What is a Crypto Index, and How Is It Better Than Regular Cryptocurrencies?
If you have anything to do with investing or just trying to figure it out, you must have heard of index funds and stock market indexes. And if you haven’t, no worries — we’ll explain them to you in a minute.
The thing is that indexes are usually much less risky and volatile than regular shares, which makes them a perfect investment. And considering the volatility of the crypto market, the only logical question would be, why hasn’t anyone come up with a crypto index yet?
Well, the good news is they did. And today, we’ll tell you everything we know about different types of indexes and why they are so attractive to many traders. So buckle up, and let’s go!
What’s an index fund?
An index fund is probably one of the safest and most popular ways to invest in stocks since it mirrors the components and performance of a successful market index, such as the S&P 500.
Index funds are mostly passively-managed funds, which means that a fund portfolio manager buys and holds assets mimicking a particular market index instead of composing a portfolio from scratch. This leads to greater stability compared to actively-managed funds since there is no human factor involved — the manager doesn’t have to select securities and build trading strategies.
There are many other benefits of index funds, though. Here’s a brief list of the essential ones:
- Portfolio diversification. As you invest in a whole basket of different assets, the chances to lose your funds are much lower.
- Low risk, greater stability. Due to high diversification, index funds provide investors with lower volatility and optimal returns, especially in the long run.
- Low fees and taxes. As index funds don’t require extensive research or a team of analysts, their management costs are much lower, which leads to lower fees. Besides, due to passive management, index funds have low turnover, which results in fewer capital gains distribution and lower taxes.
- Better long-term returns. Index funds are based on the theory that the market will outperform any single investment in the long term. And so far, it’s been true for many investors.
- Automatic asset selection. No need to choose assets to create a well-balanced portfolio — it’s been done for you automatically.
- Perfect for passive investors. Index funds don’t need you to make regular decisions or take action; thus, they are ideal for a buy-and-hold strategy.
As for the disadvantages, there is one major bottleneck of fund indexes — they can only offer limited gains. But this is the price we have to pay for greater stability and lower risks. And luckily, the situation is different when it comes to crypto indexes.
What is a crypto index?
Similar to index funds, crypto indexes are composed of multiple assets within one network (e.g., Ethereum, Polygon, xDai, etc.). Each of such indexes is a basket of crypto assets that offers greater diversification and more stable profit than regular crypto assets.
There are two major types of crypto indexes: some are based on automated market maker (AMM) technology, while others use a different approach. Most crypto indexes presented in the current market are AMM-based. For instance, PowerPool and Pie DAO only use this technology in their stack. However, such a solution has much lower security and protection against hacks and vulnerabilities. Besides, it stimulates gas prices and might cause money losses in case of impermanent loss.
A safer and more profitable alternative is not AMM-based indexes that use different technology. For instance, DeHive indexes are based on oracles, which allows them to mitigate all the risks inherent to AMM-based solutions, diversify a crypto portfolio, and bring a more stable profit.
DeHive crypto indexes
So what are these magical DeHive indexes?
DeHive has introduced the concept of Clusters. Basically, they are yield-generating crypto indexes that unite the best-performing assets into one basket. Every index is carefully composed by DeHive experts to reflect a particular market segment, bring maximum profit, and provide users with a secure way of investing in different protocols.
To get even more profit from DeHive Clusters, users can stake and farm them on the DeHive platform and earn a yield on the underlying assets.
Here’s a short recap of what you get with DeHive crypto indexes:
- a well-balanced and reliable DeFi portfolio in one purchase;
- lower investment risks due to diversification;
- high security and data protection;
- stable passive income opportunity;
- additional profit from yield farming protocols.
If it sounds good enough, let us add just one more detail — you can significantly boost your APY with DeHive crypto indexes and potentially get even more profit than with regular assets. So don’t waste any more time building day-trading strategies — open the DeHive platform and benefit from highly secure crypto indexes!