Bankless - AMA - Felix Feng, CEO of Set Protocol ($INDEX Cooperative, DeFi Pulse partnership)

Episode Date: October 9, 2020

📣 Join us at Invest Ethereum Conference Oct 14th - http://bankless.cc/investeth $25 off w/ “BANKLESS” code ----- 🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- GO BANKLESS WITH THESE SPONSOR TOOLS: 🌐 UNSTOPPABLE DOMAINS - HUMAN READABLE ETHEREUM & CRYPTO ADDRESSES https://bankless.cc/unstoppable 🌈 ZAPPER - ULTIMATE HUB FOR DEFI - ZAP INTO DEFI http://bankless.cc/zapper 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 🤖YEARN - YIELD-SEEKING MONEY ROBOT THAT FARMS DEFI FOR YOU http://bankless.cc/yearn ------ AMA with Felix Feng Set Protocol has rolled out a TON of new products lately! We bring CEO Felix Feng on the Bankless YouTube to get our questions directly to the source. Some recent Announcements that we'll be talking about: https://medium.com/indexcoop/introducing-the-index-cooperative-a4eaaf0bcfe2 https://medium.com/set-protocol/introducing-the-defi-pulse-index-on-tokensets-79f87c6b295b   ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState Follow DeFi Dad on Twitter https://twitter.com/DeFi_Dad ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

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and see if there's anything that you missed. Bankless Nation, welcome to this special AMA with Felix Vang, the CEO and founder of Set Protocol. We have never actually had someone from set on bankless. So we're really excited about this today, Felix. Thanks for spending the time. How are you doing, sir. Oh, thanks for having me. I'm actually surprised you never had, well, was Anthony ever on this? Well, Anthony's been on, but you know, Anthony talks about a lot of different things. So he's talked set a little bit, but, but yeah, like, you know, not an officially dedicated set episode. So this is going to be exciting for the community, I think. Okay, perfect. Yeah, I believe so as well. And yeah, I think it's going to be a lot of fun. And I'm doing great and ready to

ready to answer questions, maybe add some humor to it if I can. And it'll be fun. Well, this is fantastic timing because Set has rolled out a ton of brand new products in the last few weeks. And I think starting with the partnership with DFIPulse and the index token, the DPI index token, I feel like that's where we should start. Can you kind of explain some of the background with that? And David, do you mind if before we get into that, do you mind if we just tell everyone who's watching on YouTube that of course you can send your questions this is an ask me anything for felix and set

so you can add your questions to youtube we will pick them up and we will ask them of felix also if you are a bankless member you can ask those questions in the bankless discord to get a little bit of prioritization and we will ask felix those questions yeah sorry sorry for interrupting david you want to start with that again yeah yeah yeah so felix you guys have produced the first index in defy So kind of tell us about what your thought process before that was an actual like real project, your thought process around like indexes. Did you guys know that when did you guys know that you guys were going to turn to making indexes? Good question.

Set, I mean, most people might not know, but set has actually been all about indexes since the very beginning. When set was created, we conceived the idea of a basket of tokens, a token that represented many tokens, essentially an ETF. And we were building these products in 2018, but the bear market hit. And nobody wants to trade the long tail of coins anymore, and everything consolidated back into Bitcoin, ether, and stable coins. And as a result, the company's strategy and the products that we created shifted to reflect what the market wanted, which was more trend trading strategy or very simple rebalancing products that helped protect a downside. And since we are now seeing a defy resurgence and resurgence of activity in Ethereum,

we realize that the index products are now appealing again. So that's when we're also doing a re-architecture of our entire protocol. So we built an entire new version of our protocol. It's called B2. We haven't talked about it at all. But it supports so much new stuff, including indices, including yield farming products, including a lot of other things that you can imagine, such as trend trading strategies and all the stuff we can do before with Tommore Power. And we had to pick a beachhead first. There were so many things that we can build, but we have to pick one place to start. And when we saw that there were so many defy tokens out there,

that it was really difficult for people to even pick which ones to buy. And there were so many retail users that wanted general exposure but couldn't do so. like we we saw that the index opportunity for defy tokens to be a huge opportunity. And a few months back, we were chatting with DefyPulse, and they had a really great idea for doing the specifically a defy index branded under the DefyPulse kind of methodology. And that was when we realized, hey, we can do something together. We can take the two best brands, one in asset management,

and one in tracking Defi and providing data. data around DFI and we can build a really, really amazing and great product. And that's really what D5Pulse Index was. And that was launched about three, three weeks ago. And it's been getting a ton of attraction since. The first day that we launched, it got to a million dollars in AUM. And since then, we recently launched the Index Co-op cooperative, which is essentially kind of a community around managing and creating indices.

and we launch a yield farming component to, and that helped boost that to about $6.5 million right now, and there's almost $10 million of liquidity on Uniswap. So this is one of the most, in the traditional ETFs and indexes are some of the most widely liquid and traded products, and we're starting to see some of that emerge in Defi, too. So that's a little bit of that story. That's cool, Felix. So before we get into some of the community questions, I just want to see. to, like for some listeners, they are, if they've been reading bank lists, they've definitely been

exposed to set. But for someone's, someone that's new, I think this defy index kind of illustrates the sorts of things that set can do. Like, um, I think of set as kind of a defy native, a crypto native ETF of sorts. Um, maybe Felix, you can like, check me on that. Is that kind of what it is? And then what are the differences, maybe even for folks that aren't familiar with an ETF, maybe you could explain that and talk about how the similarities or differences with set. And then we can get into the defy index itself and what's comprised inside of that index. Yeah, it makes sense. So I think of the highest level set is an asset management protocol. So it enables people to own essentially a set token, which is an ERC20 token that represents some sort of portfolio in which it can implement some sort of asset management strategy.

