Which index of sDeFi, DPI, DeFi++, PIPT is expected to become the leader of the track?

Original title: "Which index of sDeFi, DPI, DeFi++, PIPT is expected to become the leader of the track? 》

Original source: Blockchain Institute

Bitcoin is a new currency Examine, whether it is the currency terminator right or not. At least, Bitcoin is trying to redefine finance, and DeFi is also trying to deconstruct and rebuild financial product models. Although DeFi as a whole is still going around in small circles, the veterans in the encryption circle are the core and heavy users. But don't forget that at the beginning, all new gadgets look like toys to people.

Although DeFi is far from reaching the goal of inclusive finance, although there will inevitably be a lot of waste and defective products in the DeFi field, the project will run away and return to the community , Being coerced by hackers, there will be more and more problems in the future, and the failure of individual projects will make the ecology as a whole more robust through denial methods.

According to Wikipedia's explanation, the Lindy effect refers to things that do not die naturally, such as a technology or an idea, every time they survive for a while , its remaining life expectancy increases a little. Bitcoin has been killed more than 300 times, it's time to witness the Lindy effect. Don’t you see, Singapore’s largest commercial bank DBS Bank (DBS Bank) announced the official launch of the digital trading platform DBS Digital Exchange. Starting next week, you can start trading cryptocurrencies with fiat currency. Singapore Exchange holds a 10% stake.

JPMorgan, who has always been skeptical or even contemptuous of Bitcoin, hedged Fund Bridgewater Fund Ray Dalio, who has recently reached the stage of real fragrance, began to make an analogy between Bitcoin and gold. In Ray Dalio's view, Bitcoin and other cryptocurrencies have established themselves over the past decade as "alternative assets like gold."

With this background, we may judge with more confidence. For the ecological whole that can quickly learn and evolve from it, if you kill me, I will become stronger . And as mentioned earlier, for all traditional financial product categories, the encrypted world will do it all over again.

1. Index funds and encrypted asset index funds

Index funds are often an investment One of the best entry-level investment products for newcomers. In the past ten years, the market share of index funds has continued to expand. Taking BlackRock as an example, this company has jumped up in the past ten years and has become the world's largest asset management company, with assets under management exceeding US$100 billion. Among them, the rise of index funds contributed a lot.

The past ten years , with the emergence and increasing attention of Bitcoin, Grayscale, CoinShares, Bitwise and other companies have begun to try to use trust funds, index funds, etc. to integrate encrypted assets into the existing financial system. Every time Grayscale buys, buys, buys, it always triggers a round of heated discussions in the market, and some commentators even call the current market a bull market for institutions.

The practice of institutions such as Grayscale and the views of Ray Dalio, JP Morgan, etc. are to choose to add encrypted assets such as Bitcoin to the vegetable basket, and to put encrypted assets or Packaged, or transformed, to provide investors with traditional financial products, so that investors can purchase and hold encrypted assets through IRA, securities agency accounts, and products listed on exchanges.

On the other hand, the rise of DeFi represents an attempt in another direction. What DeFi does is to create parallel time and space. In this time and space, with the help of the Internet, the financial infrastructure provided by DeFi can be used by everyone without authorization, allowing people to obtain a new financial space beyond the original banks, exchanges, stocks, and funds.

Decentralized exchange DEX, automatic market maker AMM, derivatives, decentralized lending, and many other product models have emerged. In the past year, DeFi has grown by leaps and bounds. According to statistics, it now has a market share of nearly 15 billion US dollars. Among them, the best include Uniswap, Balancer, AAVE, Synthetix and many other DeFi products.

Naturally, in the wave of innovative experiments in DeFi, index funds, an indispensable product in the traditional financial world, have also begun to take shape.

Some entrepreneurial teams have begun to try to create cryptocurrency index funds, especially DeFi index funds. For example, DPI reached $25 million in assets under management (AUM) in just three months.

What are the projects and developments of the encrypted index funds created on top of the DeFi infrastructure? This article discusses together.

Second, what problem does the encryption index fund solve?

For many investors, DeFi is one of the must-haves in the current encrypted asset investment field. The projects that survived the DeFi boom gradually sank and became infrastructure. On top of this, more tricks can be played. In addition to adding new investment targets (CHAO ZUO), what can an encrypted asset index fund project based on DeFi provide?

Decentralized index funds are similar to traditional index funds, providing opportunities to passively obtain diversified investments. There is no need to use limited funds to invest in encrypted assets one by one at the risk of not earning back the handling fee. With a reliable decentralized index fund product, investors can directly buy an encrypted index of a basket of encrypted assets, simply hold it, and still enjoy the advantages of decentralization.

