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Set Protocol Architecture: Everything You Need to Know About DPI’s Foundations
Set Protocol Architecture: Everything You Need to Know About DPI’s Foundations
As our world becomes increasingly tokenized, structured product solutions that abstract the portfolio management process and cater to specific themes will become more important than ever. In traditional finance, abstraction to passive solutions has bee...
9/10/2021
Index Coop
What is Set Protocol?
Set Protocol is an Ethereum-native DeFi primitive that leverages existing protocols to allow for the bundling of crypto-assets into fully-collateralized baskets, which are represented as ERC20 tokens on Ethereum.
As our world becomes increasingly tokenized, structured product solutions that abstract the portfolio management process and cater to specific themes will become more important than ever. In traditional finance, abstraction to passive solutions has been a key driver of the popularity of indices such as the DJIA and the S&P 500. Set Protocol enables the creation of structured products that benefit from this abstraction trend, applying this same principle to crypto markets by bundling groups of tokens into single ERC-20s for ease of investment.
Watch this video or read the article below to learn more.
How does Set Protocol work?
The Set Protocol ecosystem has three core users: Investors, Managers, and Developers.
Investors: Investors allocate capital to Set tokens in order to hold the bundle of assets as represented by the Set. If you hold an Index Coop product, you are a capital allocator.
Managers: Managers are the creators and maintainers of structured products built on Set.
collectively manage the $DPI token, for example.
Developers: Developers work on and expand the existing Set Protocol architecture.
In its simplest form, the Set Protocol enables managers to identify the needs of investors and then work with developers to create a Set token using a specific methodology.
What are the benefits of Set tokens?
Set tokens are ERC-20 tokens that can be transferred, traded, or used throughout DeFi just like any other token. Here are some of their advantages:
Gas Savings: Without a Set token, acquiring all the underlying tokens and regularly rebalancing them following a specific methodology would cost a lot of gas. By using Sets, users can gain exposure to a variety of assets with a single transaction.
Fully Collateralized: Set tokens are collateralized by the underlying components of the index, which are transferred and stored in a vault with the Set token issued against those assets.
Redeemable: Because Set tokens are fully collateralized, they can be redeemed or traded for their underlying components at any time.
Trustless: Developers from Set ensure that the token operates only as programmed, and all code is open source for anyone to review.
For more information on Set Protocol, check out the whitepaper or their docs. You can also visit TokenSets to explore currently available Set tokens.
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FAQs
Index Coop yield tokens simplify earning yield in DeFi by automating complex strategies and diversifying across protocols. They are user-friendly and cost-efficient, appealing to both new and seasoned DeFi users.
Leverage tokens automate a leveraged position by utilizing onchain money markets like Aave or Morpho to borrow funds, amplifying a user's exposure to an asset without requiring manual management. The token's smart contracts autonomously handle the borrowing, lending, and rebalancing of assets, maintaining a consistent leverage ratio despite market fluctuations. This automation eliminates the complexities of collateral management and liquidation risks, while also charging low, transparent fees that avoid expensive funding rates often charged by perps.
Index Coop is a decentralized autonomous organization (DAO) that specializes in creating and maintaining onchain structured products. Index Coop aims to democratize access to the crypto market, empowering everyone to participate in the growing digital asset ecosystem with ease.
No, yield automatically compounds and accrues to the token price. The value of the tokens you hold in your wallet will simply go up over time without the need to claim or compound rewards.
Index Coop products protect you from liquidation with automated risk management that rebalances assets to maintain a target leverage ratio that avoids liquidation.
INDEX is the ERC-20 governance token on Ethereum for Index Coop. INDEX empowers its holders to participate in decision-making processes that shape the future of Index Coop.
Yes, all Index Coop products are instantly redeemable for their underlying value at all times.
Yes, all Index Coop smart contracts have been audited by leading independent security firms such as OpenZeppelin, ABDK, Isosiro, & more. There is also an active bug bounty program through ImmuneFi. Audit information is published in the docs here.
Streaming fees (an annual fee paid continuously block-by-block), mint and redeem fees (only on leverage tokens), and borrow costs (interest paid to borrow funds from onchain markets when using leverage).