Indexing is one type of strategy that can be implemented on set. Another type of strategy that we launched recently was a fuel yield farming products, which will automatically harvest uni and crops. we can implement some sort of automated trading strategies. In the future, you can do leverage trading as well. And users can simply buy one of these tokens, whether on Uniswap or minting it on a primary market themselves, and own it and automatically and automate some sort of strategy without needing to do any work on their end. So that's kind of what set is about. and the relationship between kind of the one of these, like a product and set is that the product itself,

the set token can be generated and run by a third party. So historically, we've created some products called Robosets, which are totally managed via smart contracts and Oracle inputs. Then earlier this year, we launched something called social trading, which is enabling third party traders to essentially run strategies on set. And then I think the final iteration, which we recently launched, was essentially enabling the community to aggregate the wisdom of the crowds, if you will, to manage a collection of products. And the first one that was launched was an index co-op, which is focused around index-related products. And to give you a little bit of context, no, ETFs are exchange-created products in a traditional, like, financial world.

they're one of the most widely adopted products in the whole world. And you probably own some without even knowing it. Most people who have a 401k or retirement count are automatically allocated into some sort of index fund or ETF. So you might be already investing in these and not know it. And this is a massive industry. 23% of equity assets are tied into ETFs. And they're some of the most liquid and widely traded products in the world. And the biggest companies around this are names you've probably heard of before, like BlackRock or Vanguard.

These are, you're managing upwards of $10 trillion of assets. And the ETF industry has been booming in the past 20 years or so. So we think it's a pretty big deal to this ETF stuff. And that does a ginormous market in the traditional financial world. And that hasn't fully translated into crypto yet. And that's kind of what index co-op is about is building the community around evangelizing, growing, and creating the best crypto index products in the world.

Very cool. All right. Okay. So now we have the baseline of what a set token is. It's kind of like an ETF, only it is basically crypto-native, and it's a collection of some assets. sometimes those are managed a bit more actively by an individual in the community. And sometimes those are just kind of indexed related.

Sometimes those are algorithmically traded. So there can be all sorts of different strategies for each of these sets, right? So can he tell us going back to like V2? So actually I think set was maybe our fourth tactic that we ever published on bankless. And I recall it was something called like, you know, use a money robot to manage your money because basically you're probably going to screw it up yourself. It's sort of the ETF, the vanguard argument, right? Like you should be buying index funds because, you know, your own investor psychology will kind

of short circuit your investment process, right? So that was like the fourth tactic we ever put out on bankless. And even then, that was about a year ago, set was humming. You guys were fairly mature. you had some products, but you've added so much since then. Can you tell us what's like everything and we'll go through all of kind of the elements that are in this new V2, Felix? Absolutely.

Man, it has been a long time since the initial tactics. Yeah, I mean, when we, I think a year ago, one of the really awesome things that we launched was the trend trading strategies. Yes, I remember. That was essentially a strategy that used a technical indicator such as a 20-day moving average, the 26 exponential moving average, or the RSI, to automatically make trades based on momentum. And these things were back-tested to be, to work extremely well in the long run. So if you're holding for kind of the three-year time frame, this would be

something that would help you accumulate ether or crypto over time. And it would, and essentially, it would, like you said, automate kind of this process, which would normally take a ton of time, take a ton of technical know-how and a ton of stress, if you will, because it doesn't let you sleep in that because you're paying attention to all the charts and the numbers every day. And most people screw it up anyway, don't they? Screw it up anyways. So this allows you to just buy a prop to essentially like own a set, and then essentially can set it and forget it. So you can own one of these products, you can put it away, and they'll just automatically implement the strategy for you.

And it's done extremely well in the bear market. Some of the RSI sets have helped people double their ether at some points. And it's a very viable long-term strategy as long as the crypto markets are pretty, I guess, nonsensical, if you will, or like they're still immature. So there aren't people who are front-running these trades, sophisticated actors who are doing these things. So that's where these strategies still are very viable.

So that's where we began. And we got a lot of momentum through launching these strategies. And we launched a whole family of these trend-train strategies. And with social trading, we really opened up the strategy creation side things to a whole bunch of more people. And the architecture and the technology behind set ended up being very geared towards these strategies. And when we started seeing a bull market happen and people wanted to trade other assets, people wanted to use margin, people wanted to. to do X, Y, and Z, we realized that the V1 of our protocol wasn't extensible to be able to handle all that.

So we started to re-architect our protocols so that it can do anything. It can incorporate any type of integration. It can handle any type of strategy that we can imagine at the time. So we created a new protocol, it's called Set Protocol V2, which is super extensible. It's very modular.

It can add any type of functionality. And as a result, like you can handle a lot of this new kind of integrations that we're seeing. And we just have to decide what we want to start with. So it was the ETFs that we started with with the DIPIPOLS index. Then a week later, it shows how rapidly we can move. We launch a few yield farming products. We launched, like, essentially a few days after Uniswap announced their token,

or their UniT token and their yield farming associated with it. A few days later, we launched a yield farming product. So at this point, we're ready to, this protocol is ready to launch a whole bunch of different strategies. And right now, the focus is really on indices. As we think that there's a big market for that and there's a big appetite for users to get exposure to these products. YERN is DFI's first self-building project on Ethereum, focused on producing products for those who are interested in earning yield in DFI. Y-Earn's various products are all built to suit each individual investor's preferred level of risk from various vault strategies that leverage D-Fi tokens to the safer-earn system which relies on stable coins.

