Discussion for DAO Vote 1: WSB Crypto 20 ETP

Background

Based on the WSBDapp poll results, there are 20 assets fairly chosen and representing a mix of tokens small and large - good work everyone!

Read the blog post to get familiar with the process of polling → governance → snapshot vote. This is the governance step. Your voice is needed for the final construction of the ETP basket.

The 20 assets as chosen by you are:

Detailed View

$BTC, $LINK, $AAVE, $MKR, $SNX, $COMP, $YFI, $ENJ, $UMA, $ZRX, $CRV, $BAL, $REN, $SRM, $NMR, $RARI, $SWAP, $IDEX, $RAZOR

The ETP methodology has been updated in the ETP Paper to give potential holders a good feel for how they will be constructed.

Considerations

  1. Weighting by market capitalization is the cleanest way to configure the initial weights of each asset in the basket. However, there also needs to be a maximum cap on any particular asset to avoid being skewed to just a few large-cap tokens. A common factor for the maximum cap is 20%, however, given the size of the basket 15% may be more appropriate as it allows for all 20 assets to have a reasonable share.

  2. Some assets have seen a drop in liquidity on Balancer last week. This may be a limiting factor in how much capital can be deployed into this ETP. As such it could make sense to remove the 4 most illiquid assets from the chosen 20. It’s also worth considering that these illiquid tokens may see increasing liquidity and volumes again soon, at which point a proposal could be made to add them during the next reweighting.

Expected Results

This governance proposal needs to get community feedback on the above considerations in order to have a clear For/Against snapshot poll. As such, please focus your responses primarily on whether to remove the 4 most illiquid assets, as these have the most potential to change within the ETP.

4 most illiquid: $RARI, $SWAP, $IDEX, $RAZOR

Thanks!

12 Likes

I’m agreeing that we use the market cap (with a 15% max) for weighting. As for the 4 most illiquid assets, I’m saying that we do not remove them, and here’s my opinion on why:

I’m not sure how much capital is expected for contributions towards this (especially considering how early this is, as the first ETP), but I have to wonder if the 4 most “illiquid” assets will really have much of an impact considering their allocation according to the Excel sheet listed above? Even for the most illiquid asset, RAZOR, the contribution would be capped at .035% which is incredibly small. For example, if we get $10M capital in the ETP, that would mean that ONLY $3500 of that is placed towards RAZOR.

I’ve just done a quick check on Balancer, and it looks like the price impact (at least for RAZOR), would be around 1.8%. Is this enough to cause concern? I’m open to someone changing my mind, but I personally don’t think so. Just brainstorming here, but maybe we could look at implementing some sort of maximum price impact that we’re willing to accept for assets in an ETP? My gut feeling is maybe a max of 4%?

I’m not super experienced in Crypto (learning more every day), but from what I’ve observed and based on my research, the illiquidity for these four isn’t likely enough to be an issue if we stick with using the market cap + 15% maximum for weighting. What’s more, I think these are the types of assets that have the potential to make a substantial gain due to their low market cap. The potential for 5x gain or more with some positive news would be worth keeping it in there, if it’s voted to be added to the ETP.

If there’s someone who’s more knowledgeable and experienced on this, I’d love to get their thoughts on the subject.

FloppyDrive

3 Likes

Completely agree with what you have said / proposed.

I am in favour of keeping the low caps in there for future performance potential. Especially Nifty. (To be clear, I am not a fan of the current vogue for NFT “art”, but I think the market still will be.)

1 Like

You might mean RARI, Nifty doesn’t have a token. Rarible is pretty sizeable though, and more user focused. Nifty is Airdrops.

Sorry - yes. I meant RARI. (Can you see how little I follow the NFT space?! :rofl: )

Also - I think RAZOR could do very well over the course of this year and definitely think it should stay in the ETP.

Top backers for RAZOR, too.

I agree with the sound points proposed by FloppyDrive and WSBWhales.

1 Like

I’m just here for the chips and soda. Entirely unfamiliar with most of these so I’ll probably just be reading lol

2 Likes

If those currently illiquid tokens can regain their volume and liquidity, I suggest we keep it

I would keep the 4 tokens

This is good, pls go ahead

Would there be time for – or any good reason for – a thumbs up/down on the 20 different coins? I know I try to stay on top of the BSC ecosystem and even I wasn’t sure what some of these coins were when voting, but had to vote for 20. So, I definitely voted for SOME coins that I don’t have any conviction about.