However, decentralized index fund products also have unique problems. Unlike traditional fund operators whose entities are subject to securities and other laws, decentralized index funds need to spend more effort to prove themselves, the most important of which are time and consensus.

Suppose a certain project issues a box token, claiming that it contains BTC, Great Treasure Coin, and Faith Coin. Then, is the box token capable of anchoring the value of the corresponding underlying token, is the proportion of the index composition reasonable, and how to solve the risk of fund operators making decisions or even running away?

When designing a decentralized index fund, there are many factors that need to be considered, such as the structure of the index fund, management methods, management fees, and many other issues .

In the following pages, let’s take a look at the four most representative products on the market: sDeFi, DeFi++, PIPT and DPI.

3. sDeFi

sDeFi is an index product issued on the derivatives trading platform Synthetix , anchoring a basket of DeFi tokens. However, the price-anchored derivatives method is used here, that is to say, the index only benchmarks the price of the corresponding DeFi token, which can be speculated or not exchanged, and does not have the underlying DeFi token as a support.

At the beginning of its launch, sDeFi included eight kinds of DeFi tokens. It's up to the community to decide. Currently, sDeFi includes 12 tokens, including: AAVE, SNX, YFI, REN, BAL, CRV and other assets. The proportion of different token shares is determined by the community, and a fixed proportion is adopted.

However, sDeFi transactions do not include liquidity mining . Users first need to generate sUSD with over-collateralized SNX, or purchase sUSD from DEX, and then participate in the Synthetix market to trade sDeFi. In Synthetix's market, an automatic trading market mechanism with no slippage is adopted. Every time you buy, the system will mint sDeFi for you; and every time you sell, the system will destroy sDeFi and return sUSD to you.

The transaction of the sDeFi index will not generate additional fund custody fees, but it will charge a 1% transaction fee just like other trading pairs on Synthetix. In addition to sDeFi, the platform also has a bearish DeFi index: iDeFi. After buying iDeFi, if the DeFi index drops, the price of iDeFi tokens will rise.

However, the current market size of sDeFi is not large. According to current statistics, the combined 24-hour transaction volume of sDeFi and iDeFi does not exceed US$1.6 million. Due to the use of derivatives instead of physical (real token) anchoring, sDeFi is just a price index and needs to rely on the oracle machine chosen by Synthetix. Once the oracle machine fails, or network congestion causes quotation delays, sDeFi market transactions will also be affected.

To summarize the advantages and disadvantages of sDeFi:

Advantages

-sDeFi is the oldest DeFi index trading product;

-Synthetix team in DeFi With a good reputation in the ecology, the protocol has processed more than US$1.5 billion in transaction volume, so sDeFi has a solid infrastructure.

Insufficient

-The structure of synthetic derivatives is adopted, and the anchored assets cannot be redeemed;

-Depends on the oracle system and has a counterparty party risk.

Fourth, PieDAO

and sDeFi adopt derivatives structure, only anchor price, no The real asset support is different. The index funds created by the DeFi team PieDao founded in March 2020: such as DeFi++, DeFi+L (large market value index) and DeFi+S (small market value index), etc., adopt real asset support index fund structure.

To put it simply, index funds backed by real assets such as DeFi++ need to buy and hold a corresponding basket of DeFi tokens according to the set ratio. However, index funds with derivatives structures such as sDeFi only anchor prices, do not need to hold assets, and will not redeem them. They can be called air coins, and their value serves as a price indicator for the corresponding DeFi token basket.

In order to help readers learn more about DeFi index funds, we will spend more space here to introduce PieDAO’s index product structure and operations.

A list of PieDAO index products

You can see The picture shows PieDao’s index products, including seven types, but the ones with the largest trading volume are BCP, DeFi+L, and DeFi+S. Our article mainly focuses on the DeFi index, focusing on the three index funds of DeFi++, DeFi+L and DeFi+S.

The market value of DeFi+L is 1.77 million US dollars, and the price is 1.3 US dollars; the market value of DeFi+S is 988,000 US dollars, and the current price is 1.62 US dollars. The S index product was created earlier than DeFi+L and covers six small-cap DeFi tokens, including UMA, REN, LRC, BAL, PNT, and MLN.

PieDAO's DeFi index products are created based on Balancer. When users purchase DeFi index tokens, they will buy tokens through trading tools such as Uniswap according to a fixed position ratio, or if users hold enough corresponding tokens, they can also directly join the circulation pool and issue DeFi index tokens .

Due to the adoption of a fixed ratio method, as the price changes, the funds allocated to different tokens need to be reconfigured on a regular basis. The AMM automatic market-making mechanism is carried out. Compared with traditional index fund product adjustments, which require manual buying and selling of corresponding stocks, bonds, etc., it still saves a lot of effort.