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soon. And when you get that visa card, the monolith card, tweet about it when you do. I love seeing people unpacking. They're beautiful bankless visa cards. It makes me realize that the revolution is here. Search monolith in the app store. So like the defy index. If I buy the defy index, what am I buying exactly? And how often does it rebalance? Good question. So what the defy index is, is a set token that tracks an index that has been generated by D5Pulse. They have a methodology for index. You can find it on their website. It's called pulse. inc.

And it has a pretty sophisticated criteria of one asset inclusion, like which tokens can get included into the index. There's a whole bunch of criteria such as it has to be listed on D5Pulse. There has to be a minimum of five. a percent of circulating supply. It has to be a team that is pretty much pre-reputable and the contract need to be audited. And there's a number of different criteria as well.

And it has the methodology for how you would weight the composition of the tokens. So it's something that's pretty sophisticated and well thought through. And currently, the index is comprised of 11 tokens, weighted by market by circulating supply of the market cap. So includes tokens, like Wi-Fi, includes tokens like Lend and Compound, Maker, Uni, a lot of the big names that you know are included in this index.

And this index's aim is to be the most representative index for defy tokens. And what you're buying essentially is, or you're investing in is essentially a token that tracks this index. And it's not a synthetic product. It's not a derivative. So if you own this index, you actually have, can get access to the underlying through an issuance and creation mechanism. So to be able to mint one of these indexes, what you do is a party actually has to take all 11 of the tokens and, like, deposit them to a smart contract. And in return, you get the set token. And if you own the set token, you can always redeem, which is burning that token and retrieving all the underlying. So you have the piece of mind that everything that the index represents is actually held in a smart contract.

And you can audit this all yourself. And I just want to point out real quick, the problem that this solves basically is because go try to keep up with defy. Right. Like David and I do it. It's a full-time job to understand these assets and what's going to be big next and that sort of thing. Just like it's a full-time job to invest in trade in the stock market. So what an index does like this is it gives you exposure to a rotating range of assets that pop into this top. It's top 10, right, Felix?

And you can kind of just set it and forget it if you want exposure to defy. You don't have to research every single asset. That's kind of the value proposition that I see. I think David's got a question here. Yeah. And the timing of your guys's release of this, I thought was pretty cool because you guys released it right before the Unitocin came out. And so therefore the Uni token wasn't included in the initial index.

But since UNI then moved itself into the top 10, the index then therefore included it, which is pretty cool because that's exactly what Ryan said. It just automatically updates with the tokens that should be included. But Felix, can you kind of talk to us about the behind, what happened behind the scenes there with the Uni swap before was included to becoming included? Like how did that process go? Yeah. So what you're describing is the process of rebalancing. So in a traditional ETF world, rebalancing is simply the act of either be adjusting weights. So, you know, in a centralized world, some sort of party would be, you know, selling some of the overweight assets,

maybe into a reserve asset such as US dollar or directly into an underweight asset. So for example, you know, and how this would work for at least the D5POLs. that in theory is like, okay, so right now you're going to essentially have an addition of Uni that currently is 0% of the weighting. And there's a number of other assets that are overweight if post, if you were to model out like how much Uni is required. So it would try to sell a proportionate amount of MKR, of KOM, of all the tokens, and then and buy UNI as a result. So the idea is that like that's kind of how the reweighting actually works. And the rebalancing itself initially was handled kind of through like a few, a number of transactions. And the idea is that like in the

future, anybody can call a smart contract to help perform and reweight the rebounds as well in a trustless way in a trustless manner. Very cool. Very cool. We have a question from Jake Schrovinsky in the bankless discord. Can DFIPulse change its methodology and therefore, thereby change the composition of the index in real time. And in other words, to what extent are token holders relying on defyPulse to manage the index? That's a good question. So one of the questions that I didn't answer was how often does it rebalance is once per month. So how the index co-op works is that defyPulse is the index methodologists.

They're the ones that create the methodology and then translate that methodology into weights of like what the rebounds would be each month. So they only submit the weights each month. And then the co-op or the organization or sorry, the community can look at the weights that have been submitted and validate and verify that the weights are correct and reasonably mapped to the index. So if ever there's a large addition or a deletion, like the community can review that to make sure nothing is wrong and that it actually does reasonably map to index.

The main thing that this is trying to protect against is what if a methodologist create a rebalance that was 100% made of, for example, pickle. And they want to pump the price of pickle and sell everything else. That's something that would be a big problem with something very malicious. So that's the role of the community around kind of the index co-op is to ensure that some of these things, for example, don't happen. So there is a check and balances that, like, DFIPulse, even though they are submitting the weights, they cannot unilaterally update the weights, no, and perform a trade and harm everyone as a result. So, so DFI pulse is acting as the Oracle to a, like a privileged Oracle, perhaps, to the governing token holders of the, of the co-op. Is that right?

Correct. Okay. So it's the, it's the responsibility of. of re-waiting the actual index belongs to the co-op, not to DIPIPPOLs. Okay, cool. Right, so that's one of the main things that the co-op is responsible for

is the actual rebalancing. So none of the parties involved, like, you know, D-Fi Poles or any of the methodologists have custody. They simply serve as an oracle of like what the next methodology would be, and thus they are not as privy to the actual risks of, quote, quote, management. So, okay, so the answer to Jake's question is, is basically if DefiPulse got evil really wanted to pump pickle tokens, right?

