Indexes: Strong in Traditional Finance, Blue Ocean in Crypto
An index is a type of financial instrument that tracks and measures the performance of a specific basket of assets (stocks, bonds, cryptocurrencies, etc.). It enables index holders to measure and contribute to the overall performance of the financial market as a whole, rather than the instruments.
Indexes are a versatile tool that allows users to achieve various goals. The key advantages include:
Unified Instrument: An instrument that enables holders to receive passive income by tracking the overall market performance.
Time Savings on Analysis: Utilizing indexes reduces the time required for portfolio construction, eliminating the necessity to study a wide range of market sectors and numerous companies within each industry.
Elimination of Rebalancing Requirements: Using public indexes eliminates the routine process of rebalancing, which involves multiple buy/sell operations.
Diversification: Indexes are a multi-asset composite that helps reduce the impact of individual components, thereby lowering overall portfolio volatility.
Long-Term Performance Advantage: Holding an index long-term offers higher returns compared to active strategies focusing on individual instruments and a high transaction volume.
In traditional financial markets, index trading constitutes a significant portion of the overall turnover of investment instruments. For example, the ecosystem of products directly linked to the S&P 500 generated $224T(1) in index-equivalent trading volume in 2023.
For comparison, during the same period, the trading volume of all cryptocurrencies (spot & perpetual) on TOP10 DEX and CEX amounted to ~$36.3T(2), and the trading volume of projects in the DeFi category (to which indexes belong) amounted to ~$1T(3). Thus, the volume of the entire DeFi sector is currently ~0.45% of the S&P 500 products.
Although the DeFi sector remains small in comparison to traditional financial markets, it is growing strongly, with high growth rates. Since 2023, the TVL of projects has grown ~2.6x(4) times to reach the $100B mark. Therefore, index projects will grow dizzyingly due to the growth potential of the DeFi market as a whole.
Despite the popularity of indexes in traditional financial markets, the cryptocurrency space has a limited number of players that provide opportunities to interact with indexes. These platforms do not allow users to fully exploit the benefits for several reasons:
Limited availability of indexes (not suitable for all strategies).
Indexes are composed of a small number of tokens (up to 5-7).
The list of tokens available for index composition is restricted to a few dozen.
Indexes are rarely rebalanced (once a month, once a quarter, or less).
The Cryptoindex platform democratizes access to one of the most well-known types of holding instruments, incorporating best practices from Web2 and evolving them within the Web3 cryptocurrency space.
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