Sep 15 | 3 min read
$DPI combines the features of an ERC-20 token and a traditional structured product to create a 21st-century digital upgrade to traditional structured products. This article is designed to answer questions about the methodology applied to this index including:
The DeFi Pulse Index ($DPI) is a capitalization-weighted index that tracks the performance of decentralized financial (DeFi) assets across Ethereum to provide a simple, accessible and cost-efficient, productive class of crypto assets. Keep reading to discover more about the DPI methodology
The token inclusion criteria considers a wide range of characteristics across four primary categories: descriptive characteristics, supply characteristics, traction characteristics, and user safety characteristics.
The token must be available on the Ethereum blockchain.
The token must be associated with a decentralized finance protocol or dapp listed on DeFi Pulse.
The token must not be considered a security by the corresponding authorities across different jurisdictions.
The token must be a bearer instrument. None of the following will be included in the index: wrapped tokens, tokenized derivatives, synthetic assets, tokens that are tied to physical assets, and tokens that represent claims on other tokens.
It must be possible to reasonably predict the token’s supply over the next five years.
At least 7.5% of the five-year supply must be currently circulating.
The token must have reasonable and consistent DeFi liquidity on Ethereum.
The token’s economics must not have locking, minting, or other patterns that would significantly disadvantage passive holders.
The project must be widely considered to be building a useful protocol or product.
Projects focused on competitive trading/holding, having Ponzi characteristics, or projects that exist primarily for entertainment, will not be included.
The project’s protocol must have significant usage.
The protocol or product must have been launched at least 180 days before being able to qualify to be included in the index.
The protocol or project must not be insolvent.
Security professionals must have reviewed the protocol to determine that security best practices have been followed to maintain user assets safe under different circumstances.
Alternatively, the protocol must have been operating long enough to create a consensus about its safety in the decentralized finance community.
In the event of a safety incident, the team must have responded promptly and addressed the incident responsibly in the aftermath, providing users of the protocol with a reliable solution and the decentralized finance community with adequate documentation to provide transparency about the incident.
The selected tokens must have sufficient liquidity across a variety of trading platforms.
The DeFi Pulse Index methodology weights tokens in the index according to their market cap based on circulating supply. Index constituents are capped at a 25% max allocation to avoid over-concentration. Any excess weight above 25% that would have been allocated to the token is redistributed to the remaining components of the DeFi Pulse Index on a weighted basis.
$DPI is maintained in two phases: a determination phase where tokens are added/deleted, circulating supply is assessed, and weightings are outlined based on the above methodology, and a reconstitution phase where the index composition changes from the determination phase are implemented. The determination phase typically occurs during the third week of the month, and reconstitution is enacted on the first working day of the following month.
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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