Maybe not even a straight majority vote for it to stay, but something like if a particular coin can’t get 25% or more “thumbs up” it is not included. The “thumbs up” ratios could also be used as a weighting tool as well maybe. If a coin gets only 25% (or 100%) that could go in the weighting calculation as increasing/decreasing its initial weight.

3 Likes

A lot of BSC tokens generate value via staking in some way. Will the ETP be able to stake those tokens in some way? I would think that putting them in a Liquidity Pool might be ill-advised based on weighting and the fact that IL causes everyone to turn into a lizard brain, but to the extent the tokens have a single-staking farm, that might be important to figure out long-term.

3 Likes

I’m in favor of keeping RARI, I believe Kraken exchange has recently listed it. But the other ones I feel could be let go in replace of some other low capped alts. I’m up to vote on another set.

I keep trying to figure out how the time on any of this would work, but sort of tied in with what you’ve said about dropping some in favor of promising low-cap alts, I do think that some kind of method for people to pitch projects they believe in as a replacement for some of these unknown projects would be good. Obviously, there is a fine line between shilling and lobbying for a coins’ inclusion in the ETP; however, people are going to be heavily invested in the projects in which they believe. So, for what it’s worth, I strongly believe that something should be taken out of this 20 and WaultSwap should be put in.

First, I found WaultSwap by researching WSB, as they were audited by the same firm that audited WSB. WaultSwap is relatively new (discussed below) but in addition to the RD audit, Wault has just a mountain of audits: Transparency - Wault

Second, Wault existed before, but transitioned into a Dex about a month ago. It’s still in the “barfing out tokens for early adopters” phase of the launch, but look at CAKE, BAKE, etc., and their early charts and while it doesn’t mean Wault will go the same way, it seems to be following their trajectory almost exactly. It blasted out of the gate, going like 1000x from 1c to 40c and then collapsed (just like CAKE, BAKE, etc.) but has somewhat stabilized. Wault has 2 tokens based on it’s plan to be more of an “ecosystem” but WEX is the Dex yield farming token I am focusing on until other aspects of the project evolve.

Third, WEX had a “series of unfortunate events” out of the gate, but has weathered these external factors pretty well. First, that rise and collapse happened – which was to be expected – but the tail end of that collapse ran into that 3-4 days where BSC was almost unusable (causing all the DEX on BSC to drop in volume and price), and that ran into the collapse of BTC which (like all other DEX on the BSC) caused a further drop in price. In any event, they are stabilizing and have a number of things going for them, search them up on the DEX section of Coingecko: Top DEX exchanges by Trading Volume - CoinGecko
Here, you will see that they are regularly in the top 10 for Volume, TVL, and Visits. You will also see that their most traded pair is usually WBNB/StableCoin as opposed to some exchanges generating volume flooding native tokens.

WEX has a Market Cap around $60 Million; TVL around $350-$400 Million; and volume seems to be around $150-$200 Million (post btc crash).
For comparison, look at projects that are smaller like BAKE or APESWAP. BAKE’s got a $550 Million MC; TVL around $300 Million; and about $75 Million Volume. Its numbers even look favorably compared to Pancakeswap ($3 Billion MC; $1.3 Billion Volume; $7.2 Billion TVL).

It’s a risky play, as all of these DEX are, but they are still in the inflationary period (and young), and are making great headway. They’ve already partnered with 1in to drive volume and have an ALPACA partnership that should go live by June 8 driving volume for the real degens. I don’t know enough about “BTS Labs” but supposedly this should lead to a big partnership with Chinese markets. They’ve also positioned themselves as a more “professional” look vs. the cute food stuff of other CAKE competitors. I don’t know if this is going to be an advantage or not, but might help.

So, basically, I do think DEX is the future and Wault has a chance to become a top 3 DEX on BSC. Even if it doesn’t, smaller DEX on the chain like Bakery show that the MC of Wault has a ton of room to grow.

I also think taking a chance on some promising small caps positions (even if it is a tiny position) sets the ETP up to be able to say stuff like “The WSB DAPP picked WEX for inclusion in the ETP when it was only 5c” or whatever. Basically a way to “sell” the DAPP as picking winners before they were winners (like every other “stock picking” website) – so even if it is not WEX, I think taking a chance on SOMEBODY’s small cap that they really believe in is a plus and necessary.

