach $300 billion to be at the same level of saturation as traditional financial markets.

Polly Finance has an exciting opportunity to become a leading platform for the community and eventually anyone to create their own nests to manage diverse assets, purchase them easily and automated their farming.

We plan to do this by curating ideas from the community to begin with, helping them to form strategies for picking tokens from leading projects and putting them to work earning yield using proven methods. The end goal will be to open the platform up completely to allow anyone to create their own strategy, allowing you to comfortably invest in your preferred strategies with the confidence that your tokens working hard for you.

About

The Polly DeFi nest is divided into key DeFi sectors, which are given a weighting reflecting their maturity and share of the overall market. Within those sectors, each project is weighted on the TVL divided by Fully Diluted Valuation (FDV).

Objective

To generate revenue a defi project needs value deposited into their contracts. This makes Total Value Locked (TVL) a key metric for evaluating a project’s ability to generate revenue. Projects with a high TVL have also so far proven to gain more traction in the market through the network effects the existing capital provides - capital attracts more capital. A good example of this is with Yearn Finance. Yearn was able to generate massive amounts of revenue as a result of the large amount of capital they attracted. This gave them the resources to further develop and innovate their products in a positive feedback loop. Yearn’s success has led to many projects such as Alchemix and Abracadabra using their products and liquidity as a base layer to build on.

nDEFI is composed of the most mature sectors in the DeFi ecosystem, providing core coverage of the key building blocks for the future of finance. With nDEFI you’ll have exposure to infrastructure, lending markets, decentralized exchanges, synthetics, and yield aggregators. The unique weighting formula allows nDEFI to invest in projects gaining traction earlier and with a greater weighting than market cap weighted competitors.

The Polly Finance community will provide the crypto industry’s first automated value investing, decentralized investment strategy.

As always we invite our community to exercise caution if they decide to use the product, the strategy is unproven and results may vary.

Project Inclusion Criteria

For a project to be included in the Polly Defi nest, it must fit the below criteria in order to reduce the risk of the nest and fit the desires of the community.

Project Characteristics

  • Be a DeFi project available on the Ethereum blockchain.
  • Listed on DefiLlama
  • Have at least 7.5% of the total supply in circulation and have a predictable token emission over the next 5 years.
  • The protocols will be selected by TVL based on DeFiLlama’s website.
  • The protocol must be running for 3 months before qualifying to be included in the nest
  • In the event of a safety incident, the team must have addressed the problem responsibly and promptly, providing users of the protocol a reliable solution and document a detailed, transparent breakdown of the incident.
  • Be Ethereum focused
  • Must be sufficiently decentralized

nDEFI Composition

The statistics for the TVL and FDV were taken in July so are already slightly out of date and may be adjusted pre launch.

Token Weighting %

Yield aggregator 10.00
YFI 1.87
Convex 7.72
Alpha 0.42
Dex 20.00
UNI 1.22
SUSHI 6.12
CRV 7.56
BAL 5.11
Lend 20.00
AAVE 5.92
COMP 5.65
MKR 6.65
ALCX 1.78
Infra 40.00
ETH 30.00
LINK 9.00
MATIC 1.00
Synths 10.00
SNX 7.19
UMA 0.86
BAO 1.95

TOTAL 100.00

Yield Strategy

It is possible for the underlying tokens to follow strategies that will earn yield, maximizing value for nest holders, who benefit from this productivity without having to perform any actions themselves. These strategies can be changed over time to take advantage of new opportunities or to maximize the yield earned. Strategies already available include lending and staking, with more advanced strategies planned to be developed in the future.

To begin with we will make use of the strategies that already existed in the PieDao code and that are available on Polygon - AAVE and Cream lending pools.

The next stage will likely be to develop a Kashi strategy, which will allow us to create our own lending markets for tokens that wouldn’t otherwise have yield options on Polygon as well as furthering our relationship with Sushi.

Nest Maintenance

The nest is maintained quarterly in two phases

Determination Phase

The determination phase takes place during the final 2 weeks of the quarter. During this phase the changes needed for the next reconstitution are determined.

The TVL and FDV of each project are recorded, including new projects that qualify for the nest and meet the criteria.

Proposed changes will be published on the governance forum for 1 week then a governance vote will run for the community to approve changes.

Reconstitution Phase

In the two weeks following a successful vote, the nest components will be adjusted as per the instructions published during the final 2 weeks of the quarter.

Emergency Maintenance

The multisig holders are authorized by the community to re-balance nests outside of the usual schedule during moments that they collectively deem to be critical emergencies. This clause will allow for quick re-balancing in the event of a protocol or nests being in danger of failing. An example of when this would be utilized would be if a stable coin begins losing its peg/ becoming insolvent, or a protocol suffers an exploit that is not dealt with sufficiently.

These scenarios may be time sensitive and require immediate resolution. Thus the team may decide to act without warning and explain their actions in a governance forum post afterwards, or if there is deemed to be time, an emergency governance vote will be posted.

This is intended as a safety mechanism only, to prevent loss of funds for our users and as such would be a power exclusively exercised under extreme circumstances.

Fees

Fees for the nests will be used for a combination of burning the governance token, adding to the treasury as well as a unique reflexive payment to current nDEFI holders as a way to incentivize long term holding. This will be achieved by distributing ⅓ of exit fees to anyone currently holding the nest token. The fees are broken down as follows:

Entry fee 0.5%: used to burn Polly tokens

Annual streaming fee 1%: accumulated by the treasury

Exit fee 1%: 0.66% accumulated by the treasury, 0.33% distributed to current nest holders

The 0.5% entry fee will go to the treasury for the first 3 days while there is no farm to incentivise Polly liquidity. This is to prevent a large volume of buys happening in an illiquid pool, inflating the price for people who then add liquidity for the Polly farms. The community can then vote on what to do with the fees collected, or they can be left to help fund future developments in the project.

8 Likes

Personally I’d like to hold back on this.

Personally I’d like to hold back on holding back on this.

3 Likes

I’m assuming the category weights would stay the same for a given index and that the re-balancing only occurs in the token composition of a category?

Is that the idea, or do we expect re-balancing at all levels?

That is correct. If the community wishes to change category weights a separate proposal would be posted.

1 Like

We could have separate products representing different “risk” profiles. Probably not at first, but eventually.

4 Likes

Eventually, that is the plan. We want users to be able to use the platform to curate their own nests and build their own strategies. Possibilities are endless when you look at it that way.

2 Likes