For many brothers participating in the cryptocurrency market, it will certainly be a habit to find and select coins and tokens and buy these products directly on the exchange. However, another segment of the market is the index (Index) which also attracts a lot of attention, especially with large institutional investors or individual investors with little conditions to follow the market too much. frequent. So what is Index and what is the use of this product array, let's find out with Coin68 in the article below!!!
What is Index?
Index is an index that helps to generalize the ups and downs, volatility of asset groups included in the monitoring basket. In the traditional stock market, many of you must be familiar with the concept of VN-Index, internationally, we have Dow Jones, S&P500, ..
In more detail, the assets in the index's basket will have their own percentage weight, depending on the influence of that asset.
Index groups in the crypto market?
Indexes in the crypto market will still operate essentially the same as the above models. For the current crypto market, it can be divided into 3 main index groups:
Derivative Index
That is, the traded indicators will be considered a derivative product. For example: EXCH-PERP, SECO on FTX. You can refer to this product group in the article below:
- Collateral Requirements: Most brokers offering this index do not publish too much information regarding their collateral for these products. Therefore, buyers of this index product will most likely be inclined to surf to reduce risk.
- Advantages: Quick liquidity, low cost. Users will trade similar to derivative products such as futures or options that are popular in the market.
- Cons: Risk of position liquidation. There is not much information about the collateral for the index, the market is prone to price manipulation.
Tokenized Index
These are tokens that represent the index pool. Token buyers will be considered to have allocated the portfolio according to the percentage specified by this Index token. For example, the DPI and Metaverse Index groups of Coop Index or Bankess DAO, ..
- Collateral Requirements: Since most of these tokens are operated by self-regulatory organizations (also known as DAOs), they will have to clearly disclose their assets, the percentage of assets held hold to back your Index token.
- Pros: Transparent, trackable data on the blockchain space. This index token holder can even mortgage on lending platforms, from which mint more stablecoins to continue trading in the crypto market.
- Cons: High transaction fees because the token is deployed mostly on Ethereum. The supporting assets in the index are not diversified yet.
Fund Index
The buyer will trade the certificates with the investment fund, the fund itself will be responsible for allocating the raised funds into the tokens. Examples of this type can be mentioned as Grayscale DeFi Fund or Bitwise Index, ..
- Collateral requirement: Because of the legal obligation, funds will have to clearly disclose the amount of collateral before disclosing the weight of assets in the index.
- Pros: Safer in terms of legal guarantees.
- Cons: Not suitable for retail investors, as most transactions are usually large in size. Fund management costs are high.
Uses of index products
First, it is easy to see that it will free up a lot of time for busy investors. Instead of having to read and search for investment opportunities on their own, they can allocate assets to indices.
Second, these indicators provide a broad overview of the market. For example, if we are interested in altcoins in general, we will follow the Altcoin Index. Going into the altcoin array we will have the Index for the DeFi group. Or if we are interested in the fluctuations of the game segment, the metaverse, we can follow the Index products about the game. The change in the price of the indexes will help us to better visualize the cash flow.
Note: However, to get the most accurate view from the indices, it is necessary to monitor the weight of assets in these indices to avoid being misled by the data.
The final role will be to bring capital to the entire crypto market. The barriers to investing in the Crypto market are still high for traditional capital flows. As mentioned above, having a bridge product like Index makes it easier for capital to flow into the crypto market.
Ending
So, we have gone through the basic concepts, popular Index types in the crypto market as well as the use and role of this product. Hope the above information is useful to you.
If you are interested in investment finance and in-depth information related to the DeFi market, please join the Fomo Sapiens community with Coin68 admins!!!