Take DeFi+L as an example to understand how to issue and redeem

The issuance mechanism of DeFi+L has two methods: single currency and multiple assets. If you choose a single currency, you need to pay ETH, and exchange it into the corresponding assets through Swap trading tools such as Uniswap and Balancer. In order to avoid the impact of the slippage problem, you need to pay an additional 5% of ETH, and the excess will be returned.

If the user chooses a variety of asset methods, they need to deposit the corresponding assets in proportion to provide liquidity for the DeFi+L fund. The following figure shows the generation 1 DeFi+L index token, the corresponding asset that needs to be paid.

Because PieDAO's index product adopts a structure supported by real assets, Therefore, it is possible to redeem the redemption assets in real time, and there is no need to pay additional handling fees for redemption. On the fund page of DeFi+L, click Redeem and select the amount of assets to be redeemed.

If you understand the operation and mechanism of DeFi+L, you will understand It has adopted the practice of several other index products of PieDAO, as well as index products such as PowerIndex with a similar structure.

In order to facilitate users who need DeFi+L large-cap funds and DeFi+S small-cap funds at the same time, PieDAO has also launched DeFi++ index products recently. Pack deals. Among them, the ratios of DeFi+S and DeFi+L are 30% and 70% respectively. The current market cap of DeFi++ is $520,000.

PieDAO has designed a liquidity mining method. If users provide liquidity for index products such as DeFi+S and DeFi+L in Balancer's token pool, they can get rewards such as native tokens DOUGH and BAL issued by PieDAO. However, it should be reminded that on Balancer, the token pool ratio of DeFi+S/sWETH and DeFi+L/sWETH is set to 7:3, which I think is too high and the current depth is not enough.

PieDAO's DeFi series index products represent a paradigm for constructing encrypted index funds. Through the design that allows real-time redemption, AMM is used to provide real-time Liquidity and ease of rebalancing are expected to serve as sample projects for many future encrypted index products.

The asset targets and proportions covered by the index, although fixed, can also be changed through community resolutions. The PieDAO community can make subsequent adjustments through the proposal (PIP), including the ratio and the currency of the position.

A similar project is the PIPT index issued by PowerPool, which is also created based on Balancer and also adopts a fixed ratio model.

5. INDEX Coop

Index Coop is launched by SET Protocol In the decentralized index community, the governance token is INDEX, which is also used as a reward for liquidity mining. The first index product is the DeFi Pulse Index (DPI) launched by the DeFi one-stop portals DeFi Pulse and Index Coop, with a market value of about 20 million US dollars.

DPI aims to track the performance of related tokens in the DeFi industry, and will calculate their respective proportions based on the weight of the token’s circulating market value. The underlying assets of DPI have a complete set of criteria for screening, and the main purpose is to select projects that can be developed, maintained and operated for a long time and have a wide audience.

DPI is based on the Set Protocol V2 protocol, using a basket of DeFi tokens as the underlying support model, and assigning corresponding positions according to the market value of the tokens Proportion.

DPI can allow The user's redemption means that the user can use DPI tokens to exchange for the corresponding underlying assets at any time. Currently, 10 DeFi tokens are included, as shown in the figure below.

Among them, AAVE has the largest proportion, about 19.4%. The current ratio of BAL is 2.27%. Different from the fixed ratio method adopted by PieDAO’s DeFi++ and other index products, DPI, which is based on the weighted index composition of circulating market value, will often need to adjust positions and replace tokens.

The governance mechanism of the Index Coop community introduces the role of index strategists, but these index strategists are not the managers of the index.

In two months after launch, 7.5% of INDEX tokens will be allocated to strategic parties. For example, DeFi Pulse, because they compile indicators, conduct research and provide data, this part of tokens will be allocated in 18 months. In addition, each Index Coop index (such as DPI) may also be designed with a fee, part of which will also be allocated to the index strategy party.

DPI issuance and redemption

It is worth reminding that the issuance and redemption of TokenSets The entry back to the DPI index is hidden by default and needs to be clicked to be displayed.

Different from PieDAO, the DeFi index provides single asset/multi Asset options, when DPI is issued, it must be transferred to a variety of corresponding underlying assets. Through the tokensets website, DPI tokens can be issued, which requires authorization to all relevant tokens of the contract. Due to the use of real asset support, DPI can also redeem the corresponding assets in real time.

DPI Liquidity Mining

In addition to adding credibility to DPI and leading the market value of DPI among DeFi index products due to the participation of DeFi Pulse, the liquidity mining mechanism adopted by DPI is also critical.

Users provide liquidity for ETH/DPI trading pairs on Uniswap, Then, you can mine through the IndexCoop page to get INDEX token rewards, the current price is $4.6, and the estimated annualized rate of return is 23%.

