Play the most popular DeFi index in one article, diversify investment in DeFi assets

Original title: "New Ways of DeFi 丨 Play with the most popular DeFi index in one article, diversify investment in DeFi assets"

Original source: The Way of DeFi

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Anyone can invest their allocation of funds into an index, such as an ETF or mutual fund, thereby gaining investment exposure to a diverse asset portfolio and gaining competitive income. And requiring little knowledge from investors, this is undoubtedly the best investment technique of "configure it and forget it".

As DeFi gradually becomes the foundation of the broader crypto market, it would be wise for any crypto investor to take a small allocation through this new financial model.

But for those with a solid understanding of decentralized finance (DeFi) and the nuances behind each protocol, which tokens have useful Attractive economical design that can be troublesome to some and a mystery to others.

At this time, the value of index investment can be reflected. Index investing doesn't really require you to know much about a particular asset, but more about the broad implications of the industry you're buying into. For example, you don't need to be nuanced about biotechnology and biomolecular processes to know which companies are the most suitable companies to invest in. You only need to buy SPDR Biotech ETF, and then you can get opportunities for innovation in this industry.

While the number of crypto indices is small and varies greatly from one another, over the past few months a number of new DeFi-specific indices have been launched, Making DeFi innovation accessible to anyone.

Even better, with the rise of liquidity mining, many tokenized indices offer liquidity providers (LPs) additional benefits. Notably, they all have an ETH pair.

Thus, by becoming an LP of a DeFi index, your portfolio will hold an allocation of ETH as well as a basket of DeFi tokens while earning high passive returns; One of the most attractive investment opportunities for bulls.

So let’s explore the current state of the DeFi index and the opportunities that lie within.

A list of popular DeFi indices in the market

The following DeFi indices will be introduced in descending order of market value

Set Protocol DPI 

Market value: 14.5 million USD

Number of Assets: 11 

Maximum Allocation: Maker’s MKR, 15.5%

Minimum Allocation: Augur’s REP, 1.9%

Fees: 0.95% per year

DeFi Pulse Index (DPI) is DeFi Created in partnership between Pulse and Set Protocol, it is a cap-weighted index covering the top DeFi tokens in the space.

The largest assets in the index include Maker (MKR), Aave (AAVE), Synthetix (SNX), yEarn (YFI) and Uniswap ( UNI), which together account for 66.7% of the index. These assets are all leaders in their respective tracks, so knowing that most product portfolios include "blue chip tokens" makes holding these tokens relatively safe. The index also includes some newcomers in DeFi, such as Balancer and Ren, both of which only launched in the middle of this year.

It should be pointed out that all assets held in DPI are actually redeemable as underlying assets, which means that you can always Base tokens for redemption.

DPI also offers an attractive Liquidity mining opportunities.

Investors can provide liquidity for the ETH / DPI pool on Uniswap, mortgage it to Index Coop Farm for liquidity mining, and get local tokens INDEX rewards, its APY is about 65%.

PieDAO DeFi + L (Large Cap)

Market value: $1.4 million

Number of assets: 7 

Maximum allocation: LINK, 18.8%

Minimum allocation: COMP, 10.8%

Whether there is liquidity mining: Yes—DOUGH 

Fees: 0.1% Swap fee

PieDAO is a protocol for tokenizing encrypted ETFs, powered by a decentralized standardized community management.

A notable difference between PieDAO's ETFs and other indices is the concentration of asset allocation.

While sDeFi and DPI have around a dozen assets in their index, PieDAO is more concentrated as its index has 6-7 assets - we Concentration and diversification will be discussed later.

In any case, PieDAO’s Large Cap DeFi ETF holds 7 assets in the portfolio and is the only index that offers exposure to LINK. Given that Chainlink continues to become an increasingly important part of the infrastructure as a decentralized oracle, it is worth mentioning that the LINK family, LINK Marines, accounts for 18.8% of its portfolio.

PieDAO also recently released the protocol's native governance token, DOUGH. Users who provide liquidity to the DeFi + L Balancer pool will receive a high APY in DOUGH tokens, and some BAL tokens as rewards for using Balancer as a liquidity source. The final difference is that while the DPI Uniswap pool has a 50/50 pool of ETH, giving investors equal exposure to ETH and DeFi tokens, PieDAO is weighted 70/30, so this liquidity pool is more inclined towards this DeFi index.

With this in mind, if you believe that DeFi will outperform ETH in the future, those LPs providing liquidity to the Balancer 70/30 pool will have Greater exposure to DeFi gains while suffering less impermanent losses.

