Index Cooperative (INDEX) is a community-led decentralized organization that focused on enabling the creation and adoption of crypto index products. ^[1] As the first flagship product, Index created the DeFi Decentralized Pulse Index that provides broad DeFi (Decentralized Finance) exposure for its users by holding one token, to create more indices in the future.^[2][3]

The Index Coop builds decentralized structured products that make crypto simple, accessible, and secure. $INDEX is the governance token that presides over the Index Cooperative.^[26]

Overview

INDEX is described to be a community-led decentralized organization focused on enabling the creation and adoption of crypto index products. ^[4]

The first primitive governed by the Index Coop is the DeFi Pulse Index which was jointly launched in September 2020 by DeFi Pulse and Set. As of October 7, 2020, the DeFi Pulse Index garnered $2 million in assets locked and 1,300 unique holders, demonstrating early product-market fit. ^[5]

Meta-Governance

On November 18, 2020, Index Cooperative went live with its first meta-governance proposals. Meta-governance enabled INDEX token holders to vote on Index Cooperative’s snapshot page on how the Cooperative should vote in terms of the upcoming Aave Improvement Proposals (AIP). The voting period for meta-governance voters ended 24 hours before the underlying governance vote. ^[6]

In November 2020, Index Coop reported in a tweet that it was the 3rd largest voter on Aave AIP:

$INDEX holders have signaled for the $AAVE in the DeFi Pulse Index $DPI to vote YES in @AaveAave AIP2 and AIP3 Rocket. Index Coop executed the on-chain votes via the meta-governance module and is the 3rd largest voter! ^[7]

INDEX Token

INDEX is a governance token used to vote on changes to the Index Coop. INDEX holders may vote in smart contract upgrades to the Index Coop, vote in new Index Coop products, vote on the allocation of the Index Coop treasury, and more.  ^[8][9]

There is a total supply of 10 million $INDEX tokens. 70% is allocated to the community across an initial distribution, liquidity mining program, index methodologist program, and community treasury. 30% is allocated to Set Labs and DeFi Pulse teams. ^[10]

User can use their $INDEX to govern Index Coop, by voting for and against proposals on Snapshot. Or buy and hold $INDEX as a long-term investment, because each $INDEX token represents a share of Index Coop’s future revenues and success.^[27][28]

DeFi Pulse Index

The DeFi Pulse Index is a capitalization-weighted index that tracks the performance of decentralized financial assets across the market. The DeFi Pulse Index has a collection of criteria composed of four dimensions. Two dimensions are used to evaluate the token’s characteristics, one dimension is used to assess the project’s characteristics, and one is used to evaluate the protocol’s characteristics. The inclusion criteria are the basis to select what tokens will be included in the index. ^[11]

Token Inclusion Criteria

Token’s Descriptive Characteristics

• The token must be available on the Ethereum blockchain.
• The token must be associated with a DeFi (Decentralized Finance) protocol or decentralized application (DApp) listed on DeFi Pulse.
• The token must not be considered a security by the corresponding authorities across different jurisdictions.
• The token must be a bearer instrument. None of the following will be included in the index: wrapped tokens, tokenized derivatives, synthetic assets, tokens that are tied to physical assets, and tokens that represent claims on other tokens. ^[12]

Token’s Supply Characteristics

It must be possible to reasonably predict the token’s supply over the next five years. At least 5% of the five-year supply must be currently circulating. The token’s economics must not have locking, minting, or other patterns that would significantly disadvantage passive holders. ^[13]

Project’s Traction Characteristics

• The project must be widely considered to be building a useful protocol or product. Projects focused on competitive trading/holding, having Ponzi scheme characteristics, or projects that exist primarily for entertainment, will not be included.
• The project’s protocol must have significant usage.
• The protocol or product must have been launched at least 180 days before being able to qualify to be included in the index.
• The protocol or project must not be insolvent. ^[14]

