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Indexed Finance

Gain exposure to passively-managed crypto index portfolios represented by a single token.
Category
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Finance
Blockchain
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Ethereum
Currency
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NDX
Publisher
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Indexed Finance Team
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What is Indexed Finance?
Indexed Finance is a decentralized protocol for passive portfolio management on Ethereum.
Information
Type
Automated Market Maker
Blockchain
Ethereum
Currency
NDX
Platform
Windows, macOS
Publisher
Indexed Finance Team
FAQ
Fundamentally, the index tokens themselves represent fractional ownership of assets in pools maintained by a fork of Balancer. Assets within these pools have target weights assigned to them, and differences between the current and target weights (due to price fluctuations) are evened out via arbitrage.
Each index has two 'groupings': the current constituent list - those tokens that are currently active within the associated Balancer pool - and a secondary 'candidate' list of tokens waiting on the sidelines, ready to be switched in if an active member underperforms relative to the others, or if a particular candidate's performance justifies its inclusion.
Periodically, the target weights of members of the pools are recalculated on-chain (dependent on the weighting strategy associated with a given index), and occasional reindexes evaluate the list of all current and potential members to determine if membership of the current list needs to be adjusted due to shifts in performance of all tokens.
It's worth emphasising that the Indexed DAO itself does not control the assets that comprise the indices that we enable. They are kept within the Balancer pools themselves, and ownership of the assets is strictly limited to owners of the index tokens.
In short, no. Indices are superb instruments for gaining exposure to a large segment of a market at once, but they are subject to downturns just as much as any other asset or instrument. As with all crypto assets, do not expose more than you can afford to lose.
If you opt for the first option above, you will not have to pay the 2% swap fee - you are providing the underlying assets in the correct amounts, and will not trigger a swap within the pool to rebalance the weightings therein.
In the latter two cases, the swap fee applies. This fee is designed to lessen the impact and frequency of arbitrageurs, and is distributed to liquidity providers of the pool - namely, the existing index token holders. This is how the simple act of holding an index token becomes a form of passive yield, over and above the value gained - or lost - based on the performance of the index assets themselves.
Note that minting is a fairly gas-intensive operation, and is not recommended for small amounts - you may well end up paying as much (or more) in gas than you receive by way of index tokens.
It's possible to 'burn' index tokens either into their underlying components or directly to, e.g. ETH or DAI. This means you can always exit your index positions regardless of the liquidity of the index.
Burning index tokens incurs an exit fee of 0.5% of the amount burned. In practice, these fees do not impact traders who are just market selling index tokens rather than burning them. Rather, they offset the potential profit margins of arbitrageurs (a fractional subset of the overall users of the Indexed protocol) that seek to profit from differences between the net asset value and the market price of the ETF. These fees are a source of revenue for Indexed and have thus far been routed to the Indexed DAO Treasury, pending distribution to NDX holders upon the introduction of staking.
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