IndexZoo was launched in May 2021 to provide the most accurate leveraged tokens for long/short exposures on any basket of cryptocurrencies. Layer-1 based index tokens are known for infrequent rebalancing and poor leveraged tracking due to gas cost. IndexZoo fixes this by using DEX derivative exposures, a product design that mirrors TradFi indices.
What it does
IndexZoo is built to solve 3 main problems with DeFi indices:
1, Lacking of Index Exposures (Long only, low leverage)
2, Inaccurate Tracking (Infrequent rebalancing, high gas fee)
3, Gatekeepers (Slow product launch)
How we built it
The current tokenized indices get exposures by holding the underlying tokens, and rebalances through Layer-1 spot markets. This is highly inefficient and costly, resulting in the the lacking of index product diversity, inferior performance tracking and high fees.
Compared to other DeFi index projects, IndexZoo's key differentiator is where the index gets exposure: IndexZoo uniquely sources exposures from DEX derivatives contracts (perpetual futures contracts and options contracts), neither from the spot market nor synthetic exposures between long and short users. This method enables IndexZoo to actively rebalance its ETF tokens intraday at a very low cost, and provides the most accurate index tracking to investors, which is essential for any tokenized index products. The fact that most DEX derivative contracts are settled on Layer-2 made it possible.
IndexZoo is also able to provide high leverage tokens (up to x5) using derivatives contracts and margin trading, providing the maximized capital efficiency for hedging and speculation. In addition, IndexZoo does not require a debt position on lending protocols to achieve leverage, hence further minimizing fees and passing along savings to users.
Challenges we ran into
The Achilles heel of leverage index product is accuracy. Current products, either CeFi tokens such as FTX and Binance, or DeFi tokens such as FLI 2x series, all utilizes a leverage range (1.7x - 2.3x) instead of a fixed target (2x). This results in a less predictable exposure, coupled with infrequent rebalancing that is often manual and intransparent, entirely defeats the purpose of leverage token. Our goal was set out to provide the most accurate fixed leverage target, and ensure the most predictable tracking exposure possible. The challenge was to originate a unique margin trading based leverage management mechanism. With our previous experience trading TradFi instrument (FX, Futures, Equity derivative and etc.), we were able to design a rebalancing scheme that is suitable for DEX perpetual futures (Dydx Layer-2 Perp and etc.) and provide the tokenized exposure with accurate leverage tracking.
Accomplishments that we're proud of
We are busily testing our leveraged token internally, and are looking at a testnet deployment by end of September/early October. Importantly, our Bear Inverse Token will be the first leveraged inverse index for DeFi. This will add an infrastructure tool for investors to hedge or speculate against market downturns as it is commonly used in the stock markets. Our Fear Volatility Token is also under development. It will be the first DeFi volatility protocol that tracks DEX options protocols (OPYN and etc.) instead of synthesizing from CEX avenues.
What we learned
Since our launch, we have learned the enthusiasm from DeFi community towards index and leveraged token products. We've seen exponential growth of DPI (DeFi Pulse Index), as well as the disappointments to FLI 2x series. Our goal is to provide a better and smarter indices that is catered to the community's needs.
What's next for IndexZoo
IndexZoo's ultimate goal is enable permission-less user index creation for any basket of cryptos with any leverage. Therefore, anyone can create a customized hedging or speculation solutions for any individual wallet, because smart investment tools like these are what DeFi is all about.
By late August, we've completed our pre-seed round financing, launched our website, whitepaper and social media. Product development for Bear Inverse Token is underway, and we are shooting for ETH Testnet deployment by the end of September, followed by Mainnet launch in October.