There's a check in the system, which is the co-op, basically, that would kind of rein them in. So that appears to be a primary function of the indexed cooperative. So, like, how does it manage and what other functions does the index cooperative have? Because that's new in V2, right, Felix, this notion of an index cooperative? Is there some kind of like token governance that manages it? And who are the members of this cooperative? Good question. So just to make it really clear, there's a clear,

there's a distinction between set protocol and then the cooperative. The cooperative is a separate entity, like separate from the protocol. And this is an entity that is essentially a community that governs the creation and maintenance of index products. And the set protocol is simply a technology provider. It's essentially a prime brokerage, if you will, that serves a number of these different entities. So the set protocol provides the infrastructure for the set. It provides technology to be able to perform rebalances. It performs some of the other kind of administrative functions for helping to create coordination between the strategists or the methodologists and the actual users and any.

other third parties involved. And the cooperative's role is a few things. One is to add and remove and maintain like new indices. So the DefiPulse Index is the first kind of index in the index in the index cooperative, but it's not the only one. Members can add other ones over time. So you were interested, if the community was interested in maintaining, for example, NFT index, that is something they can do. If they believe that the market opportunity was large enough, they believe that they can benefit enough. That's something that might be interesting. Or if they believe that that was a product that should exist, that's something they can do. If they wanted the L2 index, that's something they could add.

If they wanted a different type of DFI index, that's also possible as well. And how do they add it, Felix? So it happens through decentralized governance. So initially, some of these ideas, they're already being proposed in a Discord channel for the Index Co-op. And if there's enough steam for any of these ideas, they get moved into a proposal that they can be generated on discourse. And if there's enough steam and traction and social consensus around there, it can be moved into some sort of off-chain voting like on snapshot. And if that goes through, then community members can do on-chain voting eventually and vote these type of products. And so I think that's kind of the idea of like how the quap works and they collectively make these decisions together to for a benefit of trying to grow the index.

I got it. So in the end of vote, like the actual on chain process, right? So there's this all this off chain governance as we might think of it. But is there some kind of a token vote at the end of this where the index squat members just kind of vote and, you know, make, or. or is there no token at this point for that? So there is a native token called index, like all capital's I-N-D-E-X. It's a governance token with intention of allowing community members to actually vote on these decisions and to bind it based on the ownership. So, yes, there's a token kind of involved, and a lot of the smart contracts that are utilized are the same ones used by compound governance and uniswap governance. So a lot of the mechanics are the same in terms of how proposals are generated.

Eventually, some sort of quorum is required, some minimum number of tokens are required to create a proposal. So a lot of those dynamics also apply here. So who owns that token at this point? What's like the distribution like? Yeah, good question. So initially, this is a token where the distribution is very community heavy and community weighted. So initially, there was an airdrop that was given to all existing D5. impulse index holders. That was a, that was basically airdop to anybody who believed in a product

early. It was not announced or anything like that. So these are users that probably are much more heavily aligned with actually governing the protocol and being involved. The second part is that there is a liquidity mining program that went live, yes, about 21 hours ago. Essentially, it's a program that incentivizes people to take their defypulse index and ether and add liquidity to uniswap. There was a lack of liquidity before. So now there's an incentive for people to essentially earn these index tokens for providing useful work

to the system. A third allocation is for index methodologists. So index methodologists are one of the keys to the success of this co-op. And being able to track the best methodologists know, if for example, like, no, like some names that we, that the co-op would be excited to really have might be, might be like, no, bit wise or, no, any, or coin market cap or or Masari or any of these, any of these players might be a interesting service provider as a methodologist. And there's essentially, uh, based on the amount of contribution that has provided, they, uh, these service providers and methodologists can earn some of these index tokens by providing useful. work. So I think that's kind of the notion and the principles is that those who provide useful work and actually contribute can get can earn some of these index governance tokens over time.

Very cool. Very cool. Didn't know that. Yeah, this is pretty great. Like we said at the beginning, great timing for this AMA. So Felix, when the uniswap air drop happened to everyone, And people started looking around because so many protocols had a token at that point. Like if Uniswap had a token, like people were going to scope the field and see like, all right, who else is going to do a token? And there were very few protocols left that hadn't done a token. And one was set. And the other one was DYDX.

And then maybe people thought about Instadap too as well as a tokenless protocol that still had opportunities for a token. Is it fair to consider this index token as sets token, or is it something more parallel to it? It is probably the latter. So this index governance token is not the set token, just to be very clear. It's actually a token governing a community that has built a product on top of the set protocol infrastructure. So this is a token that is, as the name of the token describes, index, it's only concerned with index-related products and index-related matters. Set protocol is something much broader in terms of the infrastructure that it serves and what types of matters it's responsible for.

So this is, yeah, this is something different. Right. Okay. So that's why it's getting airdrop to the index holder or the DPI token holders and not any other holders of the set set tokens, right? The money robots or the social traders. So that's pretty cool. And I also thought it's pretty cool that the Uniswap retroactiveirdrop model also got copied so quickly right off the bat. It makes a perfect use case for this one as well. And so you mentioned something like liquidity mining is also the way the rest of the token gets distributed out into the hands of people. And so I'm assuming the value proposition of this token is just kind of like all the other value propositions of all the other tokens where there's maybe some management fee for managing the

rebalances or producing new indexes. And so these token holders are incentivized to put out as many indexes as they deem the market would want and then charge a small fee on like maybe the rebase or not the rebates, the rebalance got rebasing stuck in my head. The rebalancing and then also the management. Is there any fee included for the managing of the DPI token or is that something that is left to the governing token holders? At the end of the day, like the power of the governance is for the community. So the community is to decide. That said, in a traditional financial world, ETF companies like Black Rock or like Vanguard,

they typically monetize the some sort of expense ratio, which is essentially a management fee. They can, you know, that might be charged on an annual basis. or they do securities lending. So they can take some of those stocks that are in the ETF and lend them to hedge funds for interest. So those are some of the ideas that traditional ETF companies would do and some of those might be translatable over into the crypto kind of context.