The index maintenance method of DPI

DPI is divided into two stages: determination stage and adjustment stage.

In the third week of each month, the modification decision to be made for the next token ratio update will be determined, and the current market value of CoinGecko tokens will be referred to , based on which tokens are added and removed from the index. These tasks will be announced to the community before implementation. After the confirmation stage is over, adjustments, additions and deletions of constituent tokens in the index will be carried out according to the corresponding instructions, and will be carried out on the first working day of each month.

Considering the impact of token allocation on the market, as the amount of index tracking assets expands, the adjustment period may be adjusted to more than one day, reducing purchases The impact of selling on the market price.

DPI adopts the method of circulating market value weights, which does not require human intervention. Compared with the method of community voting to change weights, it is more efficient. For the convenience of understanding, let's look at the relevant information of Index Coop's November index asset balance report.

This process was carried out through the INDEX Improvement Proposal for IIP-5.

Before the implementation, DeFi Pulse, as the index strategy party, announced The new DPI weight was announced to the community for verification. After confirmation, with the help of IndexCoopManamger's smart contract, a multi-signature trustless method was adopted, including DeFi Pulse, SetLabs and the IC community, and the DPI adjustment work was completed.

6. YETI

PowerPool released PIPT at the end of last month, which was created based on Balancer and went online for nine days , locked up more than 9 million US dollars. PIPT is similar to the index fund mechanism created by PieDAO.

On December 4th, a user named Ryan Watkins proposed in PowerForum (PowerPool’s governance forum) to create a Yearn Ecological Index YETI, focusing on the Yearn Ecology, including : Seven tokens: YFI, SUSHI, CREAM, AKRO, COVER, K3PR, CVP, PICKLE.

YETI adopted The fixed-ratio, real-asset-backed issuance method means that each YETI is backed by underlying assets and can be redeemed at any time. There are three options for issuing YETI:

-Transfer into any asset such as ETH, USDC, DAI, etc. for casting. Since ETH needs to be converted into the corresponding eight assets, so The slippage is high, and the default slippage is 2%;

-Single underlying asset, users can transfer to one of the underlying eight assets;

-Multiple asset issuance, as shown below shown.

YETI Liquidity Mining

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In order to motivate users to participate and improve the liquidity of YETI, the liquidity mining incentive for the first month was created. It includes two parts: Deposit YETI through PowerPool, you can share 200,000 CVP token rewards; provide YETI/ETH liquidity pool (ratio 80:20) through Balancer, and get 250,000 CVP token rewards.

According to PowerIndex page According to the above, the equivalent APR is about 530%-595%, and this part of the income is quite considerable. However, the eight tokens included in the YETI index have higher price volatility than tokens such as ETH, so please be cautious when participating.

According to the governance method of PowerPool, subsequent changes in the type and proportion of YETI tokens should also be carried out through the governance improvement agreement, and will take effect after voting.

7. Summary

The market prospect of index funds is broad, and several emerging funds in the DeFi field A DeFi index fund product also indicates that the community is unwilling to accept the status quo and continues to explore. All products that can be refactored with DeFi will be refactored by DeFi, but since the encryption market itself is a niche world, the exploration of DeFi products is more inclined to be understood as the prototype testing stage. This step is of course indispensable before reaching more audiences, but we must also know that the road is long and it will not be achieved in a day.

Whether it is the derivatives method adopted by Synthetix, or the real asset-backed gameplay adopted by PieDAO, INDEXCoop, and PowerPool, they are all exploring the way for DeFi + index funds . Over time, I believe these accumulations will pave an interesting way for DeFi to get out of the circle. Among them, the emergence of YETI is an interesting example. The concept of index products based on the ecological scope may also be extended to the field of NFT and blockchain games.

DeFi creates a parallel financial time and space to explore the gameplay of various financial products. In another way, traditional financial institutions are also using their own methods to approach the encrypted asset industry, and the two paths go hand in hand.

This article summarizes four current representative projects, and discusses some common models, advantages and disadvantages of DeFi decentralized index funds. Finally, it is worth reminding that although products such as index funds have the intention of trying to reduce investment risks, given that various tokens in the current encrypted asset market are still highly correlated, they cannot achieve much risk diversification. Therefore, it is necessary to remind readers at the end that the product model is worthy of attention, but to participate in it, you must do your homework and risk management.

References

https://docs.indexcoop.com/products/defi-pulse-index< /a>

https://bankless .substack.com/p/the-bull-case-for-decentralized-index

https://bankless.substack.com/p/how-to-mint-dpi-and-earn-index

https://medium.com/powerpool/the-meta-governance-approach-applied-to-the-yearn-ecosystem-yeti-is-launched-d8417459f6e2< /blockquote>

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