Hey friends 👋

Today I want to talk about one of my favourite kinds of investing products: index funds.

I know, I sound like an old man when I talk about this kind of thing 👴  but hear me out, because I think by the end of this post, I can convince you that index investing (and specifically “crypto index funds”) deserve a place in your portfolio 🤝

We’re going to be focused specifically on Index Coop products which are my favourite crypto index tokens, but they’re not the only ones. In the future, I’ll probably write about others, but for today, we’ll focus on what I know best.

That’s Index 🦉

Set It and Forget It

The kind of crypto index tokens we’ll be talking about today are TokenSets which are based on the Set Protocol. Unlike synthetic assets, TokenSets are, according to their documentation:

…fully collateralised baskets, which are represented as ERC20 tokens on the Ethereum blockchain. These Set tokens act as structured products that represent the manager’s strategy, which others can replicate by simply holding the Set.

Now TokenSets are native to Ethereum, and understandably as that’s where the majority of tokens are, but the Set Protocol is also available on Polygon. And it seems like people are just waking up to this fact now 🌅

As I showed in a recent YouTube video, my favourite index product, the Metaverse Index (MVI), is now available on Polygon. And another favourite, the DeFi Pulse Index (DPI) has already become a staple of many Polygon users portfolios.

The main benefit of TokenSets is cost, but I mean that in more ways than one. But choosing Index Coop products, you can:

• save on gas fees/swap fees or centralized exchange fees from having to buy multiple tokens
• save on gas fees/swap fees or centralized exchange fees from having to sell multiple tokens
• reduce your taxable events triggered through buying and selling.

That last one is the key. Selling tokens to rebalance or reduce exposure triggers taxable events, often capital gains or capital losses. Every one of these events will need to be calculated against your taxes, making for a headache, as well as potentially needless expenses 😪

Save your money and save yourself a ton of work (your time has value!) 🙌

With that out of the way, perhaps you’re wondering…

What is the Index Coop?

The Index Coop is a decentralized autonomous organization (DAO) that oversees the creation and management of various investment products, each of which is based on the underlying TokenSets technology.

Here’s how they describe their vision:

The Potential Of Next-gen Asset Management Within 27 years, the ETF industry has grown to $4 trillion in asset value as of 2019 in the US alone, and $6 trillion worldwide.

As the crypto market matures, it too requires easy to use products that serve as benchmarks and entrypoints into crypto.

We believe that if we overlay the opportunity in the crypto world, crypto ETFs have the potential to make up a significant portion of the crypto market, and we’re here to make that vision a reality.

Following along with the Index Coop and their most prominent members on twitter, we can see that they aim to produce products to fit every sector across all of crypto 👏

Let’s take a look at their products 🔍

The DeFi Pulse Index (DPI)

The DeFi Pulse Index is a digital asset index designed to track tokens’ performance within the Decentralized Finance industry. The index is weighted based on the value of each token’s circulating supply. The DeFi Pulse Index aims to track projects in Decentralized Finance that have significant usage and show a commitment to ongoing maintenance and development.

Let’s have a look at what’s inside (as of January 2022):

Here’s a thread I did about DPI 👇

The Metaverse Index (MVI)

Designed to capture the trend of entertainment, sports and business shifting to take place in virtual environments.

Let’s have a look at what’s inside (as of January 2022):

Check out my video about the Metaverse Index. In it I discuss why I like MVI and then show how to purchase and provide liquidity on Sushiswap Polygon 🍣

By the way, the tutorial is applicable to any asset 🙌

The Data Economy Index (DATA)

Whereas Decentralized Finance (aka DeFi) is disrupting traditional banking and financial services, the Data Economy is disrupting the data monopolies built in Big Tech over the past 20 years.

Let’s have a look at what’s inside (as of January 2022):

Check out my video about the Data Economy Index. In it I discuss why I like DATA, purchase some and provide liquidity on Sushiswap Polygon and then stake of Sushiswap Onsen rewards 🍣

Once again, this tutorial can be used for any asset, making it one of my most useful tutorials to date 👨‍🏫

The Bankless BED Index

This construction […] seeks to give safe, passive exposure to a vehicle that captures equal-weighted upside from the most promising use cases and themes in crypto: store of value, programmable money, and decentralized finance.

The BED index features equal weights of all three tokens below. Composition does not change, just rebalancing.

Bankless DeFi Growth Index (GMI)

Following the success of their first index, BED, Bankless and Index Coop are back with another incredible product: GMI.

The index focuses on high growth, early stage DeFi projects which are not yet considered “blue chip”. GMI produces an optimal weighting via the use of a combination of square-root market cap, relative secondary market liquidity, and relative token dilution/emission scoring.

As you can see, GMI contains some of the most exciting protocols in DeFi. Prior to its release, I had been looking into Olympus, Alchemix, and Abracadabra myself as individual tokens to invest in. But now, with the release of GMI, I’m able to stick to my preferred approach and benefit from diversification, spreading of risk, and simplified investing strategy.

