Proposal to seed the Polygon Ecosystem Index (PECO)

TLDR
Amun aims to build the first index token for the Polygon ecosystem. The PECO token will help investors gain easy and automated access to Polygon native projects including Aavegotchi. The Polygon Foundation is supporting this project by pledging $10m of MATIC in seed capital. We seek a smaller portion of seed capital from each protocol to support this launch. For Aavegotchi, the ask is for $500k in GHST tokens. This will be minted into PECO and seeded in liquidity pools for a period of nine months. After nine months, the PECO tokens are returned to Aavegotchi.

Benefits to Aavegotchi

  • The PECO launch will generate substantial buzz and attention to Polygon projects. We will be promoting Aavegotchi throughout all our channels for this launch.
  • The PECO token will be made available on Polygon and Ethereum, creating an easy way to gain exposure to GHST without bridging to Polygon. Demand for PECO translates into demand for GHST. If PECO reaches $20m in market cap, that will drive an additional $2.3m in demand for GHST.
  • PECO is a diversified basket of tokens. Having a portion of Aavegotchi’s treasury in PECO likely reduces volatility relative to GHST only.

Product Description
We propose to build and launch a token ($PECO) to give investors broad exposure to the Polygon ecosystem. The token will be made available on two chains: Polygon and Ethereum. We believe there is a large number of people who would like to invest in the Polygon ecosystem but do not wish to go through the trouble of bridging funds to the Polygon chain and doing the diligence and trades to purchase individual project tokens. By making a Polygon ecosystem token available natively on both Polygon and on Ethereum, we are able to address a significantly larger investor base than a Polygon-only token.

Supporting the Polygon network ecosystem through the foundation is also a key motivator. The eventual goal is to integrate PECO into Polygon projects to explore DeFi strategies and composability. Through this, we envision to provide greater capital efficiency in borrowing, lending and yield optimization whilst at the same time diversifying risk for holders, projects and the Polygon Foundation.

PECO Composition

Construction
Polygon DeFi Index (PECO) selects projects based on the following criteria:

  • The project must be native to the Polygon network and contribute to the Polygon ecosystem.
  • The project must have launched on the Polygon mainnet for a period greater than 2 months, to eliminate transient, unsustainable projects.
  • The project has organic adoption in liquidity and market cap.
  • The project has sufficient DEX liquidity on Quickswap and DFYN. For a starting point, we look for DEX liquidity above $5 million.
  • To start, MATIC makes up 50% of the index composition. As the Polygon system matures, we expect to lower the portion of MATIC to make way for more project tokens.
  • The remainder of the 50% is composed of protocol tokens weighted using the averaged ratio of market cap and DEX liquidity.
  • Presently, only a handful of project tokens satisfy liquidity requirements. We expect that as projects scale, the constituents will be reevaluated monthly.
  • Given the low transaction fees on Polygon, we believe PECO can grow to include a large number of constituents, so long as they satisfy liquidity requirements.

Seeding & Liquidity Provision
To bootstrap market cap and liquidity, we aim to seed PECO with $12m of capital—a portion of which will be minted into PECO. The seed will be pooled from the six protocols that make up the initial index. Polygon has agreed to lead the seed with $10m of capital. Most of the five protocols are also on board to provide seed funding in proportion to their weight in the portfolio:

The seed funding will be locked up for a period of nine months, after which it will be returned to the seed contributors. The seed capital is not consumed other than basic trading costs and slippage.

PECO will be made available on both Polygon and Ethereum. We propose to deploy the seed capital in two liquidity pools to help facilitate trading:

  • On Polygon: PECO–MATIC
  • On Ethereum: PECO–MATIC

Because PECO is composed of 50% MATIC, we expect any impermanent loss will be modest.

Process Summary:

  1. Seed capital is converted to PECO
  2. The PECO token amount at the start of 9 months is documented
  3. PECO is deposited into a PECO/MATIC liquidity pool
  4. At the end of the 9 months the original documented PECO token amount is returned as PECO
  5. Fees generated from the pool at the end of 9 months will be used to cover any impermanent loss
  6. Any remaining revenue will be distributed to the seed contributors prorated

DAO Votes So Far:

Conclusion
We hope the Aavegotchi community will support the proposal to seed the PECO token with $500k in GHST. We believe it will help bring new users and capital to GHST and the wider Polygon ecosystem.

5 Likes

Why don’t you just purchase GHST off the market to include in this index? If I understand your proposal you are asking for a 1/2 million USD interest-free loan for 9 months from the Aavegotchi treasury and we are exposed to the risk of the success of the PECO index product.

The INDEX COOP are also going to be offering a Polygon index product which includes GHST, but they haven’t requested any funds from our treasury. Snapshot

Also, do you have a whitepaper, open-source smart contracts, and security audits? What is the marketing budget to compete against INDEX COOP?

5 Likes

Hey jarrod,
Here’s is a working whitepaper (it describes not just PECO, but our overall approach to ecosystem tokens) Whitepapers/Ecosystem Tokens Whitepaper v1.1.pdf at main · amun/Whitepapers · GitHub

Contract address is coming in the next two weeks. Security audit first pass is done. We are making some changes and should be avail for review in two weeks as well. You can see our existing index products and history on amun.com.

This seed idea came not from us but the Polygon Foundation. They are also putting up the largest sum of capital. Our thinking is if everyone provides a modest sum to the seed, there will be good liquidity to start and good alignment from the stakeholders. Seeding requires sizable amounts of capital and isn’t something the index sponsor can provide out of pocket.

L2s have become the focal point of conversations lately, especially rollups. We think this product will help highlight Polygon’s unique offering in this space, especially the maturity of its app ecosystem.

2 Likes

I really like this idea of funding a seed for a Polygon ecosystem index. I’d definitely like to see the Aavegotchi community participate in this initiative. From reading the documentation, it looks like there are going to be zero fees taken by this product until 2023, which means that PECO tokens would be returned to the Aavegotchi community before any fees are incurred. I think this is a good opportunity for Aavegotchi to participate and gain exposure in the larger ecosystem, and the seed ask seems relatively modest given the current treasury size.

I think this product is a necessary part of the ecosystem, and Index Coop could use a little competition as their streaming fees are relatively high. Though I do agree with @jarrod that this ends up being a sort of interest free loan, I think the chance for exposure can end up making this investment worth it. Exposure is extremely important for an NFT project, as recent events have shown with the success of advertising on Rarible. I hope that the community supports this initiative.

The only real concern I have is making sure that the smart contract risk is extremely minimal. I look forward to seeing the contract and security audits available for the community to review.

3 Likes