1.0 About DEFI Composite Index
Index tracks and measures the performance of a basket of assets in a standardized way. There are two types of indices: single underlying price indices and composite price indices. The single underlying price indices mainly focus on tracking some specific underlying instrument price with the same underlying across different markets; while the composite price indices are combinations of different underlying instruments intended to measure the overall market (or subset) performance over time, the indices price usually calculated as weighted average price of the components.
The first index launched by Binance Futures is DEFI Composite Index. It tracks the market performance of a basket decentralized finance (DEFI) protocol tokens listed on Binance. It is calculated by using weighted averages of real time prices of the DEFI tokens on Binance and is denominated in USDT.
The index is made up of the following DeFi protocols: Band Protocol (BAND), Compound (COMP), Kava.io (KAVA), Kyber Network (KNC), Aave (LEND), Chainlink (LINK), Maker (MKR), Synthetic Network Token (SNX), Swipe (SXP), and 0x (ZRX).
2.0 Specifications of DEFI Composite Index
3.0 Index Calculation
To calculate Weighting Factor we need information from table below (The table updates once a week, please refer to the latest table in Section 5.0 “Constituents and Weighting Factor of DEFI Composite Index”）：
Weighting factor formula：
Take BAND as an example：
√Market Cap = √228138790 = 15104.263967502686
√Perpetual Volume = √462009026 = 21494.395222941257
(√Market Cap + √Perpetual Volume) / 1000
= (15104+21494) / 1000
=36598 / 1000
Use this method to calculate all 10 constitutes, add up to 484.947.
Then we get BAND weights in 36.598 / 484.947 = 7.55%
Calculate the weighting factor of each constitute in the index, we get Column F. (‘’factor’’: representing percentage of initial/adjusted value)
* price of i coin at t time
For example at t time, index = 10000
Take BAND as an example:
Wit = 1000 * 7.55% / 12.61
Price (initial/last rebalance) i.e. Column G，refers to the price index of each coin during rebalance, in other words, it is the price index used by USDT Futures Contracts).
We can see there are 5.98464 BAND in the Index.
Divisor t, is the latest stable divisor, which ensures continuous change of index constituents/weight and the index price affected only by constituents price change. The divisor on base day is:：
Calculate the latest value (pi * wi), we get Column J.
Column J is also the latest price index (if the divisor remains unchanged and stays as its initial value 1000)
Take BAND as an example：
Latest value = pi * wi = 13.1998 * 5.98464= 78.996 USDT
Because we have used the weighting factor in the current calculation, the Divisor does not change itself, and remains as the initial value 1000.
Therefore, Index t = the sum of Pi*Wit (*1000/1000) i.e. the sum of Column J in the table:
Index = 78.99625274 + 73.492 +69.297+ … +96.076 = 1007.821
4.1 Regular Rebalances
The indices constituents/weight will be rebalanced every week to measure the latest updated market.
4.2 Special Adjustment
When one or several constituents face drastic changes (e.g. delist or no organic volume), when special adjustment deemed necessary, there are two kinds of adjustment: exclude and recalculate weight (and Divisor t), exclude and fill up with constituents from the alternate list, recalculation also needed.
Here is an example to discuss how Divisor t ensures continuous change of index constituents/weight and the index price affected only by constituents price change.
We use table below as a reference for calculation:
Take LEND as an example,
Latest value (after rebalance) =1 *0.81= 0.81（E6*F6)
The latest value of all constitutes (after special rebalance) are summed up to 884.89 (i.e. sum of column H)
Latest divisor = Last divisor（1000）* Latest value (after rebalance) / Latest value (before rebalance)
= 1000 * sum of column H * sum of column I
=1000 * 884.89 / 995.8
We have produced a new Divisor t, which is not equal to 1000.
Then we use below formula:
Index = Latest value (after rebalance) * 1000 / Latest divisor
=884.89 * 1000 / 888.6 = 995.8
We can see that the numbers in cell K3 and K5 are the same, which means that even if we rebalanced the weight of a constitute, we can use the Divisor to ensure the index price is stable and will be affected only by constituents' price change.
4.3 Hard Fork/Airdrop/Mapping Adjustment
Consider the special characteristics of cryptocurrency price index (which based on blockchain), there should be adjustment for hard fork/airdrop/mapping following these guidelines:
- No adjustment needed for soft fork or hard fork which does not generate new coins
- For components hard fork/airdrop with new coins, the new coins should be included in indices with its original components weight, and excluded on next regular rebalance if sample selection criteria are not met
- Airdrop/mapping with components coins replaced by new coins, especially for split/reverse split occasions, the components should be replaced by the new coins with weight adjust according to the split ratio
5.0 Constituents and Weighting Factor of DEFI Composite Index as of 24 September 2020
*The rebalance takes place on every Thursday 08:00:00 UTC
Scroll horizontally for a full table.
|Base Asset||Name||Market Cap (USDT)||Perpetual Volume (USDT)||Weight (USDT)||Weight in %||Price (Last Rebalance)||Weight (Quantity)||Index (Last Rebalance)|
|SNX||Synthetix Network Token||424,987,885.00||73,213,992||29.17175184||4.7566%||4.1269||6.226514|