The DeFi landscape moves fast, and while token holders can capture the appreciation of standard-bearing DeFi protocol assets through the DeFi Pulse Index (DPI), a vehicle taking a more risk-on approach and relaxing some requirements including time in the market, audits, anonymous teams, etc. allows GMI to capture exposure to more nascent DeFi protocols.
In this post, we’ll unbox the GMI index and examine the rules and criteria that determine the index’s composition and maintenance, also known as the methodology.
GMI was launched as a collaboration between BanklessDAO and Index Coop.
Among these two communities, three individuals were the primary drivers of the GMI index, Lucas Campbell, Ben Giove, and Peter ‘Lemonade’. As methodologists, they conducted market research, organized the proposals, developed the parameters, and will maintain the index.
The first step of the methodology is to determine which tokens should be included in the index. To be eligible for inclusion into the GMI index, each token must meet the following criteria:
While there is no explicit criteria for security, if security concerns arise for a given token, the methodologist reserve the right to remove the component from the index ahead of the regular rebalancing schedule.
Once the eligible tokens have been identified, the next step of the methodology is to calculate the appropriate weighting of each token. The GMI index considers 3 factors to determine the weight of each token.
The use of a market capitalization weighting score allows for an emphasis on asset sizing while also recognizing that too much concentration in any one token creates additional risk. Additionally, the square root weighting mechanism allows for smaller components to enjoy higher relative weightings compared to a simple market-cap weighting.
The liquidity score of a token is considered because of the potential underperformance that can result from rebalancing less-liquid assets. For a similar reason, the dilution score is considered because many earlier stage projects have the potential for more aggressive dilution via token emission schedules. As a result, tokens with less liquidity or higher relative inflation rates will be given a lower weighting.
Another rule in the weight calculation is an imposed cap on each token’s respective weight at a maximum of 15%. Excess weight for a given token will be redistributed to the remaining components of the index on a weighted basis. This same process will be repeated for every token exceeding the 15% allocation cap. This cap is in place to decrease single token risk and ensure the index is providing a diversified allocation.
The final step of the methodology is to maintain the quality of the index over time, which is done with two rules:
There are 12 holdings in total. Here’s a brief summary of each token and its role in the emerging DeFi ecosystem:
GMI offers anyone, anywhere passive exposure to cutting-edge DeFi applications. And since the index will continuously adjust and evolve to capture emerging projects, so will your allocation. Beyond that core value proposition, there are 4 major benefits of buying GMI:
The GMI index can be purchased at app.indexcoop.com/gmi and is available on both Ethereum and Polygon. Simply connect your wallet and swap ETH for GMI.
You can also buy GMI directly your favorite decentralized exchange aggregator.
Disclaimer: This content is for informational purposes only and should not be construed as legal, tax, investment, financial, or other advice.
Disclaimer: This content is for informational purposes only and is not legal, tax, investment, financial, or other advice. You should not take, or refrain from taking, any action based on any information contained herein, or any other information that we make available at any time, including blog posts, data, articles, links to third-party content, discord content, news feeds, tutorials, tweets, and videos. Before you make any financial, legal, technical, or other decisions, you should seek independent professional advice from a licensed and qualified individual in the area for which such advice would be appropriate. This information is not intended to be comprehensive or address all aspects of Index or its products. There is additional documentation on Index’s website about the functioning of Index Coop, and its ecosystem and community.
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