New DeFi Index Targets ‘Proven’ Blue-chip Assets

Blockworks Exclusive: Investors seeking “flight to quality” after crash of Terra’s algorithmic stablecoin, Phuture’s head of product says




key takeaways

  • Phuture’s head of growth expects the next tens of millions of crypto users to want “simple exposure” to decentralized finance
  • Top assets in the index include Uniswap, Aave, Lido DAO Token and Compound

Decentralized crypto index platform Phuture has launched its first product as the company looks to satisfy demand from investors seeking exposure to “blue-chip” DeFi assets.

The Phuture DeFi Index (PDI), available on the Phuture app and Bancor pools, is designed for those who have dabbled in bitcoin and ethereum and are now looking to invest beyond crypto’s two largest assets.

Phuture Head of Growth Charles Storry called the crypto index space a nascent segment with no clear winner. Though roughly 18% of the global stock market is held in indices, he added, less than 1% of the total value locked in decentralized finance (DeFi) are held in index products today. 

“We believe that the next million, or the next tens of millions, of users coming into the space will want to do so via simple exposure and won’t be looking to manage that themselves,” Storry told Blockworks. “We think that’s insane.”

The company considers a range of token characteristics when choosing the index constituents, such as its usefulness, its role within crypto infrastructure, how long it’s been operational and its liquidity. 

Managed by code, the index is automatically rebalanced monthly. No one asset can account for more than 30% of the index.

PDI initially invests in seven assets, with the largest allocations — about 30% each — going to Uniswap (UNI) and Aave (AAVE), followed by Lido DAO Token (LDO) and Compound (COMP). Other assets include (YFI), SushiSwap (SUSHI) and Alchemix (ALCX).

The launch comes as the number of DeFi users has grown about 25 times from two years ago, according to crypto data firm Dune Analytics, reaching more than 4.7 million. Total value locked (TVL) in the space stands at $112 billion, Defi Llama data show.

The leading DeFi Index by marketcap is the DeFi Pulse Index (DPI), with $47 million in TVL. The index, which launched in September 2020, currently has as its top assets, Uniswap (UNI), Aave (AAVE), Maker (MKR), Loopring (LRC) and Synthetix (SNX), making up about 76% of overall assets.

The crash of algorithmic stablecoin TerraUSD (UST) earlier this month has shifted investor mindsets, according to Phuture Head of Product Oliver Mehr, saying “safety is becoming cool again.”

“There is a flight to quality,” Mehr said. “They’re looking for assets that have stood the test of time, that are non-experimental, that have revenue and users and are real businesses.”

As a result, Phuture has excluded governance tokens of algorithmic stablecoins until the firm sees more evidence that they can survive multiple cycles of investor apathy and distress, he said. 

Despite the growth of DeFi, the index launch comes as token prices have declined in recent months. UNI traded at $5.52 on Wednesday afternoon — down about 37% in the last month and 78% from a year ago.

“We think it’s an even better time to be investing into these blue-chip assets due to the dislocation between the underlying business models and the price,” Mehr said. 

Founded in 2019, Phuture intends for PDI to be the first in a suite of index products, expecting continued growth in DeFi and GameFi within the next couple of years.

The company said in April that it was partnering with Colonylab to launch the Colony Avalanche Ecosystem Index, which will follow the PDI launch.

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