Team response on Proposal 9 — PowerIndex launch proposal

This article is devoted to the view of PowerPool team on the recently published draft of Proposal 9

PowerIndex will be launched soon. Two security audits for PowerIndex are pending and we plan to receive them approximately on November 23. According to it, PowerIndex launch is scheduled for November 24 or 25.

Recently, Delphi Digital posted a draft of Proposal 9 at Power Forum. The abstract of this proposal:

1. Preserve the composition of the main PowerIndex the same as it was in Baby PowerIndex: CVP, YFI, SNX, LEND, wNXM, UNI, COMP, and MKR. Also, it is offered to replace LEND with AAVE as the AAVE protocol has recently migrated their token from LEND to AAVE.
2. Re-define LM program for PowerIndex. It is proposed to allocate the total reward 400k CVP/monthly (50% unvested, 50% vested for 10 weeks) to index LPs
3. Accumulate all liquidity for CVP at ETH/CVP pair on Uniswap, removing Balancer pools from the liquidity mining program. The reward allocation is proposed to be kept at 91,000 CVP/week with 10-week vesting
4. Don’t distribute 3m CVP for this voting as it was proposed before as the index is going unchanged

Also, they shared an idea of “insurance” from IL for Uniswap LPs which isn’t a subject of voting in this proposal. Additionally, several charts were published:

CVP 2020–2022 release chart

Uniswap APY estimation for different scenarios

Uniswap APY estimation for different scenarios

PowerPool team response on Proposal 9

PowerIndex composition
First of all, we think that it is quite reasonable to keep the index composition the same as in Baby PowerIndex for certain reasons:

1. The current composition was justified in previous proposals and widely discussed by the community. After >1 month of Baby PowerIndex operation, it seems that the community is ok with that (at least alternative index compositions weren’t shared). Discussions in the “powerpool research group” with active community members also reveal that their market examination basically leads to this composition.
2. It will simplify liquidity migration from Baby PowerIndex to main PowerIndex
3. If there will be some ideas to change the token set or token weights coming from the community it is easy to do that. PowerIndex has a built-in mechanism for that — the Dynamic Weights changing model designed by our team in collaboration with 1inch.exchange co-founder.
4. Also, we want to point out that the timing of index launch is quite limited and this idea simplifies it

PowerIndex LM program
Talking about the LM program we see a great advantage of a newly proposed design:

1. Allocation of 400k CVP/monthly (50% unvested, 50% with 10 weeks vesting) can be significantly more attractive for LPs than more CVP (2m/monthly) but with a 1-year lock-up. It will help PowerIndex to bootstrap TVL.
2. The 2m/month allocation with a 1-year lock-up period has a huge drawback — huge deferred selling pressure, which can negatively influence the project's success in the long-term. The new design eliminates this issue.
3. 400k CVP can be easily consumed by the index as a result of TVL growth, so the absence of long lock-ups or vesting wouldn’t negatively influence the CVP price
4. The distribution of these 400k CVP between PIPT staking and the PIPT/ETH Uniswap trading pair as 1/3 and ⅔ is quite rational. Such design offers two different options: investing in PIPT and investing in PIPT/ETH with equal rewards (calculated for PIPT stake)
5. Coupled with PowerIndex design such LM program provides a positive dynamic for bootstrap TVL, maintain CVP price, and attracting various groups of LPs

Uniswap LM program
Our view on the idea to accumulate all liquidity on CVP/ETH Uniswap pair and keep current rewards allocation:

1. First of all, we definitely need to have deep liquidity on CVP/ETH pair, so it is quite rational to accumulate all liquidity on a single trading pair.
2. Current reward allocation works well, and comparing it with PowerIndex reward allocation it is approximately the same (~400k CVP per month). It means that in the case of a huge TVL in PowerIndex it will be quite profitable to mine CVP not in PowerIndex but on this Uniswap pair (as the reward per 1$ provided will be higher). So, such a program will lead to really deep liquidity on CVP/ETH which is quite attractive for the CVP community. The calculation of APY for this idea proves that even for 2m CVP supplied it is quite profitable for LPs.
3. We basically like the idea of IL “insurance”, but it is not a subject for voting now.

Conclusion

We discussed this proposal with Delphi preliminary and personally support it as it allows to boost TVL, create a secondary market for PIPT, attract liquidity into PowerIndex and CVP/ETH Uniswap pair, and address main issues of previously proposed LM design as well.