Index Coop and Crypto Indices: A Deep Dive
Right now it is safe to acknowledge that we’re living in a time of great uncertainty. Covid is still far from over. Inflation is approaching a record high in almost all parts of the world. In a time likes this if your money is lying somewhere in a bank savings account with minimum interest rates, beware. You’re actually losing the purchasing power of it against inflation. Therefore, You should be taking all your financial decisions taking inflation numbers into an account. One way you can dodge inflation is by investing your money somewhere that can give you fairly higher returns than the rate of inflation.
But actively investing your funds can be daunting for so many reasons. Also, not everybody has the required time and energy to do that mental hustle. It is the reason passive investment options like index funds are widely popular in the world. They eliminate the need to constantly rebalance your portfolio and provide a safe and secure way of investing.
Things can be even more complicated when it comes to investing in cryptocurrencies. There is a deep learning curve involved for people new to the space. And if you’re not careful enough, you can easily be rug pulled. Not to mention, it’s the wild west out here in terms of projects and investment options. All these things make crypto seem overwhelming to new users and investors alike. However, at the same time, people don’t want to miss the opportunity of investing in crypto, which can provide significantly higher returns than the traditional markets. That is where index cooperative comes in. It offers themes based crypto indices that are made up of several underlying tokens and can be bought and sold in the market much like the ETFs. Let’s dive into it to know more about them.
Table of Contents
- What is an Index fund?
- What is Index Coop?
- What are the Index Coop Products?
- How to purchase an Index Coop product on a DEX?
1) What is an Index Fund?
Before we dive into index coop, It would be great to discuss a little bit about what an index fund is for people not familiar with the concept. So, quoting Wikipedia “An Index fund is a mutual fund or exchange-traded fund designed to follow certain preset rules so that the fund can track a specific basket of underlying investments”.
In traditional finance, typically they track benchmark indices of stock markets like S&P 500, Nasdaq 100, Nifty, Sensex etc. Theoretically, they could track any asset though.
In recent years, they’ve been becoming increasingly popular as more and more people are pivoting towards the passive forms of investing. According to estimates, there are some 11 trillion dollars is now invested in index funds. Index coop plans to replicate this success in the crypto world by building crypto indices that allow investors to get the pie of the crypto market in a safe and efficient way.
2) What is Index Coop?
Index Coop or Index Cooperative is a community of people who together creates and maintains various crypto index products. Now, this might come as a shock to the people who are unfamiliar with crypto, but unlike in traditional finance, where only a few people top in the hierarchy have this power, in the crypto or web3, everything is maintained by a community, ideally by forming a DAO. And the best thing is that anyone is free to join or leave the community anytime they want. Index Coop has a governance token called INDEX. You get the right of voting and submit proposals in the governance of protocol by just holding the INDEX tokens. Anyone can come up with a new index product idea. It gets discussed and further voted in the community. If the community approves it, Index coop partners with the methodologist to launch the product. Everything else is taken care of by the brilliant minds at Index coop.
A quick history of Index Coop, it was announced in October last year by Set Protocol, the technology provider and founding partner of the Index Coop. At the time only DPI or Defi pulse index was in existence. Since then, they’ve launched a number of other products based on different crypto investment themes and have gone to become a leading project in the space.
Now without further ado, let’s get straight to the nitty-gritty of the project, the actual index products.
3) What are the Index Coop products?
Right now Index Coop has four main Crypto investment theme-based indices and 2 leverage index tokens that are meant to leverage your collateralized debt positions(for sophisticated defi users). The four main index products that we’re going to discuss in this post are,
- Defi pulse Index
- Metaverse Index
- Bankless Bed Index
- Data economy Index
Let’s go through each of them in detail one by one.
