At the Index Coop, one thing that separates us from most other DeFi protocols is being responsible not just for governing ourselves, but also for voting on the projects we hold within our products. Described by the term meta-governance, this extra responsibility is vital to get right because the success of the underlying tokens determines the success of our indices, and thus of Index Coop as a whole.
While our ability to vote using this method is currently limited to the Compound, Aave and Uniswap tokens held within the DeFi Pulse Index (DPI), we are developing the code to enable this functionality for other protocols in the future. As the Index Coop grows, launching new products and scaling the existing ones, we are likely to achieve significant voting power in the underlying projects.
This is not unlike traditional finance (TradFi), where large asset managers like Vanguard, Blackrock and State Street have immense voting power. These ETF giants are often in the top 3 shareholders at major public companies. In TradFi, governance is commonly referred to as "investment stewardship", and it is a big business. To illustrate just how big, Blackrock has a team of 47 people set up to interact with portfolio companies on governance matters, and in 2020 alone Vanguard's stewardship team cast votes on 168,000 proposals. Proxy voting advisory is yet another layer of TradFi that relates to governance. Leading players here are ISS and Glass Lewis, and they provide research, recommendations and data to institutional investors as it relates to voting. They also offer vote execution services.
TradFi shareholders tend to vote on board members, executive compensation, accounting matters, and more recently, environmental, social and corporate governance (ESG) proposals. Governance of decentralised protocols tends to centre around token economics but can range from hiring new team members all the way to minting more tokens for re-investment and growth.
It's clear then that Index Coop has a crucial and growing responsibility, with ramifications for both DPI and INDEX investors if we don't get it right. We want to be an informed and trusted tokenholder, and with the launch of the Investment Committee, we are taking the first steps on the path to achieve that goal.
Already, members of the Index community are reaching out and gathering data on projects within our portfolio, trying to understand their governance structures, business models and prospects. The next step will be to start relaying this information in a digestible format to INDEX holders so that they might cast informed votes that are beneficial to all parties. Given the detailed level of understanding the Investment Committee members will gain for each project, it makes sense that they can also begin to offer recommendations to the Index Coop community on how to vote.
Examples of this in the crypto space include xToken splitting AAVE token votes between centre-left and centre-right economic principles, or Gauntlet (a large Uniswap delegate) publicly stating their voting principles. The Index Coop community already has the building blocks to create something like this from our guiding principles. Certainly, an important next step in our meta-governance journey will be to expand on these principles and outline our intentions for continued voting in the underlying protocol governance.
To take this a step further, at the Index Coop, we see the future of meta-governance being collaborative. We expect to improve our links to other meta-governing communities like PieDAO and PowerPool, sharing our learning and building a robust and transparent set of standards for governing underlying tokens.
Linking back to the TradFi space, the 'Big Three' asset managers often come under fire for all voting in the same direction and not taking enough action on ESG topics, the primary of which is climate change. So while it is important to build links between Index Coop and other index providers in crypto, there is still space to remain independent and true to our underlying principles, which will be reflected in our voting record.
So do keep an eye out for the upcoming deep-dives from our investment committee, beginning with Compound and AAVE. In the meantime you can view the voting record of Index Coop via DPI using Tally's dashboard. The full record of votes relating to both Index Coop and our meta-governance can be found on our website.