The Defi Pulse Index (DPI) is a structured product for the emerging DeFi sub-asset class on the Ethereum blockchain. Because it is a bundled crypto-asset, you effectively own all of the underlying tokens. This means you can redeem your units of $DPI for the underlying tokens at any time on the TokenSets site. This is a feature of traditional ETFs that is typically reserved only for large, institutional investors.
You can easily trade fiat currency for an Index Coop product directly from your web3 wallet. Popular wallet choices for purchasing DPI include Argent, Dharma, Metamask, or Rainbow. With each of these wallets, you can connect to your bank account or debit card, which allows you to exchange fiat currencies directly for Index Coop products. Alternatively, you can buy $DPI from a DEX like Uniswap or Sushiswap. Liquidity for $DPI on layer 2 will be added shortly, at which point transactions will require less gas. Finally, it is possible to buy $DPI directly from the Index Coop or TokenSets websites. More info below...
As an Ethereum-based crypto-asset, $DPI is permissionless and decentralized. This means anyone in the world with an Internet connection can purchase and hold it. This makes $DPI more accessible than traditional finance ETFs while maintaining and improving upon some of the ETFs’ core features. You can read more about the benefits of $DPI versus traditional finance equivalents here.
Even though the exact methodology of $DPI is managed by DeFi Pulse, the Index Coop community is in charge of the various management decisions around the product. Anyone can participate in these decisions by being an active member of the Index Coop community. If you are interested in participating, join our Discord.
$DPI is a structured product, but it can also be used productively throughout DeFi since it is a crypto-asset. Here are a few of the productive opportunities in DeFi available to holders of $DPI:
The DeFi Pulse Index has a collection of inclusion criteria composed of four dimensions. Two dimensions are used to evaluate the token’s characteristics, one dimension is used to assess the project’s characteristics, and one is used to evaluate the protocol’s characteristics. The inclusion criteria are the basis for selecting which tokens will be included in the index.
To be included, tokens must be available on Ethereum and associated with a DeFi dapp. There are additional inclusion criteria that factor in supply/issuance, user safety characteristics, and protocol traction to ensure that only the highest-quality tokens are included.
Rebalancing is performed during the third week of each month. At that time, any tokens that meet the criteria are added, and any that fail to meet the criteria are dropped from the index. All tokens are capped at 25% of the total allocation to ensure diversification across a range of assets.
As with all investments, $DPI is subject to market risk. $DPI will fluctuate in price as the underlying tokens are bought and sold. This means it is possible to lose your initial investment.
In addition to market risk, $DPI has smart contract risk. This is common for all tokens built on the Ethereum network. Smart contract risk stems from the potential for exploits or bugs in the code. However, Set Protocol has been audited by OpenZeppelin and ABDK consulting, and every line of smart contract code is open source.
While this doesn’t eliminate the potential of a hack, it does mean many people from external auditing firms and technical members of the community have reviewed the code, mitigating some of the risk.
As with any Ethereum project, there are infrastructural risks that may result in illiquidity. When the Ethereum network is clogged during periods of intense volatility, an asset may lose its liquidity since transactions cannot be processed, and the cost of processing may be prohibitive.
Finally, since crypto is so new and there isn’t currently much government oversight, there is a regulatory oversight risk. For example, a regulation deeming $DPI a security in a country like the United States could result in potential price and/or liquidity impacts.
There are three main ways to buy $DPI:
To buy Index Coop products with fiat currencies:
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