Wait, let's go into that a little bit more. So if we wanted to copy that same business model where there are assets on a balance sheet inside an ETF, but then somebody like BlackRock takes those assets and then lends them out behind the scenes and pockets that interest rate. Is that how it works? It depends on the actual company itself. Some of the providers will share a significant portion of that interest back to the holders. Sometimes they'll take a percentage of that and pocket it themselves. Some of them will take the entire interest kind of rate a rate earned and take it themselves. I think the,

There is a challenge because it is a lot more operational overhead and work to actually do that. Even the best providers, for example, Vanguard can only lend out 40% of the total amount. So it's not like they can lend out everything. There's definitely a supply and demand dynamic that comes with it. But it is pretty interesting in Defi because there's lending markets for so many different assets. And there's not only lending opportunities, but there's farming opportunities. as well. They're staking opportunities. For example, SNX potentially could be staked and you can earn more SNX over time. So there's a whole world out there that the community can decide to embark on if it made sense. And they can just help decide some of the economics if it made sense. Your Ethereum address is a bankless bank account. But here's the problem. It doesn't have a human readable name. It's represented by this long hexadecimal string that no one can read.

Unstoppable Domains has the solution to that problem. It provides a domain name for your Ethereum address. So instead of telling someone to send you funds to 0X, E3BA, blah, blah, blah, you can tell them to send funds to your name.cropto, a domain name for your Ethereum address. At Unstoppable Domains.com, you can search for blockchain domains like this and find tools to easily launch websites on decentralized web technology like IPFS.

You can even have Unstoppable Domains help you manage your dot crypto or dot eth or even. Dot Zill domain name addresses at their Unstoppable Domains manager. Websites have domain names.com.org. Your bankless bank account on Ethereum should have a domain name too. So go to Unstoppable Domains.com. Register a domain name for your Ethereum address now. Unstoppable domains.com. So I'm starting to see a lot of overlap with this product.

and both a little bit of yearn and balancer in the mix as well, right? So balancer is a pool of eight possible tokens that people can trade and use as liquidity like uniswap. And then Yern or yearn is like this thing that goes out and seeks yield in D5, right? And I see a little bit of both of that in this product as well, where there are assets that are inside of a pool. And then also those same assets can go and be leveraged in D5 for additional returns. So there seems to be some overlap here. Maybe let's go into some compare and contrast.

So with Balancer, you have eight tokens in a pool, and one of the unique things about balancers is that you can trade against these tokens. And then the fees for people that are looking for liquidity go into the pool. And when the assets are inside of an index, are they able to be leveraged for liquidity by people outside of the index looking to trade those assets?

Good question. I think that's one of the main distinctions and differences between set and balancer. Set, sets essentially index products and vehicles, map and primitives, map a lot more closely to traditional index products. So they don't rebalance constantly or all the time or reweight all the time or suffer from potential impermanent loss as well. So I think that, you know, and the rebalancing only happens at specific times, in this case, in cases that are determined by the index methodologists.

In the DefiPiPulse index scenario, it is just monthly, but others might be less frequent, like quarterly or biannually. And essentially, there's no liquidity that's provided through this scheme. That said, it is possible for liquidity to be provided, but that's not something that currently exists, but something can be added by community over time. Okay, yeah, that makes a ton of sense. And that's just not really what the use case of these indexes of tokens are really meant for.

Balancer is unique in the sense that it is supposed to be tracking the market at that one specific point in time, but that is also allowing other people to trade against the balancer pool, which the set doesn't allow. So that's kind of the advantage of holding a set. But in theory, I think you could make an index where maybe you have the LEN token. You have a lot of defy tokens in there. And then you can put them into balance or pools in the back end where we kind of like what we were just saying, where you, BlackRock or some index management company can lend out assets that are contained inside of the ETF, which is kind of like in Yerns

camp or Yerns camp where maybe it's really advantageous to have an index with, you know, you know, maybe there's a bunch of more synthetic asset platform. So there's a synthetic asset set. And one of those assets is synthetics. Maybe another one is UMA. Maybe there's others coming down the line. And in this particular set, there could, or in this particular, excuse me, this index, the part, there could be a strategy baked into the index to also be staking synthetics at the same time.

Is that correct? That is correct. And potentially, definitely possible. Right. Yeah, so that sounds really something similar to Wynne's camp. So it sounds like you guys are, or not you guys, but the index co-op is starting to get into, you know, the yield maximizing game where it seems to be like each index is its own index, but it also could have a strategy baked into it as well, which could make it more or less, you know, lucrative for the people investing. Correct. I think one of the cool things is the composability of the defiant theory. I think that any products that, any constituents that supported by index that there's a YValt for,

like you can actually put that into a Y vault and maximize the yield on it. So if there was, for example, an Oracle index and it had link in it, you can put the link into a link Y vault, and then it can, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, you're in, actually, you know, generating a yield for it. So, I mean, it's definitely composable in that sense. And I think that would be to the benefit of the index holders to potentially utilize and get the additional yield, given that the risk is manageable and that they understand what they're getting themselves into in those situations. I think it's going to be interesting to see the index co-op and Y-earn play off of each other because, you know, Yarn could leverage the index

co-op and the index co-op could leverage why you're in at the same time. And so I think there's going to be a very strong like stitching of these protocols. That's going to be pretty cool to watch. Totally. Yeah, I want to get some community questions, but I have one last one on this because it's so fascinating Felix. So can there be multiple index cooperatives, right? So could somebody like fork the index cooperative or come up with their own and start using that instead? How would that even work? Absolutely. I mean, I think that's something that we've seen in crypto and in defy a lot is essentially forking. So people can take big smart contracts and concepts and make their own. And that's completely possible because everything is open source. No, set protocol is available to everybody. The contracts under the index Dow can be copied as well. So that's something that can be done, similar to how sushi swap, for example, for uniswap.

