Are Crypto Indexes the Future?

My 2 cents on Indexes

Jul 07, 2023

The 20th edition of Gems Corner highlights the rise of crypto indexes, airdrop info, and other solid alphas.

The global stock market is currently valued at about $96 trillion. Of which 18% is held in indexes. This is a fair percentage compared to DeFi - of which less than 1% of TVL is held in indexes.

So, what are index funds?

Traditionally, an index fund is a mutual fund that replicates the performance of an index, mainly by constructing its portfolio to mirror that of the index. S&P 500 and Dow Jones Industrial Average are the two main indexes that come to mind.

For instance, S&P 500 is an index that tracks the performance of the top 500 companies listed on US stock exchanges. That means investors don't need the performance of these 500 companies to buy their individual stocks. They can just invest in the S&P index via an index fund.

Similarly, a Crypto Index is a list of crypto assets. It replicates the same methodology as traditional indexes. For instance, users can invest in an index tracking the performance of the top 10 crypto assets via a crypto index fund.

The crypto index narrative experienced phenomenal growth in the past three months, from about $258M TVL in March to $598M in July, moving from 17th to 11th position in DeFi rankings. Now, that’s growth.

Let’s see what some key players are doing:

1. Index Coop

They’re the leading index protocol with over $59.97 in TVL. Index Coop has about nine products, but the most-pronounced ones are DeFi Pulse Index (DPI), ETH Flexible Leverage Index (ETH2x-FLI) and the Interest Compounding ETH Index (icETH).

DPI is the flagship product of Index Coop, which tracks the performance of some of the largest protocols in DeFi, like Uniswap, Aave, Compound, etc. It’s the highest performance index in the DeFi space, with over 15,000 holders.

2. Alongside Finance

Raised $11M in February, Alongside is one of the fast-emerging crypto index-focused platforms. The Alongside Crypto Market Index (AMKT) is their flagship index which tracks the movement of 25 crypto assets.

It uses Chainlink’s Proof of Reserve (PoR) for transparency and Coinbase as its custodian. Despite the bear market, they’re still coming up strong.

3. Phuture Finance

Phuture Finance is an innovative on-chain index platform built on Ethereum and Avalanche. They have three main products: Phuture DeFi Index (PDI), Colony Avalanche Index (CAI), and the USDC Savings Vault.

CAI tracks the performance of AVAX and the top applications on Avalanche. Recently, it achieved a milestone hitting $5.6M in trade volume to become the world’s 5th largest on-chain index.

These are just some of the leading on-chain index platforms, and others are also doing cool stuff. The market is huge and scalable. Keeping my eyes on it.

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