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Why Index Coop conceived and launched a new incentive called PRTs

Presales incentivized with Product Revenue Tokens (PRTs) help solve the cold start problem and gauge demand.

In early April, the Index Coop launched our first-ever product presale. The proposed product—a High Yield Staked ETH Index (hyETH)—was made available to users sixty days before its planned launch. As part of the presale, users who deposited wstETH will be rewarded with Product Revenue Tokens (PRTs) which entitle them to a share of future hyETH product revenue. 

So far, the presale has been a resounding success. Our goal was to surpass a threshold of 500 wstETH deposited in the product within 30 days. We blew past that goal on day one! At the time of publishing over 1,000 wstETH has been deposited into hyETH.

It’s exciting for the Index Coop, because presales incentivized by PRTs solve three of the thorniest problems builders encounter in launching new onchain structured products: 

  1. Gauging demand for potential products before launch
  2. Overcoming the “cold start” problem products face after launch
  3. Finding sustainable ways to incentivize early adopters

Gauging demand for a product before launch

Even with substantial qualitative and quantitative research, it can be difficult to know if a product will succeed before it launches. The Index Coop is no exception to this, despite ongoing efforts to improve customer and market research. Established industries enjoy decades worth of research and data that inform product development decisions, but the nascent DeFi space remains mostly uncharted territory. The most successful products are often novel, introducing new capabilities or experiences that otherwise didn’t exist. Users may not know they’re interested in a product until after it has launched and shown some success. For this reason, many traditional qualitative research methods, like surveys, interviews, or observation are less effective.

This is why many builders in the space must experiment, trying out different product or protocol designs until they find traction. There is a cost to every experiment though - organizational resources are spent designing, building, testing, and marketing. Failed product launches are also discouraging for communities, and risk sending a negative signal to the broader market. 

Presales, incentivized by PRTs, help solve this problem. If an insufficient number of users are interested in a product during the presale, that sends an important signal. By gauging interest beforehand, the Index Coop can prioritize the development of products that resonate with users, thereby maximizing their potential for success. Resources are conserved also in cases where presales are unsuccessful.

Solving the cold start problem 

Despite popular narratives about overnight successes in crypto, the reality is most new products or services face a steep road to adoption, even if they are innovative and attractive. In the case of Index Coop products, this “cold start” problem manifests in the form of initial inflows and product liquidity.

When a new product is launched, failure to generate early inflows can stymie the product's ability to succeed in the long-term even if it is a highly performant product. Index Coop products launched in the last year—like ic21—have failed to gain traction due in part to this problem (despite ic21’s +100% ROI since launch in September 2023).

While many users evaluate products based on their merits, others rely on social proof or TVL as the biggest indicator of value and trustworthiness. If you assume TVL is a proxy for value and trustworthiness, early inflows can be critical to a product’s success. Early TVL can also generate buzz, begetting more engagement and social proof. Without these early advantages, products are far less likely to be effectively bootstrapped or discovered by potential users.

Presales, incentivized with PRTs, aim to solve the cold start problem by accumulating TVL in a product before it has even launched. For example, when hyETH ultimately launches, the product will already have several million dollars worth of TVL in it, signaling adoption and social proof to prospective users. 

As Index Coop continues to develop and launch innovative onchain products, we look forward to utilizing the presale process to ensure the products we’re building resonate with users, while simultaneously rewarding early adopters.

Sustainably incentivizing early adopters

Finally, PRTs offer a way to reward early adopters and incentivize growth in a sustainable way. Very few DeFi products are successful without some form of incentivization. Airdrops and points are common incentivization strategies, but both have drawbacks. Airdrops can work well for newly launched projects, but don’t necessarily make sense for more established projects without inflationary tokenomics (like Index Coop). Points, meanwhile, despite their recent surge in popularity, are often offchain, revocable, and susceptible to manipulation. PRTs, on the other hand, offer onchain and immutable access to product revenue for as long as a product is in operation. It is worth noting that the Index Coop DAO can vote to deprecate unsuccessful products, but deprecations are typically reserved for low TVL products that fail to find product-market fit.

Furthermore, many incentivization schemes require projects to spend treasury funds, either in the form of governance tokens or even stablecoins. That makes it challenging to maintain an incentivization strategy over the long run, and new products run the risk of an early, but unsustainable, boom due to limited incentive supply.

One of the benefits of PRTs is that, by incentivizing holders with a share of future potential revenue, the Index Coop does not have to front substantial incentives in an unsustainable way. Additionally, since the Index Coop will retain a majority share of PRTs, much of the future revenue of a product will still accrue to the Index Coop itself.

The Index Coop hopes PRTs are a novel cryptoeconomic incentive to help launch products, attract demand, create evangelists, incentivize partners, and generally benefit from crypto network effects. 

Disclaimer: This content is for informational purposes only and is not legal, tax, investment, financial, or other advice. You should not take, or refrain from taking, any action based on any information contained herein, or any other information that we make available at any time, including blog posts, data, articles, links to third-party content, discord content, news feeds, tutorials, tweets, and videos. Before you make any financial, legal, technical, or other decisions, you should seek independent professional advice from a licensed and qualified individual in the area for which such advice would be appropriate. This information is not intended to be comprehensive or address all aspects of Index or its products. There is additional documentation on Index’s website about the functioning of Index Coop, and its ecosystem and community.

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