Venturing into my first DeFi Index investment
Call me a boomer but wow, I recently discovered the existence of crypto indexes on Set Protocol that people can invest in. That was definitely an eye-opening experience since index investment in traditional finance has been one of the greatest inventions in the world of finance. With an index investment, one can gain exposure to a wide range of underlying assets without actually buying the individual asset manually. Never have I been more bullish on DeFi than this…
So let’s get started on my experience and what I plan to do moving forward!
What is Set Protocol?
Set Protocol is an Ethereum-based tool that allows anyone to create portfolios of ERC-20 assets that are called Sets. Using TokenSets, an application on Set Protocol, anyone can create, manage and purchase Sets. This allows anyone to carry out automated asset management strategies and rebalancing criteria. A Set has a unique token that represents claims to the portfolio of underlying assets and can be traded on exchanges such as Uniswap.
How did I purchase DPI on Set Protocol?
- First, I went to https://www.tokensets.com/
- Then I signed in using my metamask wallet.
3. From here, there are different categories of indexes to choose from. Personally, I went for thematic exposure and selected the DeFi Pulse Index.
After selecting the index of choice, you can see more in-depth information about the Set such as the Set Creator, Market Cap, Streaming Fees, Network, Current Balance, etc.
What is DeFi Pulse Index?
The DeFi Pulse index is a market capitalization-weighted index issued by DeFi Pulse that tracks the overall performance of the DeFi market. Without individually purchasing the assets, investors can gain exposure to the market leaders in the DeFi space and reap returns from their passive investment. Underlying tokens are weighted based on their total circulating market capitalization. Governed by smart contracts, the DPI utilizes a pre-defined set of rules that determine the composition, rebalancing, and fees structure of the Set.
As TVL on DeFi has tanked by close to 65% YTD contributed by the series of CeFi implosion that rocked the crypto industry, valuations of many DeFi tokens are at attractive pricing in my opinion. Other notable headwind that could cause token prices to fall further is the upcoming Fed Meeting on July 26–27, with many expecting a hawkish 75bps hike. Fundamentally, these protocols continue to recover on key metrics such as total revenue, total loan origination, etc. A further decline in prices could offer investors an attractive entry point in my opinion.
Currently, there are no issuance fees and redemption fees on the DPI Set. So investors are not charged when they redeemed their Set for the underlying tokens.
Being one of the most popular Sets on the platform, investors can purchase them by swapping ETH for DPI on a dex such as Uniswap. Alternatively, investors can individually approve the purchase of underlying assets to ultimately mint the Set Token. This, however, can be costlier than the former option.
4. Click on Buy.
5. Select DEX Swap to purchase the DPI at a lower cost.
6. Confirm the purchase and ta-da! You are set! Since Zerion offers support for Set Protocol, all Ethereum Sets performance can be tracked on the app.
Moving forward, as a believer in passive investments outperforming active investments in the long run, I plan to dollar cost average into DPI on a monthly basis. It is truly a convenient and fuss-free process in getting exposure to the most promising DeFi projects in the space!
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