Diversify with DeFi index funds
You've heard the common phrase “diversify your assets”. In DeFi, it's a bit of a pain to diversify as you need to pay gas fees for each token transfer, so most people just throw their money into Bitcoin or Ethereum as the tides of the crypto market are generally controlled by the price action of those two, waxing and waning. The S&P 500 doesn't exist in DeFi... or does it?
Yes it does! (well at least, indexes exist) And here, in this article, I will show you some DeFi protocols allowing for index funds! This is not financial advice, obviously. Buckle up! (note: excuse my enthusiasm, it might sound like I'm being paid for this, which I'm not)
Set Protocol
Set Protocol is one of the biggest index protocols out there, powering indexes like the DeFi Pulse Index. It allows for “tokenizing portfolios”. In Set Protocol, according to their docs, there are 3 different groups: asset managers, investors and developers.
Asset managers are those who create Sets and manage them, taking fees from investors. Investors are, well obviously, investors. Developers are people who use existing tools to build amazing stuff through code, using the Set Protocol as a base.
Set allows you to diversify your portfolio easily, such as with the DeFi Pulse Index (not run by Set but powered by it), or use structured products like Ethereum x2 leveraged tokens. It's audited and reputable, and it gives all the tools needed to developers to build cool things, for asset managers to manage assets, for investors to easily invest into another person's portfolio. It's the most feature packed protocol I know that does this stuff.
Use this if you're on Ethereum, Polygon or Optimism. If you're on Avalanche, you're out of luck and you'll have to use..
Cook Finance
Cook Finance is a smaller but still trustworthy protocol. Unlike Set Protocol, Cook Finance is specifically designed for index funds. It's been audited by CertiK and SlowMist and the project is generally pretty reputable.
There are 2 parties: Index Selectors (investors like you and me) and Index Creators. It isn't as permissionless as Set though, because you need to be approved by the DAO before you can become an Index Creator.
At the time of this post, it's the only option available on the Avalanche C-Chain. It has many different indexes to choose from, not as many as Set Protocol, but enough for most of us.
So which one do I pick?
You can pick whichever you want. In my opinion, I would choose Set as it's more polished, feature-packed and permissionless, however Cook's approval process for becoming an Index Creator filters out a lot of bad indexes and it's planning on entering Binance Smart Chain in the near future.
tags are here, because i dont wanna cram them into the post cuz it looks weird #defi #indexes #tokensets #cookfinance #diversify #investing