Letter to GMI Holders - March 2022 Rebalance
Dear GMI Holder,
gm.
This letter is intended to give you as a holder some insight into GMI and myself as a methodologist. GMI is a community product, and this (admittedly lengthy) document seeks to create a dialogue between the community and the methodologists. Maybe you’ll get a POAP if you read to the end. Just kidding. But you should still do it.
Constituent Protocol Highlights
I won’t beat around the bush or ignore what’s obvious—GMI launched at a local DeFi top. In hindsight, it may have been the ultimate top signal. Despite this, the fundamentals of the protocols in our index have never been stronger.
Roll your eyes at that statement if you’d like, but the projects in GMI are absolutely crushing it. Recent price action has been dictated by the chaos embroiling both the metaverse and meatspace, and it has ignored the developers and communities that are continuing to build, innovate, ship, and execute.
I’ll quickly highlight some accomplishments from each of the GMI constituents:
Perpetual Protocol (PERP) is the most used dapp on Optimism
Maple Finance (MPL) TVL is at an all time high
Olympus DAO’s (gOHM) Olympus Pro solution has helped DAOs own $66.3 million of their own liquidity
Tribe DAO (TRIBE) is shipping Turbo, ERC-4626 Tribe Launch, and more
Tokemak (TOKE) is shipping liquidity direction
Dopex (DPX) is shipping rDPX V2, interest rate options, and more
Ribbon Finance (RBN) launched on Avalanche and Solana
Convex Finance (CVX) has accumulated over $150 million in FXS through cvxFXS
Reflexer Finance (FLX) is marching towards un-governance
Alchemix Finance (ALCX) is shipping Alchemix V2
dYdX (DYDX) has generated the most revenue out of any DeFi protocol over the past 6 months
[New GMI addition] is the sixth-largest stablecoin in the world
This list could be ten times longer - Which is why I’m even more bullish on these protocols now than I was at the height of the bull market.
Changes to GMI Composition
GMI has completed it’s first ever rebalance!
**I will outline my personal investment process and criteria in a separate, hopefully not as long, but probably similarly-sized post.**
Here are updated post-rebalance weights for GMI (These have changed since the time of writing this letter):
As you can see, there are two major changes to the GMI composition this rebalance period.
The first is the addition of the newest member of GMI…
…Frax Finance and its native governance token, FXS!
They say all roads lead to Frax, and that has proven to be the case with regards to GMI. Frax is an amazing protocol, stewarded by an outstanding team and supported by a strong community of Framixalists. They are an emerging juggernaut, with FRAX, as hinted at above, boasting the sixth-largest market capitalization of any stablecoin at more than $2.9 billion. Furthermore, the design of the FXS token is outstanding. That’s because FXS’s seignorage use case and vote-locking mechanism, which is used to direct gauge emissions to any FRAX pair on any DEX, drive demand for the token while simultaneously sinking supply. Frax could be a trillion dollar protocol in the coming decades - I am incredibly excited that they are now a part of GMI.
The second major change is the removal of SPELL. This was an incredibly difficult decision to make. The best role for GMI is that of a long-term oriented investor and stakeholder. When I suggest adding a token to the index, I do so with the expectation that we will hold it for the entirety of our 18 month asset term limit. However, in light of the recent events surrounding the entire Frog Nation ecosystem, I and the rest of the methodologist team do not feel that SPELL is a fit for the index, from both a reputational and risk-adjusted return perspective.
My *Still Developing* Vision for GMI
Given that this is my first letter, I want to zoom out and outline the potential I see for GMI. It should be noted that these ideas are constantly changing in my head. I also want to emphasize that these are my individual thoughts, and do not represent the views of Index Coop or Bankless DAO as a whole. There are dozens of contributors across both DAOs, some of whom likely think what I’ve written below is nonsense, and have a completely different view and vision for GMI—And that’s okay; GMI is a beast that cannot be tamed by one person.
I should also stress that as of today, this is largely pie in the sky - GMI is a long way from meeting these goals. I don’t even know if the things I am writing about are possible. But an ape can dream, and if we don’t shoot for the moon then what’s the point of all this.
Okay, disclaimers have been disclaimed, so let's get into it.
The Goated DeFi Index
GMI is the best way to get broad exposure to the new, exciting, fast-growing, and innovative protocols across Ethereum and L2 DeFi (Yes, this fund is exclusively focused on Ethereum. There are a lot of cool projects on other chains, but they go beyond the scope of this index).
