This week at Bitrue, we will be listing the token from a seemingly simple, but useful project that can make your journey in crypto much easier. The token we are covering today is called the INDEX token,it is the utility token of a crypto index provider platform called Index Cooperative.
The concept of Index Cooperative is already familiar to most of us as it works the same way as existing TradFi indexes such as the Dow Jones, Standard & Poor’s, Vanguard, and BlackRock indexes. There are many different types of indexes available out there, two of the most famous ones include the DJIA (Dow) and the SPX (S&P 500). The Dow Jones Industrial Average, for example, measures the performance of 30 top blue chip stocks globally according to their prices, while the S&P 500 measures the top 500 highest market capitalization stocks listed on the New York Stock Exchange. An index is an essential component of the markets, as it allows investors like us to easily get an aggregate view of the market. Indexes create benchmarks that make market analysis much easier for market participants.
Furthermore, as the financial industry always discovers new ways to monetize everything, Investors who do not wish to go through all the trouble of having to handpick and purchase each of the 500 stocks on the SPX, while having to maintain it through constant rebalancing of their portfolio can opt to go long an ETF that closely follows the index instead, such as SPDR’s S&P 500 ETF, the SPY.
As the cryptocurrency industry continues to expand, we have an overwhelming number of approximately 19,000 cryptocurrencies out there, and there emerges a need to have an index for cryptos. A famous cryptocurrency index fund is called the Grayscale Bitcoin Trust (GBTC), GBTC is a centralized crypto index fund listed on the NYSE and is maintained regularly by the Grayscale team. The GBTC has over US$24.7 million in assets under management, and only comprises Bitcoin holdings, however, it provides diversified investment funds as well, with products such as the Grayscale Decentralized Finance Fund and the Grayscale Digital Large Cap Fund, which as their name says, gives investors exposure to DeFi and large cap altcoins. The drawback to Grayscale’s products, is of course, that it defies the original purpose of Bitcoin and crypto being a decentralized asset. Going long and short the GBTC is essentially just making a speculative bet on the price of these underlying assets, while not having the real assets itself as a means of decentralized investing. People should want to have crypto in their portfolio, because crypto assets represent financial freedom, they are not governed by any central authority, a polar opposite of the GBTC, where the team at Grayscale has the power to freeze or confiscate the assets investors deposited into their funds.
Now, if indexes are useful products that could be beneficial to the crypto market, why hasn’t there been any decentralized crypto indexes, and if there are why aren’t they more popular?
To answer the first question, Index Cooperative is not the first project to introduce decentralized index investing. While it is true that Index Cooperative isn’t the only player in the sector at the moment, it has a competitive edge over its competitors. As “index-ing” is a traditional finance concept, many crypto companies have sought to replicate it. Indexed Finance and PieDAO are two of the most famous decentralized crypto indexes aside from Index Cooperative. What makes Index Coop (short for Index Cooperative) stand out from the rest of the pack is a combination of several factors. Looking at the total volume locked alone (TVL) , Index Coop has over US$60 million of locked tokens, a stark comparison to Indexed Finance (US$1M) and PieDAO (US$2M). This shows that a substantial number of INDEX tokens are staked as compared to Indexed Finance’s NDX and PieDao’s DOUGH tokens. Index Coop has a total of 6 index fund products, including its star product, the DeFi Pulse Index, which has a market capitalization of US$36M, making it the largest DeFi index by market capitalization. As a comparison, Indexed Finance and PieDAO only have 3 indices each. In terms of index performances, Index Coop’s products lead again with indices up from 4–18% over the last 24 hours ( as per July 5th,2022) , while similar products from other platforms are only earning about 1–4%. Index coop’s stellar performance during a bear market like now is largely contributed to its meticulous methodology of component selection that are rebalanced every month (bimonthly). Aside from that, Index Cooperative has a solid backing, having accumulated US$10M in fundings from 10 investors, including A-listers such as Sequioa, Galaxy Digital, and DeFiance Capital.
Answering the second question, although investors have not set their eye on these index fund tokens, it’s worth noting that the S&P 500 is one of the most actively traded assets in TradFi, it proves that most people prefer simpler approaches to investing. A possible reason as to why decentralized crypto index funds are less popular might be because crypto is nascent; returns from indexes might be less exciting than being personally invested in each of the individual tokens. In a basket of assets, some tokens are bound to fail, while others might have the chance to 1000x in the future. However, choosing which among these assets will yield the most returns in the long run is not as simple as it seems, the ever changing landscape of the crypto space makes it all the more difficult, so to quote the business magnate John C.Bogle, instead of trying to find the needle in the haystack, why not just buy the whole haystack? This is where index funds solve the problem.
Lastly, how is Index Coop decentralized? The answer lies within the governance mechanism that allows INDEX token holders to vote on major decisions regarding the platform’s ecosystem. Index coop is a DAO (Decentralized Autonomous Organization) that allows token holders to contribute to the growth and sustainability of its platform.
Index cooperative provides investors with a simpler alternative to investing in crypto, all the while still preserving its original purpose of decentralization. Projects like these have a direct utilization, and might be a gateway for the general public to easily invest in crypto. For us at the Bitrue team, we would like to give our Bitruers an easy alternative to crypto investing, INDEX is available to trade at Bitrue on July 7th, 2022.
The Bitrue Team