Product and Application Considerations
Each product that is added to the Index Coop requires resources to launch, maintain, and grow. For this reason, the community, the Business Analysis, and Product Development teams should be thorough in investigating not only the technical feasibility of a product at a given time, but also the likelihood of product-market fit.
The Business Analysis and Product Development Work Teams will be grading proposed products along the metrics mentioned below. Scores will be tracked in the Product Prioritization Chart.
Business Analysis Metrics:
- 1.Marketing Benefit
- 2.Market Size
- 3.Product-Market Fit
- 4.Methodologist Capacity
- 5.Competition
- 6.Fees Generated
As a general rule of thumb, we expect our products to achieve $100M in TVL over a 6 month period.
Product Development Metrics:
- 1.Risk
- 2.Feasibility
- 3.Difficulty (to implement)
To provide some heuristics - looking at the reasons why people would pay for a structured product, we find three main reasons:
- Gas cost optimizations
- Reduction of operation overhead
- Superior management of risk
If an asset management product is able to provide such a utility for whales, it is highly likely that it is a product that will have product market fit.
Products that may seem cool or interesting, such as a NFT Index, must be able to prove that there is a significant demand from whales that use DeFi for such a product. Products that have clear utility, like a 0 Impermanent Loss AMM Product, must be able to prove that the current technological constraints are sufficient to make such a product viable.
While there have been a few cases of products in DeFi that launched and instantly received tons of capital, most products need significant research to improve their product, provide marketing and business development support, and supply the initial liquidity.
When looking at the DPI, a major component of its success was the fact that both DeFi Pulse and Set Labs poured hundreds of thousands of dollars in supplying liquidity to the initial Uniswap pool, developing and maintaining an arbitrage bot to keeping the price to NAV, and marketing heavily using Twitter and DeFi Pulse’s website. DeFi Pulse also started a whole new division within their company called Pulse Inc. to manage and improve their methodology.
The key attributes are:
- Capital to support the initial liquidity of the product
- Full time human resources to dedicate to improving the product
- Organizational capacity to market and distribute the product widely
In order for other structured products to be similarly as successful, they will likely require similar levels of commitment. Because of these requirements it is increasingly unlikely that a single individual will be able to provide all that is required in order to make a product a success and that it will require support of a full organization.
However, this does not mean that there is no room for individuals to participate in the product building process. Oftentimes, an individual may have deep insight into the workings of the DeFi market and conceive of amazingly creative ideas that no one else has thought of. In this case, it is recommended that the individual seek to work with existing organizations allied with the Index Coop and work with them in order to bring their product to life. Alternatively, they may choose to work with other individuals and pool their individual resources to provide greater support.