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Indexes are the best way to obtain diversified market opportunities.
Original title: “New DeFi gameplay丨One article to play the most popular DeFi index, diversify investment in DeFi assets”
Written by: Lucas Campbell
Anyone can allocate their funds to invest in indexes, such as ETFs or mutual funds, thereby gaining investment exposure in multiple asset portfolios and gaining competitive returns in the broader market. And almost no knowledge of investors is required. This is undoubtedly the best investment method to “allocate and forget it”.
As DeFi gradually becomes the foundation of the broader crypto market, it is wise for any crypto investor to make a small amount of allocation through this new financial model.
But for those who have a deep understanding of decentralized finance (DeFi) and the nuances behind each protocol, which tokens have an attractive economic design may be troublesome for some people. For others, it is mysterious.
At this time, the value of index investment can be reflected. Index investing does not actually require you to know too much about a particular asset, but more about the broad impact of the industry you want to buy. For example, you don’t need to be meticulous about biotechnology and biomolecular processes to know which companies are the most suitable companies to invest in. You only need to purchase SPDR Biotech ETFs, and then you can get innovation opportunities in the industry.
Although the number of encryption indexes is small and they are very different from each other, in the past few months, some new DeFi-specific indexes have been launched, making DeFi innovations accessible to anyone.
Even better, with the rise of liquidity mining, many tokenized indexes provide liquidity providers (LP) with additional revenue. It is worth noting that they all have an ETH pair.
Therefore, by becoming the LP of the DeFi index, your portfolio will hold ETH distribution and a basket of DeFi tokens, while obtaining high passive income; this makes this index the most attractive investment for DeFi and ETH bulls One of the opportunities.
Therefore, let us explore the current state of the DeFi index and the opportunities it contains.
At a glance what are the popular DeFi indexes on the market
The following DeFi indices will be introduced in descending order of market value
Set Protocol’s DPI
- Market value: $14.5 million
- Number of assets: 11
- Maximum distribution: Maker’s MKR, 15.5%
- Minimum allocation: Augur’s REP, 1.9%
- Is there liquidity mining: Yes — INDEX
- Cost: 0.95% per year
DeFi Pulse Index (DPI) was created in cooperation between DeFi Pulse and Set Protocol. It is a market capitalization weighted index covering the top DeFi tokens in the field.
The largest assets in the index include Maker (MKR), Aave (AAVE), Synthetix (SNX), yEarn (YFI) and Uniswap (UNI), which together account for 66.7% of the index. These assets are the leaders of their respective tracks, so knowing that most product portfolios contain “blue chip tokens”, which makes holding these tokens relatively safe. The index also includes some rookies in DeFi, such as Balancer and Ren, which were only launched in the middle of this year.
It should be pointed out that all the assets held in DPI can actually be redeemed as basic assets, which means that you can always redeem 1 DPI of the basic token.
DPI also provides attractive liquid mining opportunities in the recently launched Index Coop (a decentralized cooperative dedicated to building and maintaining an ecosystem of encrypted index products).
Investors can provide liquidity to the ETH/DPI pool on Uniswap, mortgage it to Index Coop Farm for liquidity mining, and receive local token INDEX rewards, whose APY is approximately 65%.
PieDAO DeFi + L (Large Cap)
- Market value: $1.4 million
- Number of assets: 7
- Maximum distribution: LINK, 18.8%
- Minimum allocation: COMP, 10.8%
- Is there liquidity mining: yes-DOUGH
- Fee: 0.1% Swap fee
PieDAO is a protocol for tokenized encrypted ETFs, managed by a decentralized community.
The significant difference between PieDAO’s ETF and other indexes is the degree of centralization of asset allocation.
Although sDeFi and DPI contain about twelve assets in the index, PieDAO is more centralized because its index has 6 to 7 assets-we will discuss concentration and diversification later.
In any case, PieDAO’s Large Cap DeFi ETF holds 7 assets in the portfolio and is the only index that provides LINK exposure. Given that Chainlink continues to be an increasingly important part of the infrastructure as a decentralized oracle, it is worth mentioning that the LINK series of LINK Marines accounts for 18.8% of its portfolio.
PieDAO also recently released DOUGH, the protocol’s local governance token. Users who provide liquidity to the DeFi + L Balancer pool will receive a high APY of DOUGH tokens and some BAL tokens as a reward for using Balancer as a source of liquidity. The last difference is that although the DPI Uniswap pool has a 50/50 pool of ETH, so that investors have equal exposure to ETH and DeFi tokens, the weight of PieDAO is 70/30, so this liquidity pool prefers this DeFi index.
With this in mind, if you think that DeFi will outperform ETH in the future, then those LPs that provide liquidity for the Balancer 70/30 pool will have greater exposure to DeFi revenues and suffer even lower impermanent losses.