Investing in individual DeFi tokens is really hard. Protocols are increasingly complex, it’s incredibly difficult to time sub-sector rotations, and the competitive landscape changes at a head-spinning pace. I know that many scoff at the idea of holding an index or ETF, let alone a crypto one, but the truth is that GMI is literally here to make your life easier. When you buy GMI, you get simple, set-it-and-forget-it exposure to cutting edge protocols all across DeFi sub-sectors without having to pick winners. The methodologists, like myself, do the work for you, while you as a holder get to sit-back and play Elden Ring. To shoehorn in a DeFi reference, buying GMI is a way to increase your time-efficiency.
I like things that make my life easier and more efficient, so this sounds like a pretty good deal to me.
The current GMI composition is superior to that of every other DeFi index. Although we are not considered the “blue-chip” index, every protocol we hold is currently, or in the process of positioning itself to be, a category winner. Each of our bags is a dominant juggernaut with the potential, over the long-run, to earn its place among the largest entities in the world. The biggest DeFi DAOs will be worth multiples of FAAMG today, and some of these winners are sitting in GMI. In this humble farmer and ape’s opinion, GMI is the true blue-chip index—There is no second best!
The World’s Most Productive Asset
Along with creating a Saylor-caliber DeFi index, another goal of mine is to make GMI the world's highest yielding, productive, and capital efficient asset. I don’t just want GMI to be a passive, buy-and-hold index, but one that harnesses and aggregates the superpowers DeFi enables. GMI will generate yield at a rate that would make TradFi bros furious and narrow-minded finance professors blush.
Productivity comes on two fronts - Intrinsic, i.e. the underlying holdings within each unit of GMI are earning yield, and extrinsic, i.e. being able to earn yield on the GMI token itself.
More simply, as @LemonadeAlpha puts it, “yield on yield.” My goal with GMI is to maximize both forms of productivity.
For intrinsic productivity, this means either staking our underlying assets or holding yield bearing ERC-20’s. This is not so simple to implement - there are considerable challenges on both engineering and liquidity fronts, but I look forward to tackling them over the coming months.
To boost extrinsic productivity, we will integrate GMI into as many different dapps as possible. Index funds are stores of value in the TradFi world: with holders being able to plug their tokens into any protocol and utilize them as easily as they can ETH, wBTC, or stablecoins, why can’t a DeFi index be the same?
What I’m most excited about on this front are the possible integrations with our constituent protocols. I would love to see a Dopex SSOV, Ribbon Vault, Tokemak Reactor, perps on dYdX and Perpetual Protocol, and maybe someday, a world in which GMI serves as collateral for reserve assets like FEI, alUSD, FRAX, and OHM.
The combination of intrinsic and extrinsic productivity leads to some really cool possibilities and huge gains in capital efficiency. For instance, we can put ‘tAssets inside of tAssets’ by both holding Tokemak tAssets inside GMI, while also having a reactor for GMI itself (tGMI).
Although this obviously introduces several new dimensions of risk, it is a mouth-watering thought for a nerd and degen like myself.
Metagovernance & Adding Value as Tokenholder
One of the most powerful abilities emerging in DeFi is that of metagovernance rights. In the case of Index Coop products, the governance rights of the underlying assets held within a given index are transferred to INDEX holders, meaning INDEX is a metagovernance token for all tokens in all the DAO’s products . Although this is not yet enabled for all indices, including GMI, and there are significant engineering challenges ahead, I see tremendous potential for GMI’s metagovernance.
Within GMI we hold a lot of assets that can be used to vote on future emissions, i.e. direct liquidity, such as CVX, TOKE, and FXS. Other tokens like RBN are pivoting to a similar model. We can utilize the governance rights of these assets in a way that both benefits GMI holders, Index Coop, and Bankless DAO, as well as our constituent protocols. For instance, we could make GMI more liquid by using these assets to vote for GMI based gauges. An example would be a “GMI/D4” Curve pool, which would include GMI, FEI, FRAX, RAI, and alUSD. This would not only increase the liquidity of GMI, enabling far larger trade sizes and more integrations, but also increase the liquidity and utility of the stablecoins of our underlying protocols.
This is just one example of a way in which GMI can be a value-add tokenholder.
I’ve been spending a lot of time recently thinking about this idea: I think one way in which DeFi can become superior to TradFi is through changing the role of the tokenholder/shareholder. Rather than aiming to maximize and extract as much value for themselves as quickly as possible, as is the status quo in TradFi, I think tokenholders should work to help improve, build, and add value to the protocols they are invested in. This is moving from shareholder to stakeholder.
