Are You A Futurist?
We’ve been thinking for a while about how to create an ETF that would appeal to your ‘first-time’ crypto investor: those that are interested in exposure to Bitcoin and Ether along with the nascent DeFi market, but don’t know where to start. The type of person who wishes to allocate part of their portfolio to crypto and holds a Vanguard, but can only name Bitcoin when pressed.
Having listened to community feedback about the desire for a ‘blue chip’ product that provides exposure to BTC and ETH as well as containing more than a maximum of ten constituent assets, it makes sense to start bundling our ETFs together.
As such, we give you the Future of Finance Fund.
The FFF is a five-member meta-index, minimizing both IL within the host Balancer pool and the gas costs associated with minting it. However, at the time of deployment, the FFF provides indirect exposure to 24 tokens, due to the fact that three of the five members are themselves indices.
FFF holders gain significant exposure to the two largest crypto-assets currently in existence, while also receiving passively managed exposure to:
* A heavily concentrated, large-cap decentralised finance index (DEFI5),
* A medium-large-cap index covering significant Ethereum protocols (CC10), and
* A smaller, riskier index of growth bets across Ethereum (DEGEN)
The result is an ETF with a 40% focus on ‘pure’ crypto assets (the ones you know from the news), approximately 40% covering large/medium-cap DeFi protocols, and the remainder as smaller shots with a greater chance of upside, to be phased out in favour of a yield-bearing component in due time (more on this in ‘Shifting Towards Yield’ below).
Within the FFF, wrapped versions of ETH and BTC have their weightings pegged to 20% each, with the remaining 60% spread across the other components according to their relative weightings in the sum of the square roots of their circulating market caps.
To illustrate: if the three non-pegged assets have a circulating market cap — which corresponds to the TVL in these cases — of 20, 30 and 50 million respectively for a total of 100 million, they are compressed into the remaining 60% as follows:
Within the index components themselves, DEFI5 and CC10 are both weighted according to the square-root of the fully-diluted market caps of their components. The DEGEN component is weighed via the same square root circulating market cap strategy as the non-pegged components of the FFF itself.
The weightings within the FFF are rebalanced weekly, as are the weights of the component indices. Every four weeks, DEFI5, CC10 and DEGEN are reindexed, potentially changing their component makeup depending on the relative performance of their constituent assets.
For you? Very likely absolutely none whatsoever.
As with all of the Indexed products released thus far, we do not charge a streaming/management fee for either holding or trading the FFF. There’s no reason for us to charge such a fee, as the FFF is passively managed. It’d be a hustle for us to do otherwise.
Some fees do exist, however.
There is a 2% swap fee that is imposed when someone swaps assets within the underlying pool of assets, in order to offset impermanent loss. If you’re market buying or selling, you won’t pay this.
Likewise, there’s a 0.5% fee imposed when FFF tokens are burned back into their underlying components. This fee is only realised by arbitrageurs taking advantage of temporary differences between the trading price of FFF and it’s NAV, whereas the vast majority of FFF holders will dispose of their holdings by simply market selling them. Again, if you’re market buying or selling, you won’t pay this.
What do we do with these funds?
Swap fees are distributed amongst all holders of the FFF token (as a form of passive yield), whereas burn fees are routed to the Indexed treasury, and will be redistributed to stakers of our native NDX token (if you’re an NDX holder, we’ll be announcing when this is live, don’t worry!).