Synthetix sDeFi 

Market value: $1.2 million

Amount of assets : 12 

Maximum allocation: AAVE, SNX, YFI, 15%

Minimum allocation: NXM, UMA, BAL, CRV, REN, 5%

Liquidity Mining: No

Fee: No

Synthetix’s sDeFi index includes 12 assets and is the oldest in this field , the most diverse index. In recent weeks, the index has been updated, adding YFI, UNI, wNXM and CRV to the mix while removing ZRX, REP, LRC and BNT. That said, the sDeFi index includes some other assets not included in the DPI, such as NXM, UMA, and CRV.

Furthermore, unlike a DPI index, a sDeFi index is a synthetic asset that tracks the price of the underlying asset, rather than being redeemable for all assets - for those This is an important distinction for someone interested in redeeming their underlying asset index.

While there are no other similar direct yield mining incentives, you can always stake SNX into the protocol to mint sUSD and use that funds to buy sDeFi index, while the SNX you stake gets inflation rewards and transaction fee rewards.

However, you must repay your sUSD debt to redeem your staked SNX!

PieDAO DeFi + S (Small Cap)

Market value: $970,000

Number of Assets: 6 

Maximum Allocation: UMA, 33.7%

Minimum Allocation: MLN, 2.1%

Liquidity Mining: Yes - Very good

Fee: 0% Swap fee

Similar to PieDAO's Large Cap ETF, the Small Cap DeFi ETF has a centralized proxy The currency basket forces investors to have a higher belief in the underlying token.

Specifically, about 64% of ETFs consist of only REN (cross-chain liquidity agreement) and UMA (generalized derivative agreement). While both assets have performed well since #DeFiSummer2020 (DeFi Summer craze), you should feel comfortable taking long positions on each given that they make up the vast majority of your portfolio.

Similar to DeFi + L, DeFi + S ETF utilizes a 70/30 Balancer pool to provide an attractive liquidity mining opportunity, LP can Earn about 118% APY on earned DOUGH while maintaining massive exposure to concentrated betting on DeFi tokens.

For all you venture capital crypto investors who are bullish on REN and UMA and BAL and LRC, this is the ETF you can own.

For those who have difficulty choosing between DeFi+S and DeFi+L, PieDAO recently launched DeFi+ +, which combines two ETFs into a single, tokenized (and highly diversified) investment vehicle.

Index Performance

Since most of these DeFi indices have only been live for a few weeks and are DeFi is in a bear market, so it is difficult to assess historical performance. Regardless, here's an overview of how the above-mentioned DeFi indices have performed over the past few weeks in a bear market:

PieDAO's Small Cap ETF is The best performer so far, as the ETF has allowed holders to avoid significant losses in DeFi since its September peak, losing just 5% of its value.

On the other hand, DeFi Pulse, which was launched at the peak of the market cycle, was the worst performing DeFi index, as its value has dropped roughly 36% since its inception, Worse than Synthetix's sDeFi, which fell 32% over the same period.

DeFi's recent rally bodes well for all indices, however, with only weeks of data now rather than years, it's up to you to judge which It's too early to tell which ETFs are best for you to invest in. So it's good to be dubious about the current data.

Most importantly, it depends on your preference for the assets held by each fund.

Concentrated investment and diversified investment

Buying the index is to obtain diversified market opportunities Best way. You don't have to worry about the nuances behind Open Finance, giving you peace of mind when investing in your cryptocurrency portfolio.

But there is a caveat here.

Since diversification is a great way to mitigate risk, you are also essentially reducing the potential gain. Making a lot of money with investing is not achieved by putting your money into dozens of assets, but by making concentrated bets. Real money is made when you develop a strong belief in an investment's long-term prospects and allocate your portfolio heavily to it.

This is the investment philosophy of famous value investors Benjamin Graham and Warren Buffett. Graham invested approximately 25% of his partners' capital in GEICO for $712,000 in 1948, an unprecedented investment allocation relative to his performance and general investment strategy. But 25 years later, the investment was worth $400 million. He took a firm view of the company's future prospects and put it into action. The end payoff is good.

If Graham had put the same amount of money into the S&P 500 over the same period, he would now have returned $5.5 million on his investment, which is a fortune Not a bad return, but $5.5 million pales in comparison to his conviction that a company can succeed and focus his investment.

That's it. So while investing in indices is a viable strategy, especially for those who are new to DeFi and don't have the time to delve into every protocol, it's hard to outperform those who are knowledgeable and willing to take higher risks , these are people who firmly believe in the future success of a small number of protocols and invest in them intensively.

But in the long run, the numbers will speak for themselves.

For the yield farmers out there, most of the new indices present attractive opportunities to earn high-yield passive income while maintaining exposure to Ethereum investments and a diversified portfolio of the hottest industries in cryptocurrency.

With PieDAO and Index Coop now effectively competing to create the best cryptocurrency index, 2021 will introduce a host of new diversified funds to the industry.

So, stay tuned.

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