So that's not out of question. There can be multiple ones that have different philosophies or goals or whatnot. And I think, you know, that's something we might see some more of in the future. And maybe we have consolidation as well. I think one thing that we haven't seen is like forks kind of merge together. Like in the traditional like world, like you have a lot of M&A like protocols buying other protocols. The only example we've seen so far is like Tron buying BitTorrent. but we haven't seen in defy like other things buying other things but just a lot of divestitures if you are splitting up.

So I think that one of the predictions I have is probably that in the next year we'll see a lot more like consolidation. So like protocols actually like absorbing other communities or other protocols. Very cool. Like so multiple index cooperatives spinning up pursuing their own strategies maybe at some point in time, bigger ones acquire the smaller ones or they merge. together as kind of like SuperDal's very interesting future. I want to get to a question that's coming in from Discord from QAZ. QAZ asks, any plans to rapidly onboard more retail users? Any plans for a mobile app? I see you guys as the next E-Toro. Would that assumption be correct, or are you targeting institutions? With the index co-op, no, indexes are one of the most widely

traded and owned products in the world. And this is something that really is meant for wider spread consumption by retail. So it is to the interest of the index co-op to be able to spread the indices as far and as wide as possible. So that means centralized exchanges, that means other wallets. It means potentially even, yeah, and as many, it means as collateral and as many use cases as possible. So being collateral for MakerDAO, collateral on AVE or on compound. Those are the things that would be advantageous

for not only retail users, but also other personas, such as funds. Funds may be interested in, like, hedging. So if they own a bunch of relatively illiquid, let's say, defy tokens, and they believe that the market was going down, they don't want to sell their tokens for tax purposes,

also liquidity. They can hedge using the defycored. index. So there is use cases not only for institutions, but also for retail. So that's why indexes are so widely adopted is because there's something for everybody. It's interesting here because QAZ is asking if you guys, he says he sees you as the next E-Toro, and is that assumption correct? What's interesting, though, Felix is, you know, what set becomes is almost like this asset production factory, this asset production protocol, right? And your assets can be. anywhere in Defi. They could be on uniswap. They could be on balancer. They could be in a,

in a wire and strategy. They could be listed on Coinbase or Binance all over the place, right? Which is a bit more, which is a bit different than an ETORio, which like an ETORo also has kind of like a user interface and all of these other things. What do you think about the comparison between a set and a ETOA? Are you guys DeFi's ETO or do you see it a little differently? A little bit differently. We can see how people may think that Set is, you know, the defyit by ETORO because some of the social trading products that were launched earlier this year. And it seemed like Set was building a platform for a bunch of social traders and people can follow others. So that made a ton of sense. Though, you know, I think with set protocol, it really is meant

to be infrastructure and a primitive, you know, set token sets just happens to be the first UI. that supports it, but anybody can build a user interface. And when it comes to some of these indices, people are actually acquiring them by many on different interfaces. People are using Argent or Xerion or Zapper, a whole bunch of different, like D-Bank or other types of wallets, people are actually acquiring these products in. So especially when they're listed on balancer or uniswap, per se, there's automatically integrated. So I think we, I think kind of the way that you described it makes a lot more, is kind of how we think about it as well is that set is really kind of an asset kind of production factory, if you will. Like they're creating these tokenized strategy or it's a framework and a primitive for

creating tokenized strategies and that are represented that can be traded anywhere. And we're less of, you know, building an app or, you know, a user interface that people can that can use. That's something that anybody else can do given that this is, you know, supposedly kind of indestructible kind of infrastructure. So are sets traded on centralized exchanges today? Have any exchanges adopted them? For the D5Pulse index, I think, is on one or two of the smaller ones at the moment. And it is to the advantage of the index cooperative to try to get these things listed more broadly. Yeah. And how long until we see that, do you think? Just your gut prediction, I guess. Is this going to take like is this going to happen soon weeks are we talking months or years i have no idea uh i mean business

development like you know by other people uh you know you never really know so uh i mean but part of it is the volume and the and the popularity and kind of this wide and how widespread it is so the the greater that is the more exchanges may may may may favor and prioritize uh you know listening something like this It would be interesting if exchanges start to get into their own index cooperatives as well. Interesting dynamic there. Interesting. Yeah. Yeah.

Definitely. You look like you're going to ask something. If exchanges were creating their own indices and interacting with the index cooperative to try to grow it and make it happen. So, Felix, a second ago, you were talking about how you want to get these indexes into, you know, collateral and MakerDAO, collateral and, you know, all deep eye applications, right? And, you know, I know MakerDAO is very particular and risk-averse to adding collateral, right? Because each collateral needs its own kind of risk assessment, right? It's in, and there needs to be

some due diligence with what that risk is. And I think you can make the argument that with an index, it's a lot less risky because it's an index, right? It's diversified. It's spread out across many different assets, and so the chances of it blowing up are reduced because it has less dependency on one particular asset. However, there's also composable risk, right? Because with many different assets, a lot of these protocols are stitched together in the background. And then there's also the straight-up contracts that produce these things in the first place. So what's your take here? How do we balance the fact that it's diversified, but there's also composable risk? How do you balance that out when we want to get these things as collateral into something like Maker.

