[DarpalRating]Darpal Composite Index: An Index For Tokens of All Categories

4 min readApr 17, 2018

April 12nd, 2018 from DalpalRating Team

What is DPC?

Darpal Composite Index (DPC) is a comprehensive crypto market index developed by DarpralRating. DPC is designed to truly reflect the market movement of tokens in all categories.

You can find this index at our website.

DPC uses a dual layer weighting method to avoid the common flaws appearing in other market indexes.

Currently available crypto market indexes can be classified by the way constituent tokens are selected. Constituents of certain indexes, such as INBlockchain’s GBI, are chosen at the designer’s sole discretion. Implemented in this manner, the index is merely a reflection of the designer’s opinion. In contrast, a market index is expected to reflect the collective view of investors. Indexes of these kinds hardly qualify as good benchmarks.

The use of market cap is another classification method commonly adopted. While better than subjective selection, certain drawbacks dramatically hurt the index’s effectiveness. Since USDT is ranked high by market cap, it is accepted as a component by many index providers — BBIndex and BitSTD for instance. This situation is like if the US dollar were selected as an S&P 500 component stock, and reveals a serious lack of expertise. In addition, an index of this kind is usually cap weighted while market cap is not evenly distributed among categories. To investigate this problem, we divided all tokens into the following 6 types.

1. Currency and Payment: The tokens that are solely used for value transferring.

2. Operating System: The projects aiming to become an underlying infrastructure for other applications.

3. Trading and Transaction: The platforms for virtual asset trading.

4. Real World Gateway: The projects facilitating registering asset/credit/identity in the real world on blockchain.

5. Technical Solution: The projects improving blockchain usability, including cross-chain, side-chain, cloud storage, development, etc.

6. Others: Projects do not belong to the types above, including content distribution, online store, social media, app store, etc.

Token quantity distribution among six categories

According to this classification, we are able to see the token quantity distribution above. As shown in the pie charts, the quantity of Currency and OS tokens always occupy one half or more, while neither Solution nor Others exceed 10%. Given the imbalanced distribution, a simple cap-rank selection rule can hardly create an index reflecting the market movements across all categories. To solve this situation, we selected top 10 tokens by market cap of each token type as index components.

How does it work?

We then introduced our dual layer weighting method. Tokens within each category are cap weighted. If the weighting among categories is also the market cap, however, the imbalance problem appears again. So we elected to take the square root of the total market cap in each token type as the weight among categories. A comparison between two weighting methods is demonstrated in the charts below. The difference is obvious. Under simple cap weighting, Currency alone occupies almost 60% while the 3 smallest types together account for merely 7%. In contrast, square root cap weighting not only restricts Currency’s proportion but also promotes the weights of small-cap categories.

Simple weighted vs square root cap weighted

We will update index components and weights (rebalancing) on the third Wednesday every month in order to reflect new market conditions. Since market cap rank changes dramatically, a buffering rule is applied to component updating: When a non-constituent token’s market cap rank is higher than 8th within its category, it will be included in DPC; when a constituent token’s market cap rank is lower than 12th within its category, it will be excluded from DPC. Coinmarketcap.com is the data source for ranking. If abnormal price behavior is detected, we may take immediate action to exclude certain tokens from DPC.

DPC’s Initial value is 100. New DPC is calculated as follows.

Token Weighting Factor is updated at each rebalancing as below.

DPC was released at 2 AM, 4/12/2018, UTC. Most recent DPC value and its constituents are available on DarpalRating.org. You can find the world’s first Bitcoin VIX on our website as well.