The initial members of the FFF are as follows, at the time of initialization:
1. [20%] WBTC
2. [20%] WETH
3. [33.4%] DEFI5
4. [13.4%] CC10
5. [13.2%] DEGEN
The fact that three of the above are themselves indices means that we need to peel back the wrapper to see the actual exposures to tokens. Whilst these weights are always changing due to external arbitrage (and some tokens will likely always be phasing in or out of their ‘home’ indices), a snapshot taken at launch has the following membership/weighting:
WETH 20.00% [Wrapped Ethereum]
WBTC 20.00% [Wrapped Bitcoin]
UNI 16.05% [Uniswap]
CRV 7.84% [Curve DAO Token]
AAVE 7.77% [Aave]
COMP 7.26% [Compound]
SNX 3.19% [Synthetix]
LINK 3.02% [Chainlink]
RSR 1.78% [Reserve Rights Token]
1INCH 1.67% [1inch]
MKR 1.58% [Maker]
REN 1.49% [REN]
MIR 1.4% [Mirror Protocol]
ALPHA 1.3% [Alpha Finance]
OCEAN 1.29% [Ocean Protocol]
BADGER 0.86% [Badger DAO]
POLS 0.86% [Polkastarter]
UMA 0.72% [UMA]
YFI 0.72% [yearn.finance]
RUNE 0.39% [THORChain]
RGT 0.36% [Rari Governance Token]
OMG 0.16% [OMG Network]
BAT 0.16% [Basic Attention Token]
ZRX 0.15% [0x]
Under some simplifying assumptions like instant-weight rebalancing, this is how the FFF would have performed between the 3rd of March to the 21st of May 2021 (daily data available here, price and TVLs initially sourced from CoinGecko). Given the paroxysms of the market in the week that we’re writing this, it’s promising to see how this performed:
The age-old “past performance does not guarantee future returns” credo applies here, naturally — especially in light of the events of the 19th of May (if you’re reading this from the future: it was pretty bad).
We’ve introduced a staking pool for FFF-ETH liquidity on Uniswap V2 under the same terms as our other ETFs, as defined by this initial strategy.
To bootstrap initial liquidity, we’ve started it off as a Tier 2 pool (i.e. assume that we’re targeting 2% liquidity on a ‘phantom’ TVL of between US$5–10 million). After a week or two, we’ll scale the rewards back down to the ‘true’ level as dictated by the legitimate TVL.
How To Get $FFF
Buy $FFF (< US$10,000)
If the slippage for your purchase amount is excessively high for your tastes given your purchase amount (either because you’re trying to buy a significant amount, or there just isn’t much liquidity available yet because it’s new), you’ll be better served by minting tokens: creating new FFF tokens from scratch rather than market buying them.
Mint $FFF (≥ US$10,000)
If you visit Indexed Finance, open up the FFF pool by clicking on it from the front page:
From there you can:
* Click Mint, which allows you to create new FFF tokens by contributing either a single component (i.e. just WBTC or DEFI5) or all five at once, or
* Click Mint With Uniswap, which allows you to mint FFF with tokens that aren’t in the index, such as DAI or USDC.
In the latter case, our Uniswap router buys all of the necessary tokens and deposits them into the FFF pool for you, then hands you back FFF tokens.
One thing to note for launch: the Mint With Uniswap router generally allows you to mint our index tokens directly via ETH, but the presence of WETH in the FFF is causing some temporary hiccups. If you want to mint FFF with ETH, wrap it into WETH first and then mint directly from the UI.
Please bear in mind that minting can be quite gas intensive, and is subject to a 2% swap fee unless you’re minting with all five tokens at once.
Shifting Towards Yield
Once Indexed V2 is live, one of the first things that we’ll be deploying is a simple vault ETF comprising stablecoins such as DAI/USDC/USDT utilizing a strategy that rotates its underlying capital across the best available yield farms (think Yearn, Aave etc.).
This — as yet unnamed instrument — is both a standalone entity, as well as one intended to be phased into the FFF in place of DEGEN.
The result would be a decrease in the total number of tokens that the FFF exposes, in exchange for a more conservative, steadily appreciating component.
We believe that this is more in line with a ‘boomer-friendly’ crypto-ETF: we love the Degen Index, and think it’s well-suited for inclusion in the current market, but as the index space evolves, we believe that bolting yield into a blue-chip crypto index will result in a product with a significant USP.
The FFF is something we’ve wanted to do for a while: it’s something that’s liable to receive a lot more attention than the $DEFI5 on it’s own, which — unfairly or not — frequently receives criticism for being too ‘small’ to be considered a real index. Speaking of $DEFI5… we can also use $FFF as a Twitter cashtag. That’ll be nice.
We believe that the introduction of the FFF provides us with the ‘flagship’ that some members of the community have been asking for: the best parts of Indexed V1, covering a wide range of protocols in a passively managed fashion.
We’re excited to see how it performs. We hope you are too.
Welcome to the Future Of F̶r̶a̶n̶c̶e̶ Finance!