Yeah, that's a really good question. I think that Maker already, I mean, if you think about maker and its set of collateral, it's kind of already a basket if you really think about it, right? Anything that's added in its entirety is a basket. And it wants to minimize the risk as much as possible. And if it were to add every single asset in the index itself, it would expose itself to just as an out, just the same amount of risk, right? So I think with the DPI index, it, like you said, diversifies that risk. Like, it would be taking the same risk, except we can do it in a much smaller way. So I think overall, like, even though there is composable risk, like the risk of the entire asset blowing up is much lower in aggregate. So I think that it would be.

make really great collateral on Maker. Obviously, the risks and the volatility and needs to be analyzed a lot more closely. There probably needs to be a lot more data around how the index has traded and how rebalances happen. But other than that, like, we know, we think that it could be really great collateral. So, Felix, this is a follow-up on what we were talking about before from a member of the community who asks, does the introduction of index, the token, box out a possible set token in the future?

I mean, the index token is just for the index kind of community and for indices, and there could be other types of community tokens for other kind of verticals. That said, I think set does need to be some sort of kind of decentralized infrastructure since it's serving all these communities. So it definitely, it's not out of possibility. Hmm. Hmm. It's good to know within the realm of possibilities. Okay, so there's another question coming in from the YouTube. Let's see. Maybe this is just a good follow-up. Why did Set have to partner with the co-op index at all? Why couldn't set just launch Set and have governed indices on set? Is your answer going to be more or less the same, or is there another aspect to talk about there?

I think that there, I think that something I mentioned earlier, but wanted to drive in as a point again, is really the delineation between the Set protocol and the folks that are, and the communities are running the actual strategies. Like, set is meant to be more like a prime brokerage. In the traditional world, the prime brokerage is like Goldman Sachs, Morgan Stanley, J.P. Morgan. They serve the funds of the world, right? They serve the black rocks. They serve the hedge funds, etc. as a service provider and the technology provider. So that's kind of what set is, is really set protocol is really kind of the biggest prime brokerage, if you will, in DFI. And then the index co-op is separated. And as a prime brokerage, you're not really running a fund or strategies itself. That's not the job of that.

It's more to help provide services and intermediateate. And, you know, the index co-op is really responsible for the strategy. generation, the methodology generation, and for the spreading of the actual kind of the strategy itself. So here is a question, Felix, from a YouTube listener. I would like to create a set, but I've been told by a few lawyers that the set tokens representing the trader strategies are indeed a security, common enterprise investment dependent on a third party. Is that the case any, have you, do you have any

regulatory clarification on what these sets actually are. Yeah. So I think there's a few things here. I mean, at first is like, well, is, I mean, I'm not a lawyer, by the way. So this is not any goal or anything like that. So I can only provide my own opinions or what I understand. And, you know, definitely you all should consult your own lawyers before, before doing anything. But I guess in terms of social trading, I think maybe that's,

what the questioner was asking about. I think there's a few things like, one is the underlying assets, kind of a security. And I think that most of the assets on token sets are just like Bitcoin, Ether, USD, which I think most people can make an argument it's not a security and sufficiently decentralized. And then essentially the trader doesn't ever have custody.

They can't like take the money, and run. They don't control the money. All their execution is done via Dutch auctions, which is a very fair and open way to do a trade and provide a price. And simply, the trader is just providing a signal. It's just data. Everyone is just an Oracle, right? It just happens that Oracle is a trader and decides when to trade, and that's it. And that's how kind of E-Toro and social trading works, is that people just expose what they traded and then people just follow other people. It's kind of like, you know, if David Hoffman, you're like, oh, I'm going to buy Wi-Fi, and then you just told Ryan, and Ryan's like, oh, I want to do that too, so you just follow him. Like, that's kind of what it is. I take David, I take all of David's investment advice as much as possible. That was a real conversation. Well, that's what social trading is. And that's what we're just enabling more in a scalable manner.

Okay, here's another question coming in from a YouTube watcher. Hey, guys, is it possible to create? quote, nFT index, unquote, of the top 10 NFT projects. Absolutely. Anything that's an ERC 20 token can be included into a set or an index. What about actual NFTs themselves? Maybe there's like a set of NFTs that have 10 tokens each, but they're ERC 721. Is there room for innovation here? Yeah.

I think one of the cool ideas that people have is to wrap, you know, 721s into E or C20s. So you can have fungible or partial ownership of a 721. And that could be put into a set. I think the main thing is just liquidity. If a lot of people wanted this NFT index, like, can you get more of it? Right. And you can't really get more of it because it's, you know, NFD is a big number. So I think that's kind of the main thing is like, because the scale.

can it be something that's really big? That becomes a more challenging question. I think the cardinality of the constituents needs to grow a lot. Like you can grow the number of NFTs in the set, but you can't grow like each NFT. You can't like clone each NFT. Like then it wouldn't be an NFT anymore.

Sure. So there's a question from a bankless member Discord asking any plans to host the site with IPFS. And I want to like dovetail that question with a broader recent Twitter conversation. Oh, nowhere. This is gone. There was some debate. You may have caught it, Felix.

Others may have as well, of whether DFI projects are decentralized or not. And, like, so of course, we've talked about often that, look, decentralization is a spectrum, but there are indeed some projects on Ethereum that are, don't have an off button. They are decentralized. their founders could not stop them even if they tried, right? Uniswap is an example of that. How about set? Are there still centralization vectors here?