Besides metagovernance and liquidity direction, I think there are a few ways in which GMI is doing this, and can continue to do so. For instance, our ‘GMI DeFridays’ Twitter spaces (Fridays at 11:00 am PST) have been a huge hit, helping to educate the community about the protocols we hold. There is endless alpha in these spaces, so I would highly recommend you come to the next one.
I also think there is a massive opportunity for GMI to add value by building on top of our protocols. This not only can create potential future streams of revenue for GMI holders, Index Coop, and Bankless DAO, but also drive usage and business to the protocols we hold. We can literally help our index constituents make more money. Along these lines, we are working on creating a Rari Fuse Pool! I hope it will be the first of many pools (I have an endless amount of ideas for them) and collaborations between our DAOs.
Aligning Incentives & Encouraging Collaboration
One last thing I’ll touch on as it relates to GMI is its potential to align incentives and encourage collaboration across DeFi.
Part of what makes DeFi and crypto—yes, I prefer the term crypto to Web3—great is its collaborative nature. Rather than work in pure pvp isolation like TradFi, Web2, and the meatspace business world as a whole, partnerships are a huge part of DeFi. Sure, there is still competition and pvp dynamics to an extent, and that’s a good thing! But I think this space is currently infinite sum, and GMI can play a role in helping encourage collaboration between the protocols in our index. A “GMI Mafia” (in a good way) or “GMI Alliance” has a nice ring to it.
In the end, I don’t just want this to be an “innovation index” but an innovative one. GMI can set a new standard for how index products are constructed, change the role of a token holder, and align incentives all while pushing both the space forward and the boundaries of what’s possible.
In more ways than one, GMI can become a prime example of why DeFi is superior to, and will beat, TradFi.
What’s on the GMI Roadmap
I’ll end by teasing a few exciting things coming up on the GMI roadmap.
GMI Liquidity Mining Program - We are planning on implementing one in the very near future to increase GMI liquidity and facilitate larger trade sizes.
Expanded GMI Discord - We will be building out the GMI community by creating a much larger venue within the Index Coop Discord for GMI holders, as well as the community members of our constituent protocols, to hang out, talk DeFi, and cope together!
Fuse Pool - I was not kidding when I said I wanted GMI to be the largest collective operator of Fuse pools. Keep your eyes peeled and Twitter open. More details coming soon.
If you’ve made it this far, congratulations. You don’t get any prize or NFT of any kind, but hopefully as a holder, constituent community member, or regular old ape, you are armed with some more knowledge about GMI.
In all seriousness, I want to acknowledge that things look incredibly bleak right now both in the markets and the broader world. It’s hard to be optimistic about anything. It feels like things are falling apart.
Call me cringe, roast me on Twitter, roll your eyes… but DeFi still gives me hope.
Even with decimated token prices, rugs, scams, toxic tribalism, and misleading marketing, I feel more strongly than ever that DeFi still represents the best and possibly only chance we have to build a better foundation for society. It’s so incredibly far from perfect today, but I believe we still have a shot at creating a financial system for the world that is more accessible, equitable, transparent, efficient, and fair. Despite the widespread cynicism in this space, and towards DeFi in particular, this is not a dream we can afford to give up on.
Maybe DeFi fails. Maybe it will collapse in spectacular fashion, taking the world’s economy down with it.
But maybe, just maybe, it will help to ensure that humanity is GMI.
Sincerely,
Ben
Acknowledgements
I want to take some time at the end of this letter to thank everyone at Index Coop and Bankless DAO who have helped contribute to the launch and growth of GMI. GMI would be nothing without the tireless and persistent work of the members of these two amazing communities. Considering the tremendous stress and enormous responsibility that comes with managing other people's money, I am extremely grateful to both communities for welcoming me with open arms while providing support, mentorship, and the opportunity to learn.
On a more personal note, I want to thank @LemonadeAlpha and @0xLucas for giving me the opportunity to join them on the methodologist team. Working on GMI and building in DeFi has been an incredible experience, and I will always be grateful to them for bringing me into the fold. Of course, given my relentless, incessant 24/7 pestering of them about GMI related matters, this is a decision they now probably regret. I would also like to thank @funkmasterflx1, @theyoungcrews, Bo (I’m sorry I don’t know your twitter handle), and the rest of the GMI & BED growth team for putting up with this as well, along with their incredible work.
Finally, I want to thank all the GMI holders that have stuck with us through the tremendous volatility over the past few months. Although GMI has fallen 51% since our launch (queue the Degen Spartan victory lap), per Nansen our unique address account is at an all-time-high of 300! This gives me confidence that despite market conditions, the GMI community is steadily growing :)