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The Importance of DeFi Structured Products
The Importance of DeFi Structured Products
For the Index Coop community, these events underscore the importance of true decentralized finance (DeFi).
11/15/2022
Index Coop
The DeFi community watched in dismay last week as rumors of a liquidity crisis at FTX.com gave way to the reality that the firm was insolvent. By the end of the week, FTX.com, FTX U.S, Alameda Research, and 130 affiliated companies had filed for Chapter 11 bankruptcy protection in the U.S. It was a stunning fall of one of the largest and most influential organizations in our industry. The full scope of fraud, negligence, and malfeasance at FTX is still unknown.
For the Index Coop community, these events underscore the importance of true decentralized finance (DeFi). Many of the mistakes that led to the insolvency of FTX were the result of centralization.
We believe strongly in the importance of on-chain DeFi products. With that in mind, we'd like to share some things that give us confidence in our trustless structured on-chain DeFi products.
6 Ways DeFi's Core Principles Are Built Into Index Coop Products
1. You can self-custody all Index Coop products.
Unlike some centralized products, you can hold, buy, or sell on-chain Index Coop products without an intermediary. You are fully in control of your digital assets. This is one of the essential elements of decentralization. Self-custody is how digital asset users can avoid the loss of assets via centralized exchanges like FTX. When users self-custody, they own their private keys and their digital assets cannot be stolen or lost. Self-custody solutions maximize security by holding private keys offline. Learn more about self-custody here.
2. Index Coop products are fully collateralized.
Digital assets within Index Coop products exist on-chain, meaning they are held in smart contracts 1:1. You can review the smart contracts behind Index Coop products at any time. The ability to verify is significant because under-collateralization was at the core of the FTX collapse.
Users could not withdraw assets because they did not exist, as they were apparently used as collateral for hedge fund Alameda and subsequently lost. This situation is not possible with Index Coop products.
3. Index Coop products are redeemable for the underlying tokens.
Because you are the custodian of structured DeFi products and their underlying components, you can redeem your Index Coop products for their underlying component at any time. For example, the $BED token consists of 33.3% BTC, 33.3% ETH, and 33% DPI. You can redeem BED tokens at any time in return for the allocation of the underlying collateral.
Redeemability solves several issues. First, you don't need to rely on a centralized exchange or intermediary to access your assets or their components. Second, there is no reason to worry whether or not the structured DeFi token has sufficient liquidity.
4. Index Coop products are verifiably liquid.
Index Coop products only include verifiably liquid tokens. You can view the liquidity of our products on-chain and liquidity requirements are found in the inclusion criteria for each product. If users redeem products for underlying assets, quoted prices will be accurate and users will face minimal slippage.
With FTX, users had no way of knowing whether or not FTX was liquid or solvent. Unfortunately, many people took them at their word. As it turned out, they were, in fact, insolvent. With trustless on-chain products, liquidity is verifiable on-chain.
5. Index Coop products are immutable and built on smart contracts.
Index Coop products are decentralized. They are built using audited, secure smart contracts that you can view at any time. Smart contracts abstract away most human involvement in managing DeFi products and prevent negligent or malicious actors from meddling in the operation of products.
As we've seen with FTX, mismanagement, fraud, and malfeasance can happen when humans are involved. For example, FTX executives worked deals with Bahamian entities to distribute some funds while liquidating others' funds. With Index Coop's smart contracts, there is no situation where some people can access their other funds and others can't. Smart contracts treat everyone, within and outside of Index Coop, the same.
6. Index Coop products are accessible and simple to use.
Simplicity and accessibility are essential. FTX was simple and easy to use. That was one of the main reasons, so many people used it. But users shouldn't have to sacrifice security and decentralization for ease of use.
Index Coop products make DeFi accessible to ordinary people. It's in our mission statement: We make DeFi simple to use, secure and accessible. By abstracting away active management from sophisticated crypto strategies by consolidating them into single ERC-20 tokens, Index Coop products make it simple to get exposure to DeFi.
About Index Coop
Index Coop is a decentralized autonomous organization (DAO) that powers structured decentralized finance (DeFi) products and strategy tokens using smart contracts on the blockchain. We offer a suite of sector, leverage, and yield-generating products. We aim to create products that are simple to use, accessible to everyone, and secure. Our products are built on Set Protocol, a twice-audited, self-custodial DeFi tool that allows for creating and managing Ethereum-based (or ERC-20) tokens. Index Coop maintains one of the most significant partnership networks in the DeFi ecosystem among users, partner protocols, and our composable products.
How to buy Index Coop products with fiat currencies:
First, you’ll need to create an Ethereum wallet like Argent, Metamask, Gemini, or Rainbow.
Next, you’ll set up your new wallet and connect your bank account.
Once you’ve deposited fiat currency in your wallet you can exchange it for Index Coop products like
(DPI) or the
.
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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).