Like what aspects are not decentralized at this point? What can be turned off? Yeah, good question. I think that like in general, there's like this concept of progressive decentralization, which is you're kind of moving towards like full decentralization over time. And I think that in general, projects should minimize amount of governance and central points as much as possible. And I think the first kind of thing that's being done is really the index co-op, where it's the first thing that will be fully kind of decentralized and where everything

will be essentially owned by the community. So, you know, people can build other sites and UIs that hosts and places to acquire the set tokens themselves. They're the ones that are going to govern the actual parameters of decisions that end up being made. So it will be totally out of our control, like, kind of like what happens there, and it'll be totally dictated by a community. Got it. All right. So another question, I'm going to reform out a little bit, but what are the most popular

sets today and have any of them surprised you, Felix? The most popular one right now is the DefiPulse Index. That's the one that people have loved a lot and people are very excited about it and the adoption is growing significantly and quickly. Other products, for example, in the past have been some of the trend trading strategies. So the ETH or ASI has been quite popular as something, as a tool that's a tool that's people have used to weather the long, long bear market. One of the social traders, Byte Tree has a pretty popular set. It's called the Bitcoin Demand Set, which will trade based on fundamentals, kind of underlying Bitcoin. And then one that has been growing a lot more is

there's anonymous trader called CryptoCat. He or she created a set called the Greed and Fear Index. So basically if the market is very fearful, it would buy and if it's no greedy, it would sell. And that's actually one of the better performing ones right now. So that's been getting some inflows. Are we fearful right now? I'll have to look at the area. I'm not sure right now. Yeah, it feels a little fearful here lately, at least in the defy world.

Felix, do you have any advice for people who are buying? sets, and this is an investment advice, but I'll give you like a scenario. So sometimes I see people in crypto buying indexes of some sort or buying RSI strategies, this sort of thing, and then getting upset a couple weeks later when they don't immediately perform and then going and trading and selling them. Do you have any general advice? Is it important when you're looking at a set to like have a longer-term orientation. Because my understanding is the purpose of a money robot to trade for you is so that you don't make dumb human mistakes.

But if you then take a whole bunch of these set protocols and then start trading them, like it doesn't seem like doing the same thing, right? And maybe it's even worse. So I don't know if you have any thoughts on that, but I think just people need some practical advice there, I guess. I mean, at the end of the day, sets are just a tool. They don't completely solve the problem, but it just automates behavior that you would already do yourself.

So, I mean, that's just clearly a way to think about it. And human behavior can, you know, that's at the end of the day what it takes for you. So if you, yeah, so, I mean, I think that's the easiest way to think about it. It's just, it's not going to change, like, who you are on your decisions. And so it's really up to you to decide how you want to operate. operate, it's just, yeah, the automated trading is just things that you would already do yourself, but it makes it a lot easier, and it does it automatically for you. Indecees just making a lot easier to get a basket than needing to buy all 10, 11 tokens and pay all the gas and do all the work

and all the hassles. So, and sometimes you're delegating to a third party to provide oracles or signals about how to make adjustments. But at the end of day, it's kind of your decision to do whatever and kind of, I guess the user is what owns the outcome as a result of those decisions. A very wise trader once told me that you can copy somebody's strategy, but you can never copy their conviction. And I think when we're talking about money robots, you can definitely not copy a robot's conviction because that's what the product is, right?

That's what the product is offering. It's offering pure strategy, but you know, you can't get the conviction from it unless you are actually that convicted. Felix, thanks for coming on. We have two last questions. One about set and one just about a general defy prediction. When we close out this year in three months, oh gosh, three months, how much value will be locked in defy?

Oh, in defy. Man, no one ever knows these answers, but I'm just going to say, what is it? Right now it's 11, so let's just say. 20 billion. 20 billion. All right. Nine more billion in three months. I like it.

I like it a lot. And one more question with set. Are you guys hiring? Any jobs? We're hiring. Yeah. We have an open rec for a smart contract engineer. And we're always looking for really talented and smart people,

even if we don't have a job description. So get in touch via Twitter or Telegram or Discord. And yeah, we'd love to talk to you. Cool. If you guys think that you can provide set value, hit Felix up. Absolutely. Felix, thank you so much for coming on the AMA. It's been great to have you in front of the bank list community.

I guess maybe just last thing, anything else special coming up? You guys have been releasing like Mad over the past, you know, three weeks or so. Anything special you want to drop that we should be on the lookout for in the next weeks to months? Yeah, I don't. We frankly are just trying to catch up on our, like, catch the breath right now. Yeah, so we do not have, we don't know what's, yeah, can't say anything there. Very good. Well, thanks for joining us for this AMA.

It's been exceptional to have you, Felix. Appreciate it. Thanks. All right. One last note for the bankless community. David, you have an event coming up, and we want the bankless community represented to make sure that we get an audience for you. What is that event?

What are you going to be talking about? Yeah, CoinDesk is throwing an authentic. Ethereum event, which is pretty interesting. Usually they've been kind of only a little bit into Ethereum, but now they're going all in. And so CoinDesk Invest Ethereum Economy, October 14th, is going to be a ton of DFI people there. And I'm speaking about why Ether is such a uniquely compelling asset. So something I feel very equipped to talk about. So that's going to be a fun talk.

Vitalik is also speaking there. And a bunch of your favorite DFI protocols are also going to be speaking there as well. Defy Dad as well. we all love him. So check him out. There is a link in the YouTube show notes. And you can also use the code bank list to get $25 off of your ticket. If you want to get first row seats for me to shill Eath to Coin Desk.

Well, very good. Well, thanks everyone. This has been another episode of Bankless and George Brist. Bankless.