Editorial Notes (vol. 17) – DeFi Index Funds: Crypto investing made easy
Index funds are well-known instruments in traditional finance. They are portfolios or baskets of assets constructed to match or track the components of a market sector, such as the Standard & Poor's 500 Index which tracks the stock performance of 500 largest companies listed on exchanges in the United States. When a certain asset goes up or down in price, the index will re-balance and return to the percentage allocation it aims for that particular asset.
This model of investing allows investors to develop a passive form of portfolio management strategy and takes away a lot of the workload required to manage a successful portfolio. On top of that, they make it easier to diversify your exposure to the market.
With the rise of DeFi and the development of decentralized products that mirror the existing traditional financial services, index funds found their place as well. In this week’s feature, we’ll take a look at some of the projects building the future of DeFi index funds sector.
DeFi Index Funds – Crypto Investing Made Easy
Index funds have been gaining popularity within DeFi, with more and more innovative projects being built and complex strategies employed. Indices in DeFi are great, especially for those who are less familiar with Web3, have lower balances or just want an easier way to invest in this emerging market. The main benefits of utilizing such products are:
Lower costs – to create a portfolio on-chain, you would need to do quite a few transactions, each requiring you to spend funds on gas fees. With index products, you only need a single transaction to gain exposure to multiple projects.
Diversification – get exposure to the whole market or a sector you are interested and see potential in, without having to pick the projects one by one.
Simplicity – gain passive exposure to a market, without the need for active managing of your positions, rebalancing of your portfolio, etc. These products will do that for you.
Now, let’s dive right into projects building in this space and making investing easier than ever.
Set Protocol – create, manage, and trade Sets — ERC-20 tokens that represent a basket of underlying assets
Instead of just buying an index, why not create one on your own? Set Protocol’s primary use case is the construction of "Structured Products", which are customizable baskets of fully collateralized crypto-assets, represented as on-chain ERC-20 tokens. These Set Tokens engage with popular Decentralized Finance protocols and follow the manager's specific strategy – this allows investors to replicate an identical strategy easily by minting or purchasing the Set while the manager earns a small fee.
Gain exposure to various investment themes with Index Coop.
Index Coop makes crypto investing simple for everyone. It offers a broad variety of investment vehicles to individuals and institutions – from token baskets to leveraging. Various indexes hold the top tokens of specific crypto themes, such as DeFi, Data Economy, and the Metaverse. You can comfortably invest and never worry about rebalancing.
On top of enabling users to get exposure to certain investment themes such as DeFi through DPI or Metaverse through MVI, Index Coop also offers flexible leverage indices (like ETH2x FLI) and yield earning indices (icETH and MNYe). It is deployed on Ethereum and Polygon where users can buy any index with ETH, DAI, USDC, stETH, WETH, and MATIC (if the index is on Polygon).
Easily invest in top blockchains and major projects on Ethereum with Arch.
Arch is a DeFi platform that aims to simplify this process of investing in crypto and help investors to build and manage their Web3 portfolios.
They are engineering well-diversified indices across a range of sectors and sizes that they make available to users as fully collateralized tokens. These tokens act as building blocks, allowing users to create their own custom portfolio without the challenges of purchasing individual Web3 tokens.
Arch currently offers two products:
Arch Blockchain – Tracks the performance of selected native tokens of leading networks – Bitcoin, Solana, Polygon, Ethereum.
Arch Ethereum Web3 – Tracks tokens of the major decentralized protocols. Its objective is to track the returns of the Ethereum ecosystem as a whole, by including projects that represent more than 70% of the total market cap of the Ethereum ecosystem – Chainlink, Uniswap, Decentraland, AAVE, Lido, etc.
PieDAO – bringing automated wealth creation to everyone.
PieDAO is a protocol for managing ETFs, which are referred to as “Pies”. As a DAO, token holders and the community govern the project itself with a governance token DOUGH. It is used to vote on decisions regarding deployment of pies, protocol upgrades, and selection of underlying assets and weights within Pies.
Pies take a variety of forms. They are diversified portfolios of top-performing crypto assets hand-picked by a decentralized community that has incentives well aligned with other participants. Returns of the Pies are maximized through active yield-generating strategies behind the scenes such as staking, lending, and yield farming — completely automated. The three core Pies are PLAY – developed in collaboration with NFTX, allowing you to get complete exposure to metaverse and NFTs, DEFI++ – the most diversified DeFi index covering both large and small market cap projects, and BCP – a balanced crypto portfolio with an even split of BTC, ETH, and DeFi projects from DEFI++ Pie.
Indexed Finance – gain exposure to passively-managed crypto indices represented as a single token.
Indexed Finance is a protocol focused on passive portfolio management with zero management fees. The entire re-balancing and re-weighting of the indices happens automatically through an on-chain processes offering you a hassle-free way of getting into DeFi and niche market sectors such as oracles or the metaverse. Indexed currently offers three products:
Degen – A higher risk/reward index of promising Ethereum protocols that are judged as having significant room to grow. It includes projects such as Badger, Ren, Rari Capital, Ocean, etc.
ORCL5 – An index representing the current market leaders in protocols such as Chianlink, UMA, API3, Band Protocol which are designed to bring external/real-world data onto the blockchain.
NFTP – A collectors index of governance and protocol tokens drawn from both the NFT space and the wider Metaverse.
Get exposure to the total crypto market cap through Cryptex Finance's TCAP product.
Cryptex is focused on building innovative, open-source financial solutions for the crypto community. Using Ethereum’s smart contract system, Cryptex was able to create decentralized financial solutions such as Total Crypto Market Cap Token, TCAP – which allows you to easily gain exposure to the crypto market as a whole, without having to buy individual tokens.
Easily invest in ecosystems like Polygon, Solana, and DeFi through AMUN.
Amun’s index tokens are composed of the top tokens in their respective ecosystems. Depending on the ecosystem you support, you can easily get exposure to top projects in Solana, Polygon, or Ethereum ecosystems. Investors can easily get exposure to protocols that provide trading, lending and borrowing, yield farming, data oracles, insurance, prediction markets, synthetic assets, and stable coins without having to go on an exchange and buy individual tokens. The index’s components are equally weighted and rebalanced monthly. Holders own fractions of the underlying tokens, which can be redeemed by burning the index token.