Discussion: Convex Index Weight Voting

,
1

Note: this is a DISCUSSION thread meant to gather feedback on the concept and finer points of the Cortex Improvement Proposal template below. The weight vote structure provided in this thread may be subject to another CIP in the case of major protocol updates. This is not a proposal, nor a proposal draft. Please provide any feedback you have in the comments below.

Simple Summary

The goal of this proposal is to decentralize the Convex Index by allowing the DAO to regularly vote on the portion of the index allocated to each liquidity pool.

Abstract

If passed, this proposal would enable voting to determine the Convex Index gauge weights.

A Snapshot vote will be created containing all of the pools currently in the Index as voting options. The percentage of votes in favor of each liquidity pool in the Index would directly influence the percentage of the Index allocated to each pool. I.E. If 5% of the total vlCXD used to vote on this proposal vote in favor of Pool A, 5% of the protocol TVL will be allocated to Pool A.

There will be a maximum allocation cap, where only up to a certain percentage of the Index can be allocated to each pool to maintain adequate diversification.

In exchange for managing the index, DAO members (vlCXD holders) are rewarded with fee distribution (already enabled). DAO members are incentivized to optimize the index performance as a better-performing Index would reward larger fee distributions.

Note: CortexDADO multi-sig approval is still required to establish outcomes of all CXD Snapshot votes for both governance and index weight votes. In almost all cases, we will vote in-line with vlCXD holders. However, Cortex, Convex and Curve benefit each other, and proposals considered to be blatant attacks damaging either protocol will not be signed for.

Motivation

Currently, the index weights are allocated into each pool in accordance with a risk-screening process factoring TVL, pool volume, slippage, stablecoin volatility, and risk-parity.

By hosting regular snapshot votes on the Index weights, the DAO will have more decentralized control over the Index and its performance.

Specification

Overview

  • Voting would be done via Snapshot.
  • Gauge weight votes would be bi-weekly (DAO to discuss).
    • Emergency gauge weight votes may be proposed in the case of black-swan events
  • Gauge weight votes would not have a quorum.
  • Individual vlCXD holders may spread their voting power among as many pools as they wish.
  • Each pool can have a maximum of 20% of the total Index allocated to it.
    • Excess votes after the cap would be distributed to other pools in proportion to their vote weight.
  • Each gauge must receive at least 0.10% of the votes before weight is assigned.

Rationale

  • Voting would occur after bi-weekly Convex gauge weight votes to ensure voting occurs on the most recent gauge weights.
  • Gauge weight votes would not have a quorum to ensure gauge weights are reallocated regularly.
  • Each pool can have a maximum cap of the total Index allocated to it to ensure there is adequate pool diversification of the index.
    • The cap at 20% would ensure there are at least 5 pools in the index at any given moment.
    • The cap would need to be lowered to ensure broader diversity across more pools.
  • The minimum voting weight for each pool may need to be increased to ensure returns can sufficiently cover operational costs such as gas fees.
2 Likes
2

Hello @anthony , sounds good but does anyone else know about this discussion thread to add their comments? Thx

3

Hello everyone… Personally I think that the idea is good in terms of mitigating risks and optimizing balancing benefits and costs, but I don’t think the process should depend on voting and human intervention, I think the algorithm should be as automated and seamless as possible. At the same time, it would be ideal for it to automatically consider the issues covered in the points mentioned by @anthony, so it would choose to see a systematic solution to these points instead of a democratic one decided by people, which can have bad biases and therefore worst results.
Kind regards to all.

1 Like
4

Hey Arturo, welcome back! Using an algorithmic approach sounds appealing but may not be feasible with added complexity (new pools added and new indices down the line) without extra development. Would prefer to create a sustainable approach that further decentralizes the protocol and creates a sustainable long-term approach to scale with. Also gives opportunities for bribery in the future, if we do decide to go that route. Note: the structure proposed is a very similar process that Curve uses for their Gauge Weights votes: Gauge Weights - Curve Finance

As we are building the indices within the Curve ecosystem, there are benefits to keeping it with a structure they are familiar with. I think we should focus our efforts on ideating and discussing the finer details, like the parameters proposed for the votes (I.E. what should the max weight of each pool in an index be?)

1 Like
5

Thank you very much @anthony for your answer and I understand your point of view very well. As for answering you about the % weighting, I think it should be given by an optimizing equation (which at the moment I don’t know the variables, which can be risk/return for example) and that would answer for predetermined variables the maximum weight of each group in the index. If we decide without quantifiable support and relationship with variables that affect the decision, it has a bias. Of course, I could say that a maximum of 15%, but where I am obtaining that value is the important thing to question. I insist, I am not a technical expert on this subject, but at a global level I managed to detect something that could cause us problems in the future if the decisions do not lack quantifiable analytical support for the decisions.
If that’s covered in the way it’s done with Curve, that’s fine then.

6

Hello all, I’m definitely no technical expert and need some help on the mechanics of the votes used. When it’s said “Gauge weight votes would not have a quorum” what does this mean? I interpret it to be that the votes themselves would be used as is, even when there could be as little as 1 vote. Is this correct? I’m most worried about the potential lack of participation from the community in voting and that a whale or two come in and decide everything.