DPI(Defi Pulse Index)
Defi Pulse Index is the first and most popular product of index coop. It was launched in the last year when Defi summer was heating up. The idea of Defi Pulse Index was proposed by Defi Pulse, a Defi analytics platform, and was developed by teams at Set protocol. Right now it boasts a market cap of 155 million dollars and a circulating supply of 545000 DPI tokens.
Defi or Decentralized Finance is one of the major and most promising use cases that has come out of crypto. And since the Defi summer has picked up, we’ve been seeing an explosion of Defi projects, partially due to the open-source nature of crypto projects, which allows anyone to copy the code and come up with their own version of the product. That is why keeping up with Defi space and learning about all the new projects can be surely cumbersome. DPI seeks to solve this and various other issues with investing in Defi projects by providing a benchmark token that tracks the price of the most important and useful projects in the Defi space. The Defi Pulse Index is a capitalization-weighted index, meaning it is weighted based upon the value of each token’s circulating supply. You could basically say it is like the S&P 500 of Defi! While writing about all the underlying tokens and inclusion criteria would be out of the scope of this article, I would highly recommend you to read about them here.
Buying DPI has several key advantages over buying and managing the underlying assets separately. Some of the prominent ones are as below,
- It acts as hedge against volatility. People who’ve been following the space for sometimes, know that crypto markets can be insanely volatile. If you’re not careful in your selection of assets, it can easily wipe out half of your portfolio in a day. These things obviously scare new investors. DPI provides downside protection due to holding a wider selection of tokens and allowing only the most valuable and useful tokens to be part of the index.
- It saves tons time and mental hassle. Defi evolves pretty fast and new projects can come and dethrone existing ones in matter of months. So, there’s this constant need to watch out the space and rebalance your portfolio accordingly. DPI eliminates this by automatically adding new tokens and rebalancing itself as per the preset rules.
- It is cheap and efficient. Now technically this argument alone should be enough to convince someone to buy an index product these days! Because given the current gas prices, it can save you hundreds if not thousands of dollars in gas fees alone. Buying DPI simply Eliminates the need to perform countless costly transactions manually, saving us time and money.
- It is ideal for people just interested in investing. As i mentioned earlier, right now there’s deep learning curve involved for the people who want to invest in the space, which acts as hindrance. People have to first learn about blockchains, then ethereum, defi and much more. Think about it like this, What if using internet had required understanding the nitty gritty of HTTP, SMTP and other protocols, probably it still would have remained a thing of tech bros and elites, right? Defi pulse index offers safe and reliable way for anyone in the world to get the pie of financial revolution that is happening in defi without knowing what is happening behind the scenes.
Who doesn’t want to be in the metaverse! The term metaverse has quite become a thing after Facebook renamed itself to Meta. Although there’s still some ambiguity surrounding the concept, the name certainly raises eyebrows of people. So, what exactly is Metaverse Index?
According to the Index Coop website, “Metaverse index is designed to capture the trends of entertainment, sports, and business shifting to take place in virtual environments”.
MVI consists of the most promising crypto projects in gaming, virtual reality, NFTs, augmented reality, music and entertainment etc. These are the categories that can receive significant upside when metaverse truly kicks off. So, if you believe in it and want to delve into it early, you can buy a piece of it today through MVI. MVI uses a combination of root market cap and liquidity weighting to arrive at the final index weight. Right now, it has a market cap of 45 million dollars and 200000 MVI tokens under circulation. If you want to learn more about how the index operates, what are the underlying tokens, and the token inclusion criteria, you can visit here.
Finding the right tokens to invest in this arena can be even more difficult than in Defi, thus buying an index token based on the metaverse theme is a great way to get exposure without worrying about getting the rug pulled. Additionally, all the benefits of holding DPI apply to the metaverse index as well.
BED(Bankless Bed Index)
As some of you might have already guessed by the name, the idea of the BED index was proposed by BanklessDAO, one of the OG Media Dao in the crypto. The idea and methodology behind the BED index are fairly simple. It is made up of Bitcoin, Ether, and Defi pulse index, all three in equal weights.
