Summary: A smart index which bases allocations between stables / low risk assets during downtrends and risk on assets during bull trends.
Smart Index (SIX)
We are proposing this index on Conjure’s behalf as we were going to fork the indices contracts but were recommended to make a proposal first to make it part of the Indexed ecosystem.
The concept for the smart index is simple, it takes an indicator for trend, using a TWAP construction based around either the Crypto total market cap or ETH mcap (can use other indicators aswell) using our Open Oracle Framework as it allows for historical TWAP construction around data feeds. We take this TWAP (say the 7d) and we take a longer TWAP (say the 21d) or we do a TWAP (14d) along with a trigger threshold (>0.05x drop in ETH) relative price (if the av price for the last 2w has become > the current price, indicating that the price has moved under the trend) then the index will switch configurations for weights to bear configuration. Then if the price moves back above the trend indicating a bull trend it switches into a risk on configuration.
These configurations can be not just trend based but also volatility based (if the volatility for the last 2d has increased rel to last 2w, can switch into risk on volatile assets, if volatility is low, in an up trend can switch to non volatile crypto assets, if the price trend is down with high volatility, switch into non volatile, non crypto assets).
By taking an index’s composition and switching into cash based and risk off assets during downtrends and back into risk on assets in an up trend, you can switch into cash (sell the high) at the start of a down trend, then buy (the low) when trend switches back. This should allow for the index to not only rebalance assets based on performance like all indices, but have smart features to detect how to manage it’s portfolio, simulating even the most advanced hedge funds.
This new construction will allow our indices to go from basic (the just base tokens on performance and hold allllllll the way down), they can react to market trend on which token sets to use, when to use them and how to use them.
Governance will be handled by Indexed Finance’s existing framework including the forums and Discord.
The Sigma committee will add or remove tokens from the index or alternate list regularly based on community feedback. Examples of changes may be adding new tokens if the alternate list is in danger of being emptied or adding or removing tokens from the index due to material changes in tokenomics or project direction. Community members can propose adding or removing a token from the active index or the alternate list at any time.
Further the community and sigma can update the strategies used / parameters, to increase how smart the index is by altering the scoring contract’s implementation.
Initial value of SIX
We will target an initial price of $42 for the SIX token. During the bootstrapping phase, 100 tokens will be funded by pr0 to reach a total value of $4200 (or $42 per token). Once SIX reaches its target value, the pool will be deployed giving anyone the ability to mint new tokens.
The index has the following criteria for inclusion:
The token has a market cap from $20 million (as calculated by a rolling 14-day TWAP on Uniswap/OOF).
There is at least $50,000 of liquidity for the token on Uniswap.
No major vulnerabilities have been discovered in the token contract.
The token’s supply can not be arbitrarily inflated or deflated maliciously.
The control model should be considered if the supply can be modified through governance decisions.
The token does not have transfer fees or other non-standard balance updates.
The token meets the requirements of the ERC20 standard.
Boolean return values are not required.
Stablecoins are accepted.
The SIX compositon based on strat and params
We propose a basic bull/bear switch to start with volatility based configurations to follow later once we know the index is performing well.
.1x stablecoin (USDC or DAI depending on community)
We are looking for feedback for both the concept and the compositions, this is just a concept proposal as we create a more solid, reviewed proposal.