I am HEAVILY invested in this project, but I also really believe in it. I am not associated with the team or anything though.

Anyway, to the extent that this “pitch” should be in another thread, separate thread, etc., let me know. Otherwise I’m not sure how to get this out there.

2 Likes

I tried to make another thread, but not sure if I am just waiting for approval or if I accidentally deleted it, but the general idea from it is:

  1. Each of the 20 should get an up/down vote on inclusion and under a certain percent, should get booted (say 25%);
  2. The weighting for the ETP should be based on the strength of conviction in that up/down vote as a more democratic weighting process instead of market cap to really embody the WSB Dapp ideals; and
  3. If somebody does strongly believe in a coin that is not in the 20 list, they should be required to make an actual post describing their coin and why they think it should be included and pay X amount of WSB for it to be included.
4 Likes

Post your proposed idea in ETP discussion. From there users can reply and we will help formulate proposals into a vote. We will have additional ETPs and from there we can put in place ideas like this, and let the market decide which to choose. From a technical perspective we are rolling out DAO Voting to the best of our ability, so having more vote flexibility will make this type of proposal possible.

The 20 was originally selected based on a survey and the % our users picked.

I like the picking winners and using that as a selling point. Could have a high risk / high growth crpyto ETP?

I think the current crypto ETP is more of a balanced one, across the risk spectrum, which seems like a fair place to start, IMO.

1 Like

Now that the asset universe has been fairly chosen through the poll results, I feel like there also should be a voting mechanism for the eligibility criteria.

I recommend something along the lines of:

  • Coverage: Have active tradable markets and been trading for XXX periods of days.
  • Liquidity: Have an average daily trading volume that exceeds $XXX USD
  • Tokenomics: Access to supply and free-float data.
  • Token Holder Count: >500 Addresses
  • Particular Exclusions: Stablecoins etc.

This still gives $WSB holders the ability to request a crypto asset that they believe should be in the ETP but has to follow the recommended eligible criteria (which would be voted by the $WSB Holders). The reason for this is so the ETP methodology sets out guidelines to protect itself from any issues such as illiquid assets which can cause higher slippage fees, or having to intervene manually and rebalance the ETP before its target rebalancing date etc.

This also could resolve having to propose to remove any assets from the ETP for the above reason before they enter the ETP.

Weighting Mechanism

The initial proposal above seems to be presenting a Market Cap (MCAP) weighting that is capped at 15% with the excess distributed proportionally. Let’s call this normal cap. A few other ways that the ETP could be weighted is still using a 15% cap but the excess is distributed equally (capped equally) or by using a squared cap . This would be squaring the MCAP before turning into a weight, and the squared capped is applying a cap to the squared MCAP weight. See below chart and table comparing the weight distribution.

By comparing the weight distribution between the normal cap, capped equally and squared cap, the best weight distribution is squared cap (on paper).

Another option in the weighting is to create a weight floor by 1%. Any constituent asset with less than 1% weighting will be excluded and its weight distributed to the other constituents proportionally.

The two main issues when deciding on weight distribution is Asset Turnover and Concentration.

Asset Turnover

For example a higher asset turnover will require more trading of constituent assets at rebalancing to reflect the new weights of the ETP. This will result in higher tracking costs (trading fees, slippage).

Concentration

In the traditional markets MCAP indices are often criticised for their high concentration of the largest constituents. To variable degrees, an equal weighting and a weighting cap address this concentration deficiency.

To see the tradeoff between asset turnover and ETP concentration you could use the Herfindahl Hirschman Index (HHI), this is calculated by squaring the weights of each constituent and then summing up the resulting numbers. The higher the HHI, the greater the concentration. However, I don’t currently have a chart of this yet.

In short though, Normal Cap weighting generally has lower turnover since by design it is self-rebalancing. However, Capped Equally weight may result in a higher turnover because assets that performed well throughout the quarter will have a high dollar value proportion of AUM before rebalancing, and will need to be sold to achieve equal weighting (vice verse for assets that underperformed). Squared Cap could be the middle ground but it also has its own complications but may have similar tracking costs to Normal cap.

What do others think about these results?

Peace

HardDrive

5 Likes

Here is the table of those capped results.

Screen Shot 2021-05-27 at 17.06.49

Peace
HardDrive

5 Likes