Now, it’s important to note that GMI is still relatively new, but it’s currently available on Uniswap on Ethereum and Polygon.

I made a video showing how to add the token to Uniswap and purchase it on Polygon, which you can watch here 👇

Also, if you are invested on Ethereum, you can benefit from Index Coop’s staking program and earn double digit rewards paid in INDEX tokens 🦉

Rewards as of January 23, 2022

Flexible Leverage Indexes

These products are different from the others. Focused on Ethereum, Bitcoin, or Polygon, the respective Flexible Leverage Index…

…lets you leverage a collateralized debt position in a safe and efficient way, by abstracting its management into a simple index. It enables market participants to take on leverage while minimizing the transaction costs and risks associated with maintaining collateralized debt.

As you can see ETH2x-FLI is basically just ETH, leveraged in Compound, USDC borrowed against that leverage, and more ETH bought ♻️

It’s not quite that simple to be sure, and I won’t try to explain the nuances of these products as I haven’t taken the time to explore them, but if leveraged investing interests you, I’d recommend digging deeper 🔬

Upcoming Products

Index Coop is one of the most innovative DAOs around. I recommend following @crypto_texan on twitter to see their upcoming products.

Seems like 2022 is going to be another really exciting year 👀

Also, check out the official Index Coop account, @alphalemonade,and @theyoungcrews for even more Index alpha 🦉

So How Does This Work?

Investing in Index Coop products, or any TokenSets is very much like buying Exchange Traded Funds (ETFs) in the stock market. You just need to find an exchange that holds them and purchase as much as you’d like.

Currently these products are only available on decentralized exchanges (by which I mean you can’t buy them on Coinbase), and I’m not sure that will change any time soon. So you’ll want to purchase large amounts on Ethereum (to reduce the impact of the gas fees) ⛽️ or better still, purchase them on Polygon. There is even some decent liquidity to trade on Ethereum Layer 2 DEX, Loopring. I made a tutorial about how to use Loopring that you can watch here.

Another option for larger investors on Ethereum could be to use TokenSets issuance to essentially mint new tokens. The main benefits here are a reduction in loss to slippage, and potentially lower gas fees. You can learn more about this process here.

If you’d like to see how to purchase these products on exchange, as well as how to provide liquidity yourself so you can earn yield on your investment, check out this tutorial, the steps of which can be reused with any supported asset on any supported blockchain 👨‍🏫

So you can HODL your Index products, you can provide liquidity, in same cases you can lend your tokens as collateral for loans. DPI, for example, is available as collateral on Aave (Ethereum) 👻

The only other thing to keep in mind is the streaming fee 💸

If you’re familiar with ETF investing, you’re likely familiar with fund management fees (MER for example) that you pay for holding a fund. The same — or similar at least — is true with TokenSets.

Here’s what the documentation says:

Streaming Fees

The streaming fees are fees that are paid out to Set managers over time based on the entire market cap of the Set (e.g. 2% of market cap over 1 year). This incentivizes managers to increase the value of their Sets over time for their users.

The streaming fee is calculated linearly over the lifespan of the Set. For example, if a Set has a 2% streaming fee and 6 months has passed, 1% of streaming fees would have been collected.

Nothing is free, and as I mentioned above, you’re already saving a lot by going this route. And besides the best part of Index Coop products, versus traditional financial products is transparency 🔍

Governance

While Index Coop avoids use of the term DAO on their website, instead referring to themselves as a Decentralized Autonomous Asset Manager (DAAM?) they do have the same characteristics as a DAO. If you’re confused by what I’m saying right now, have a read through my post: I Joined a DAO and I Like It.

Effectively, those who hold the INDEX token are voting shareholders of the protocol 🗳

Use your $INDEX to govern Index Coop, by voting for and against proposals on Snapshot. Or buy and hold $INDEX as a long-term investment, because each $INDEX token represents a share of Index Coop’s future revenues and success.

You can earn $INDEX rewards by contributing to the growth and sustainability of Index Coop, or by providing liquidity for Index Coop products on decentralized exchanges. You can also just buy $INDEX on a centralized or decentralized exchange.

But that’s not all. The tokenomics have been thoughtfully designed too 🧠

Capped supply, clear release schedule, voting rights. Not bad.👌

So that’s that. I hope I’ve been able to show why you might consider TokenSets (specifically the sets managed by Index Coop) as part of your crypto investing portfolio. They play a big role in mine. As always, this is not official investment advice, and you should do your own research.

Let me know in the comments what you think of the concept of TokenSets and if any of these products appeal to you, and until next time 👋

Thumbs Up

Thanks for reading! 🙌  If you have any questions, feel free to comment below or tweet at me. If you liked what you read, considering tipping to thumbsupfinance.eth or thumbsupfinance.crypto. I’ve done a thread about how to do this 💖

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Photo by Dayvison de Oliveira Silva from Pexels
Brand assets from Index Coop, taken from Press Kit
BanklessDAO graphics presented without modification