Hey, my name is Marc. I am from Index. Excited to be here! Thank you for the thoughtful feedback.
As you may know Index is behind the DPI component of BED and helps facilitate the Bankless Vision on BED.
Some great points have already been made on the diversification benefits of BED and the marketing potential of the partnership with Bankless. Also, this would further the relationship with Index.
Index and Uniswap already have a great relationship as UNI is the largest holding in DPI and Uniswap V3 is our primary liquidity provider for our strategies. In TVL of Uniswap pools, ETH2x-FLI is 16th and DPI is 37th.
Index is one of the largest and most active communities in the ecosystem. We are excited at the potential prospect of strengthening our ties through BED as well as leveraging our expertise in other treasury areas.
I’ll try to address a couple of your excellent points as best I can. It looks like the main three are: Correlation, implementation (selling/buying), and benefit to the community.
Correlation/Diversification:
You make a great point that “Diversification…(is) a gargantuous task.”
It’s something that as we speak to more and more treasuries, we are learning just how big a task it is. These conversations will be the foundations of building stronger protocols and a healthy environment for all.
Obviously – UNI is highly Correlated to ETH, WBTC and DPI. But that’s a good thing.
We believe, as I think you do, that Web3 is just now hitting its stride. The aim is not to diversify those returns away with true “non-correlating assets.” The goal is to provide the Uniswap treasury with broader diversification, non-native holdings that can be used as needed, and participation in other protocols.
Broader diversification comes from two areas.
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Exposure to WBTC – Uniswap is heavily dependent on revenue generated from the Ethereum ecosystem. Exposure to an alternative protocol could limit volatility if there was an Ethereum specific negative event.
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Exposure to ETH and DPI – Like many treasuries Uniswap is largely composed of native tokens. Replacing a small portion of UNI with ETH and DPI could be a benefit in the event of a Uniswap specific downturn. However, if that unlikely event never occurs, the correlation to UNI pays off because you continue to have a growth asset that performs like UNI.
It was mentioned in one of your responses about purchasing (addressed later) that if the treasury had to:
“SELL 1M worth of UNI tokens. This means that the token itself will lose value - the entire treasury will lose value as a direct result of the action. Despite the treasury being large, the liquidity is not equal. 1-5M purchases can have more price impact than you think.”
This highlights a need for all treasuries. What would be sold if funds were needed quickly? If Uniswap had an issue and needed to sell treasury funds, its likely UNI is already down. A further large sale from the treasury could potentially have a large and likely negative impact.
Think of BED as your UNI proxy token that can be the first thing sold when needed. And feel free to sell when needed! It won’t hurt our feelings, or the price. BED is new and as such currently has limited liquidity, however, like DPI, it can be broken down to its base components which have deep liquidity and can be sold with minimal slippage.
Lastly, it was brought up if Uniswap would be better off “Run its own VC team using the funds from the treasury and participate in seed rounds of other upcoming protocols”
The DPI component allows you to participate in 17 protocols. Some “established” (in crypto time) and some more up and coming, all curated by the DeFi authority Defi Pulse.
Implementation:
The concern about price impact to UNI to sell and buy BED is a common one – even if the benefits make sense, how do you limit token price impact? This is also a benefit of partnering with Index. We have accomplished several large buys and have the experience and connections to assist in this process. If we get this process further down the line. We will make sure to have an implementation process that will cause minimal impact.
In the past we have done Bonded Curves (requires Chainlink), used our market-making partners, direct swaps, paired with outside investors, or have done smaller systematic buys.
What I hope the outcome of this dialog is to determine if diversification is wise, and if so, how much would be meaningful to your community?
From there, we will work together to find the best way to implement. We would only go ahead once we have a solution to your wanted amount that would have minimal impact on UNI.
Lets continue to conversation, please let us know how we can help!