BED(bitcoin, ether, dpi) seeks to give safe and passive exposure to a vehicle that captures three of the most promising use cases of crypto, the store of value, programmable money, and decentralized finance. If you know nothing about crypto, buying BED is probably the safest way to get the exposure I would say. BED is made up of crypto’s most time-tested assets, which have a successful track record of giving steady higher returns in the long term making it an ideal investment for passive investors looking for long-term investment vehicles. Find out more about the BED index here.
DATA(Data Economy Index)
Data is the new oil, as the saying goes. Today whoever controls the data, controls everything. Thus it is more than necessary that it is not controlled by any one single entity. And technically there’s no better home for data than a blockchain. Blockchains are public, immutable, and eliminate a single point of failure. Right now there’re many projects in the crypto that are tackling data-related use cases. And given the need for such products and services today, they certainly seem to have a very promising future. However, unlike Defi or NFTs which have garnered quite a good popularity recently, not many people still realize the potential of these blockchain-based data solutions. Index Coop community understands this and through the DATA index, they plan to provide you a piece of it through an easy and reliable investment vehicle.
Data economy index consists of tokens of data-based products or services. One notable thing here is that the data index is Data-centric and chain agnostic meaning it allows tokens from any blockchain to be part of the index as long as they’re tackling data-related use cases. To summarize, DATA is the first decentralized index to capture the growth of the data economy and also the first to include non-Ethereum-based tokens. You can check token-specific details and inclusion criteria here.
4) How to buy an Index Coop product on a DEX?
(Note: This guide is aimed at absolute beginners to the Defi)
First of all, you would need an Ethereum compatible wallet in order to buy these products. I’m guessing most of you already have one, but in case you don’t, you can download one(Metamask) from here.
One important thing to keep in mind is that every transaction on the Ethereum network requires some amount of gas fees(Check out this simple Guide on best practices while paying gas fees). Gas fees are paid in ether, and you’re also going to need ether to buy DPI. So, our first step would be to transfer some ether from a centralized exchange like coinbase to your metamask.(Skip this step if you already have ether in Metamask) You can also buy it directly on Metamask through the buy option on the home page if it supports your country.
Finally, we’ll go through the whole process step by step to buy DPI on Uniswap.
This is your Metamask homepage.
Once you’ve got ether in your wallet, swipe to the left side and click on the browser button.
It would take you to the browser home page. Now in the search bar, type Uniswap and go to the site. A pop-up will show up and ask you to connect your wallet.
Now go ahead and connect your wallet(Don’t worry, it is safe and mandatory).
Your interface should look something like this.
Click on the Select a token button and search for DPI. If it shows up, click on it to select it. But in case, if it asks you to import the token, click on that button to import it(You would only have to do this once).
And, you’ve almost done it! Now enter the amount(in eth) you want to buy DPI of.
Click on the swap button on your screen. It will ask you to sign the transaction. Once you’ve signed it, you’re good to go. Your DPI should show up in your wallet balance after just some time.
Index funds are still very new to the crypto and there’s just enormous potential for growth here. Needless to say, Index Coop is best positioned to take the advantage of this. And I think, given the extremely volatile nature of crypto assets, we’re going to need these products more badly in crypto. All this suggests a bullish trend. But, it would surely be interesting to see how things play out on the ground.
One major thing that would probably decide the pace of adoption of these crypto indices is distribution. Non-crypto native investors are a major target group for these products, and in order to convince them to buy these products, they need to be made available on platforms these people are most familiar with. DEXes are a new concept for them, and it’ll take some time before they adapt to it. For example, if today we were to make these products available on a centralized exchange like coinbase or let’s say on some Tradfi marketplace, their market cap would surely skyrocket. Having said that, the success of these products seems inevitable but how fast it happens will depend largely upon the distribution side of it.
On that note let’s end it here. And thank you, if you made it till here!