Blockchain Under-dogs Index BUDI
Summary: Blockchain Under-dogs Index (BUDI) aims to provide exposure to a diversified portfolio of competing Layer 1 blockchains that enable Web3 applications.
The format for this proposal was inspired by the DEGEN Index Proposal
Comments from the community are wanted, if the response is positive, work will be done to determine the primary and alternate holdings.
The Blockchain Underdogs Index (BUDI)
The Blockchain Underdogs Index (BUDI - pronounced ‘Buddy’) aims to provide investors with a single index that gives exposure to ‘Layer 1’ chains outside of the two current dominant chains, Ethereum and Bitcoin. The purpose of the index is to allow investors to speculate on the possibility of a multichain future in which many blockchains gain adoption for different use cases. I anticipate that many cryptocurrency investors are looking for an easy way to diversify their portfolio, and gain exposure to the potential upside of a third L1 chain achieving broad adoption or multiple chains achieving some kind of market fit. However, these investors are likely unable to pick an individual winner in the space of contending Layer 1s, and thus would be well served by a passively managed index of competing L1 tokens. The BUDI index would synergize well with current and future Indexed.Finance indices, and would make a good candidate for inclusion in the Future Finance index.
The primary challenge to deploying BUDI is finding quality bridged/wrapped tokens for other L1s on the Ethereum Mainnet. Many tokens that would fit well in the index, like Solana or Avalanche tokens, are not available in wrapped or bridged form on Ethereum. Due to this, the index would likely launch with a relatively narrow range of tokens - however, efforts to bridge assets from the likes of wrapped.com and renproject, alongside more support from Synthetix, are likely to bring many of these tokens to Mainnet Ethereum soon.
For an asset to be considered for inclusion in the BUDI index, the asset must be a utility token for an independent ‘Layer 1’ blockchain that provides Web3 type functionality (smart contract support, token issuance, etc.) By this criteria, utility tokens for networks such as Solana, Cardano, Avalanche, Polkadot, Tezos, and Neo would be considered for inclusion - SOL, ADA, AVAX, DOT, XTZ, NEO. Assets like Dogecoin, Litecoin, and other digital-cash-only currencies would not be considered for inclusion in the index. The criteria for inclusion bares a fair degree of subjectivity - eg. would utility tokens for Ethereum side-chains like Matic and BSC qualify? - community input on this initial proposal is of great value in determining more concrete criteria for inclusion.
The community may wish for Ether itself to be included in the index, however, I believe it should be excluded as it is likely many holders of the BUDI index would already have exposure to Ether. However, the inclusion of Ether could reduce the cross-portfolio correlation of the index, potentially increasing the total returns of BUDI.
Governance will be handled by Indexed.Finance’s existing governance mechanisms. Discussion of the index and high-level conversation of assets to include or exclude from the index may take place via the Discord. Proposals to add or remove tokens from the index may be discussed on the Forum first, and then launched as proposals on the Indexed Snapshot. Due to the subjectivity of inclusion criteria for assets within the index, it will be critical to make the inclusion criteria clearer before the initial selection of assets and release of the index. If the criteria for inclusion are not made clearer it will likely lead to some unnecessary debates as to whether a certain asset should be considered.
Initial Value of BUDI and Index Weighting
BUDI will launch with an initial value of $5 per index token. Bootstrapping of the token will occur until $500 worth of BUDI tokens are minted. The pool will then be deployed and the market will be free to mint and trade BUDI tokens.
BUDI will adopt a square root of market capitalization weighting. This should help to maintain sizeable exposure to projects with comparably low market capitalizations, but with promising and competitive technologies.
Inclusion Criteria for Tokens
The current token inclusion criteria are…
- The token must be a utility token for a ‘Layer 1’ blockchain.
- The ‘Layer 1’ blockchain must aim to enable Web3 applications of some sort. Examples of Web3 applications include
- Decentralized Finance
- Non-Fungible Tokens
- Decentralized Storage
- Decentralized Autonomous Organizations
- The ‘Layer 1’ blockchain must have a mainnet deployment.
- The token must be available in native or securely bridged/wrapped ERC20 form on the Ethereum Mainnet. Bridging or wrapping contracts must have passed a public audit.
- Sufficient liquidity for the token is available on Uniswap.
- In the case of wrapped/bridged tokens with insufficient liquidity, a strategy to attract liquidity should be proposed when the asset is under consideration for inclusion in the index.
- If the asset is approved for inclusion in the index or as an alternate, the liquidity provisioning strategy must be deployed before the asset is added to the index.
- The token must have a circulating supply market cap of at least 1 billion USD.