Protocol’s User Safety Characteristics

• Security professionals must have reviewed the protocol to determine that security best practices have been followed to maintain user assets safe under different circumstances. Alternatively, the protocol must have been operating long enough to create a consensus about its safety in the decentralized finance community.
• In the event of a safety incident, the team must have responded promptly and addressed the incident responsibly in the aftermath, providing users of the protocol with a reliable solution and the decentralized finance community with adequate documentation to provide transparency about the incident.
• The selected tokens must have sufficient liquidity across a variety of trading platforms. ^[15]

Index Calculations

The Index value is the spot value of the index.

• The circulating Supply is the number of tokens circulating the last time the circulating supply was determined. The first circulating supply was determined on September 8, 2020, using CoinGecko as a reference source.
• Price is the market price of the token in USD.
• Index Divisor is a constant that is adjusted on each rebalances. As of September 31, 2020, the Divisor was 44679560.64. ^[16]

Index Maintenance

The index is maintained monthly in two phases:

Determination Phase

The determination phase takes place during the third week of the month. It is the phase when the changes needed for the next reconstitution are determined.

• Circulating Supply Determination: The DeFi Pulse Index currently references CoinGecko’s circulating supply number. The Circulating Supply is determined during the third week of the month and published before the monthly reconstitution.
• Additions and deletions: The tokens being added and deleted from the index calculation are determined during the third week of the month and published before monthly reconstitution. ^[17]

Reconstitution Phase

The index components are adjusted, added, and deleted as per the instructions published after the end of the determination phase. New index weights, additions, and deletions are incorporated into the index during the monthly reconstitution, which will take place on the first business day of the month. As assets tracked by the index grow, the reconstitution window will expand to more than one day to lower the reconstitution’s market impact. ^[18]

Liquidity Mining Program

9% of all INDEX tokens have been allocated to a liquidity mining program. This program will run for 60 days (starting on October 7th, 2020), and INDEX tokens released under this program are not subject to vesting. ^[19]

Index Methodology Bounty

7.5% of all INDEX tokens have been allocated to an 18-month program (beginning at the end of the DPI liquidity mining period) to attract and reward index methodologists with a share of emitted tokens based on the success of their indices. Rewards are distributed pro-rata monthly based on the total fees contributed to the cooperative by the methodologists’ indices (counted every Ethereum block). ^[20]

Community Treasury

52.5% of all INDEX tokens have been allocated to a community treasury. 5% of these tokens are available starting October 6, 2020, with the remaining tokens (47.5%) being vested linearly at every Ethereum block over 3 years in line with the following schedule:

• Year 1: 50% of the treasury tokens vested (2.375 million tokens)
• Year 2: 30% of the treasury tokens vested (1.425 million tokens)
• Year 3: 20% of the treasury tokens vested (950,000 tokens) ^[21]

Team Allocation

28% of the total INDEX supply will be allocated to Set Labs Inc. (the company that builds Set Protocol and TokenSets) and 2% will be allocated to DeFi Pulse. These tokens will be vested linearly every Ethereum block over 3 years on the same schedule as the community treasury. ^[22]

DeFi Pulse Index Rebalance

In November 2020, Index Coop executed it is first trustless rebalance for the DeFi Pulse Index (DPI). The rebalance was completed on November 3, 2020, at 07:45:26 AM UTC. The contracts that were used in this rebalance have been audited by ABDK Consulting. ^[23]

The rebalance process:

• DeFi Pulse published the new weights for the DPI off-chain
• The Index Coop community verified that the weights were accurate
• The community updated the Index Module execution parameters that were used to create the rebalance trades
• The Index Coop multisig then converted the weights to smart contract compatible units
• The compatible units were then submitted to the SingleIndexModule contract which started the rebalance
• The community executed the rebalance trades through the IndexModule ^[24]

The next rebalance for the DPI will be executed at the beginning of December. ^[25]