- Market value: $1.2 million
- Number of assets: 12
- Maximum distribution: AAVE, SNX, YFI, 15%
- Minimum allocation: NXM, UMA, BAL, CRV, REN, 5%
- Whether liquidity mining: No
- Cost: None
Synthetix’s sDeFi index incorporates 12 assets and is the oldest and most diverse index in the field. In recent weeks, the index has been updated, adding YFI, UNI, wNXM and CRV to the portfolio, while deleting ZRX, REP, LRC and BNT. In other words, the sDeFi index includes some other assets that are not included in the DPI, such as NXM, UMA, and CRV.
In addition, unlike the DPI index, the sDeFi index is a synthetic asset that can track the price of the underlying asset instead of redeemable all assets-this is an important one for those interested in redeeming its underlying asset index the difference.
Although there are no other similar direct liquidity mining incentives, you can always stake SNX into the agreement to mint sUSD and use the funds to purchase the sDeFi index, and the SNX you pledge will receive inflation rewards and transaction fees reward.
However, you must repay the sUSD debt to redeem the pledged SNX!
PieDAO DeFi + S (Small Cap)
- Market value: USD 970,000
- Number of assets: 6
- Maximum allocation: UMA, 33.7%
- Minimum allocation: MLN, 2.1%
- Whether liquidity mining: Yes-very good
- Fee: 0% Swap fee
Similar to PieDAO’s Large Cap ETF, Small Cap DeFi ETF has a centralized token basket, forcing investors to have a higher belief in the underlying token.
Specifically, about 64% of ETFs consist only of REN (cross-chain liquidity agreement) and UMA (generalized derivative agreement). Although both assets have performed well since #DeFiSummer2020 (DeFi summer boom), since these two assets account for the vast majority of your portfolio, you should rest assured that you have a long position in each asset.
Similar to DeFi + L, DeFi + S ETF utilizes a 70/30 balancer pool to provide an attractive liquidity mining opportunity. LP can earn about 118% of APY through the DOUGH obtained, while maintaining a strong interest in DeFi A large amount of exposure to centralized bets on tokens.
For all venture capital cryptocurrency investors who are bullish on REN and UMA as well as BAL and LRC, this is the ETF you can have.
For those who have difficulty choosing between DeFi + S and DeFi + L, PieDAO recently launched DeFi++, which combines two ETFs into a single, tokenized (and highly diversified) Investment tools.
Since most of these DeFi indexes have only been online for a few weeks and are in the DeFi bear market, it is difficult to assess historical performance. In any case, the following is an overview of the performance of the above DeFi index in the bear market in the past few weeks:
PieDAO’s Small Cap ETF is by far the best performer, because the ETF has allowed holders to avoid the significant loss of DeFi since its peak in September, losing only 5% of its value.
On the other hand, DeFi Pulse’s DeFi Index, which was launched at the peak of the market cycle, performed the worst because its value has fallen by approximately 36% since its inception, worse than Synthetix’s sDeFi, which has fallen by 32% during the same period.
The recent rebound in DeFi bodes well for all indexes, but now there are only a few weeks of data instead of a few years, so it is still too early to determine which ETF is best for your investment. So you can only be dubious about the current data.
Most importantly, it depends on your preference for the assets held by each fund.
Concentrated investment and diversified investment
Buying an index is the best way to obtain diversified market opportunities. You don’t have to worry about the nuances behind open finance, so you can feel at ease when using cryptocurrency portfolios.
But there is a caveat here.
Since diversification is a good way to mitigate risks, you also essentially reduce potential benefits. Making a lot of money by investing is not achieved by investing funds in dozens of assets, but by making concentrated bets. When you build a firm belief in the long-term prospects of an investment and allocate a large investment portfolio to it, you can make real money.
This is the investment philosophy of famous value investors Benjamin Graham and Warren Buffett. In 1948, Graham invested approximately 25% of his partners’ capital in GEICO at a price of $712,000. Compared to his performance and general investment strategy, this was an unprecedented investment allocation. But 25 years later, the value of this investment reached US$400 million. He held a firm attitude towards the company’s future prospects and took action. The final profit is very good.
If Graham invests the same amount of money in the S&P500 index in the same period, he will now get an investment return of 5.5 million US dollars, which is a good return, but he firmly believes that a company can succeed and make concentrated investments In comparison, US$5.5 million pales in comparison.
That’s it. Therefore, although investing in indexes is a viable strategy, especially for those who are new to DeFi and do not have time to study each protocol in depth, it is difficult to beat those who are knowledgeable and willing to take higher risks These people firmly believe that a few agreements will succeed in the future and invest in them.
But in the long run, these numbers will tell everything.
For income farmers there, most of the new indexes have attractive opportunities to earn high-yielding passive income while maintaining a diversified portfolio of investments in Ethereum and the hottest industry in cryptocurrency.
With PieDAO and Index Coop now effectively competing to create the best cryptocurrency index, a large number of new diversified funds will be introduced to the industry in 2021.
So, stay tuned.