Aboard DeFi-20 Index Methodology
The DeFi Index is designed to measure the market performance of the DeFi sector by tracking the most representative 20 DeFi protocols. The index is weighted by adjusted market capitalization.
Decentralized finance (DeFi) is an emerging financial technology based on blockchain technology similar to cryptocurrencies. It is a revolutionary technology that removes intermediaries and allows users to participate in a trustless way.
Tokens must meet the following eligibility factors to be eligible for index consideration.
Only DeFi tokens are eligible. For Aboard DeFi Index, a DeFi token has the following characteristics:
- 1.The token is listed in the DeFi sector of CoinGecko and CoinMarketCap simultaneously.
- 2.The token must be associated with a decentralized finance protocol that falls in one or more of the following categories: decentralized exchanges, lending, assets management, insurance, payments, derivatives, venture capital, stablecoin protocol, and wallets.
- 3.Each protocol is eligible for one token. For protocols with two or more tokens, the eligible token with the highest-ranking by market cap will be selected for the sample pool.
- 1.The token must not be considered a security across different jurisdictions.
- 2.The token has to be related to a protocol.
- 3.The token can not be a proof of ownership, i.e., CETH.
- 4.The token can not be a legacy token.
- 5.The token can not be a synthetic token whose value depends on the underlying’s price. Synthetic tokens include but are not limited to:
- Wrapped Token: A wrapped token represents a cryptocurrency from another blockchain or a different token standard. The wrapped token has the same value as the original token, i.e., WBTC is an ERC20 token backed 1:1 with Bitcoin.
- Stable Coins: a stablecoin is pegged to a real-world asset or currency, i.e., DAI is pegged to the U.S. dollar.
- Index Token: An index token tracks the performance of the underlying index, i.e., DPI is the token for DeFiPulse Token.
- Forex Token: A forex token tracks the performance of the underlying currency, i.e., sAUD tracks the performance of the Australian dollar.
The token‘s spot product must be listed for hedging and security concerns on the major exchanges.
The constituents are selected based on the following steps.
- 1.Independently rank the tokens according to the standardized past year's daily average market cap data and the standardized monthly trading volume.
- 2.Calculate a total score based on two ranking results:
- CS = MCR + MTVR
- CS: Comprehensive Score for Token
- MCR: Market Cap Ranking (standardized MC)
- MTVR: Monthly Trading Volume Ranking (standardized MTVR)
- 3.Rank all tokens based on a comprehensive score in descending order;
- 4.Select the top 20 ranked tokens as the constituents.
The Aboard DeFi index is a capitalization-weighted index that follows the Laspeyres method. The method uses base period quantities (fixed quantity of tokens) to measure the price change of a basket of tokens.
The index is reconstituted and rebalanced on a fixed schedule to maintain tracking precision:
- 1.All eligible tokens are re-ranked based on the constituent selection procedure;
- 2.The reconstitution procedure follows a buffer rule to reduce the turnover rate. Based on monthly ranking results, the index prioritizes including new candidate tokens in the top 15 and keeping original components in the top 25. The number of newly added tokens can not exceed 10% for each reconstitution;
- 3.Each constituent's weight is rebalanced according to the updated price and market cap. The divisor will be adjusted accordingly.
Active adjustment is a fail-safe mechanism that prevents a black swan event from significantly impacting the performance of the Aboard DeFi index. The adjustments occur at the Aboard Exchange’s discretion.
- A constituent’s weight is recalculated when facing drastic changes in ex-ante or ex-post. The divisor will be adjusted accordingly.
- A token is deleted from the index if an incident critically impacts the related project. Such events include but are not limited to: a catastrophic hacking incident, a sudden abandonment of the project, and complete removal of liquidity;
- A token that violates one or more of the eligibility criteria of the Aboard DeFi Index may be deleted from the index;
- The next available candidate ranked by the comprehensive score will substitute for the position.
- The index will be reconstituted and rebalanced monthly during the month's third week. Token and weight updates are announced before the changes.
- Active changes to the index composition are made on an as-needed basis. There is no scheduled reconstitution. Rather, changes in response to black swan events and market developments can be made anytime. Token and weight updates are announced before the changes.