Product Proposal: Amun Blockchain Growth Index

By 0xAmun & Carson Brown

Design by Jerzy

TL;DR

• The L1 Growth Index aims to capture the growth of Layer 1s using the daily change in Total Value Locked (TVL).
• TVL is a DeFi native metric used as an indication of increased network usage, accrual of value, and native token price action.
• Initial backtesting for the growth based TVL index over the last 6 months indicated a projected:
• 10x annual performance on a TVL change weighted growth index
• 5x annual performance for a non-ETH based index.
• 3.6x annual performance for a pure market cap ETH based index

• Reach out on our Discord and Telegram to give us feedback and come build with us!

Mission

At Amun, our goal is to make it easy to invest in web3 — the next chapter of the Internet that’s powering exciting new applications across DeFi, NFTs, gaming, and more.

We began our journey by providing blue-chip index products on Ethereum to capture the most promising projects in DeFi. Our next index proposal is one that prioritizes growth based on crypto-native fundamentals and metrics, unseen in the market. We’ve also heard feedback from our community and understand a capital-efficient product is important to you. For this reason we propose to include the staked or bonded version of the constituents wherever possible in a Layer 1 (L1) Index.

Thesis

The L1 Index aims to capture the growth of dominant Layer 1s using the change in Total Value Locked (TVL) data. Assessing the trends of growth this year, the primary price drivers of L1 native tokens include:

• Capital inflow driven by the announcement of funds and incentives
• A new protocol launching with yield incentives that are driving TVL growth
• The announcement or implementation of an improvement proposal that may limit the token supply, such as burning of seigniorage

Why a TVL growth index?

Our research basis for this methodology is based on the fact that the key drivers of L1 native token growth are TVL. The reasoning behind this is:

• An increase in TVL is a reflection of increased network usage
• An increase in network usage drives the demand for the native L1 token
• Native token usage and value in the ecosystem is derived from its new protocols and capital locked

Product differentiation

Whilst our products in the past have aimed to capture specific verticals or ecosystems, we want to offer our users a growth-based product. Holding staked versions of the underlying assets will allow users to benefit from staking yield on top of index methodology-driven growth, capturing the best of both worlds.

Proposal

To create a product that maximizes index performance, the team is utilizing a structure based on our market thesis using the following key features:

• Identifying the change in TVL
• Reallocate and rebalance the index in favor of L1 with maximum growth potential
• Prioritize the weighting for L1 growth
• Greatest change is in TVL is allocated the largest weighting to drive maximum growth

Methodology

• Top 6 L1s are selected based on the highest-ranking TVL chains on DefiLama
• Excludes Ethereum and chains without a token.
• The TVL weighting is based on the rolling average of daily TVL change over 7 days with an adjusted z-score to capture all tokens
• The token is re-balanced every 7 days

Adjusted z-score calculation -

Other points under consideration:

• Some other crypto native metrics and valuation methods we would also like to run backtesting on include redistribute weightings on reverse market cap/TVL ratios.
• Backtesting the use of an average of daily TVL chains to limit the turnover (and impact of outlier) while capturing maximum growth. I.e a turnover threshold after re-balance to trigger a subsequent rebalance
• Adjusted z-score performance may differ depending on number of constituents

Caveats:

We recognize that there are several weaknesses in our product design, it:

• Assumes market performance similar to what we experienced this year with sudden spikes in TVL and may not be reflective of future market movement
• Disregards other L1 metrics such as developer growth, quality of the apps built atop, and social sentiment
• Depends on the quality of third-party data

Next steps:

Our next steps to further validate our product thesis might include:

• Backtesting on different L1s, number of constituents, and time frames for triggers
• Refine the inclusion criteria for L1s
• Availability of native L1 tokens on selected chain
• Engineering feasibility
• Define a fee structure

Initial Index Backtesting

• An equal-weighted TVL growth-based index with ‘ethereum’, ‘terra’, ‘bsc’, ‘avalanche’, ‘solana’, ‘fantom’, ‘polygon’ performed 5x over 6 months.
• Compare this to an equal-weighted pure Market cap-based index(‘terra’, ‘bsc’, ‘avalanche’, ‘solana’, ‘fantom’, ‘polygon’) with no ETH demonstrated 2.5x over 6 months.
• An equal-weighted pure Market cap-based index(‘terra’, ‘bsc’, ‘avalanche’, ‘solana’, ‘fantom’, ‘polygon’) with ETH performed 1.8x over 6 months.

Further Proposals for backtesting:

Option 1 (Extend to 10 constituents)

1. LUNA
2. BNB
3. AVAX
4. SOL
5. FTM
6. MATIC
7. TRON
8. CRO
9. WAVES
10. KLAY

Option 2 (LOW TVL)

1. MOVR
2. METIS
3. STAKE
4. RUNE
5. SCRT
6. BOBA
7. OKT

Option 3 (MID TVL)

1. CELO
2. AURORA
3. PARA
4. DFI
5. KAVA
6. XIN

We are deeply interested in building this product in tandem with the community and are eager to hear your feedback. At Amun, we believe in building out in the open and encourage anyone with thoughts to help shape the creation of this product. Reach out to us on Discord, Twitter, or Telegram, and let us know what you think!

Special thanks to Yubo Li and Eliézer Ndinga for feedback on the Layer 1 TVL Growth Index.

Most importantly 0xngmi and the team at Defilama, which without, would not have made the index possible.