IndexZoo – Decentralized Tokenised Crypto ETFs

By paragism | paragism | 17 Sep 2022

Crypto is often appealing to investors who want maximum gain from a small investment but this is a technology-dominated sector and complicated for the newbies. Uninformed investors do not make money here in long run. The rise of decentralized finance of DeFi has opened up various types of trading opportunities but the complexity of the protocols has increased a lot in recent times. All traditional financial concepts are getting new lease of life through DeFi, yet we need more user-friendly platforms and products to bring mass adoption. There is no gatekeeper in DeFi like traditional finance, but the basic financial concepts are the same. In the stock market, ETF or exchange-traded fund is a popular investment product for both active and passive investors. The low-cost access, easy diversification of asset and smooth trading facility provides the investors with an awesome way to pursue their financial goals. In DeFi, we have seen launches of a few index products that outsource the steep learning curve of trading crypto. Still, DeFi Index products have only made a raw noise. Mass adoption of tokenised indices as an investment tool needs a lot of effort. IndexZoo is an upcoming project that is trying to address this issue.   


Every animal represents a particular tokenized index

IndexZoo is a multi-chain ecosystem of tokenized indices that wants to provide well-researched and accurate index tokens, different types of exposure to the index and optimally low access cost. The project was founded by Marshal Chang and he started to work on this project with help of a small team having experience in blockchain-based ecosystems and running traditional financial projects. The seed round financing was completed in 2021. IndexZoo is currently in Demo mode and the platform should be launched very soon. The project has already partnered with many blockchains like Polygon, NEAR/Aurora, Harmony, BNB, Acala, Cronos and Kucoin Chain and created a nice buzz among the crypto community. Interestingly, IndexZoo has received grants from Polygon, NEAR and Harmony when even the beta is not launched. The team is working hard to build indices that can make money in bull or bear markets. The platform will enable long, short, and leveraged exposures to any basket of cryptocurrencies. There won’t be any custody and the mission is to remain completely debt-less and permissionless. The users won’t have to worry about liquidations too.

IndexZoo has animal-themed tokenized indices. Minting or redemption of these tokens takes place on the IndexZoo platform only and it uses Set Protocol’s infrastructure to build structured products. Bull and Bear tokens are going to be IndexZoo’s flagship animal tokens. As the name suggests, Bear will be the ‘short token’ and Bull will be the ‘long token’. These will provide a capital-efficient way to take a leveraged long or short position with accurate index tracking. The users will be able to take 3-5X leverage. The leverage will be achieved through two different methods:

  • Using debt to achieve 3X leverage: This method will use collateralized debt from lending platforms like Aave and Compound. Recursive borrowing is a popular yield farming strategy that involves lending and borrowing to harvest the maximum reward and IndexZoo will use it to rinse and repeat the deposit-borrowing-buying-redeposit cycle and achieve up to 3X leverage. The on-chain risk management will keep things transparent and the users will be able to buy or sell the tokens on DEXs if they do not intend to mint or redeem.
  • Using perpetual futures to achieve 5X leverage: While 3X is a decent leverage but it may not suit the risk appetite of many users. The 5X leverage Bull or Bear tokens get leveraged exposures through margin trading derivative contracts. IndexZoo will use Perpetual Protocol on Ethereum Layer 2 to frequently rebalance the token as it saves gas fees. The trades will be settled in stablecoin in this case.


IndexZoo has a plan to launch Ecosystem Index Tokens also. For example – Polygon Index tokens will help you to take a leveraged long or short position on the ecosystem of Polygon. The Fear token will be another Index offered by the project. Crypto volatility is really outrageous nowadays. The candles turn green to red or vice versa within a very short span of time. If you want to long the crypto volatility, the Fear token will help you to do so. The project is working with a few options protocols to build an on-chain volatility index. IndexZoo’s customisable smart contracts open up a plethora of opportunities. Future animals like the Giant Panda or Vulture are already on their roadmap. The Giant Panda will be the smart relative of the Bear. Unlike Bear, it is not always pessimistic about the market and will make smart decisions to make money in the bear market. Liquidation reward is an interesting concept in DeFi and The Vulture will hunt for liquidation opportunities in lending protocols and connect to all major DEXs.


IndexZoo is definitely an interesting project. The users can use the platform’s minting-redemption feature to mint or redeem the animal tokens without any slippage. The mint/redeem fee has been kept at a convenient 0.1%. It is important that ETF products get traded in the open market as it exposes arbitrage opportunities and ultimately the index maintains the desired price. Here, the users always have the option to swap the animal tokens on DEXs paying the slippage and fees. Good enough. Every Zoo must have a Zookeeper! What is the case with IndexZoo? Here the Zookeeper will be the holders of IZO, the governance token of IndexZoo. IZO will be an income-generating token besides having voting rights in the protocol decision-making. 100% profit generated by the protocol will be distributed to IZO holders. Possibilities are really endless for IndexZoo due to the composability of the smart contracts. The project can innovate to offer customised solutions. Imagine making your own customised index that rebalances according to your decided time frame! Such things can be made possible by IndexZoo down the line. Institutional interest in DeFi is growing nowadays but institutions need different treatment than retail investors. The project team is working on an institutional trading portal also. So far, there are good vibes about IndexZoo. Let us wait for the beta launch!

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Note: The article was first published here

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Cypherpunk. Writing content which I love. Creeping on the blockchain. Twitter - @paragism_


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