Index methodologies and their place in DeFi

Before we begin..

BDPI’s mandate will be to provide diversified exposure to DeFi blue chips, while charging no fees and farming yield safely. It is aimed at the long term passive investor as a safe set-and-forget investment.

BDPI will not be a yield maximizing token; safety and security of funds will always come first, and we will have strict inclusion criteria both for tokens and acceptable farms.

Now we ramble.

Weighting methodologies

Say you want token X to always be 1% of the index, but X drops in price and it ends up being excluded from the index. What happens is that as the price of X goes down, you will buy more, and you will keep buying X until it gets excluded, at which point you sell all purchased X at a loss.

Weight capping

https://www.hsi.com.hk/static/uploads/contents/en/dl_centre/methodologies/index_methodology_guide_e.pdf

Rebalancing

Token inclusion criteria

  • Market cap (So that you aren’t just adding random shitcoins. Unless that’s the mandate of the index)
  • Liquidity (So rebalances and additions have a reasonable cost)
  • How long it’s been around (So you don’t just add the new flavor of the month)
  • Circulating supply (Just so tokens aren’t all just locked up by founders)

Fast token inclusion

Acceptable farm criteria

The decentralization problem

Transparency

BDPI will diverge from DPI. It may go higher. It may go lower. If DPI decides to hold 100% ALCX and ALCX pumps, I’m sure we will underperform. But that’s not the mandate. The mandate is to provide safe, diversified blue chip exposure.

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