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So, to sum it up nicely, this isn’t an “index” as you usually think of them but rather a portfolio of the top defi assets on the market, respecting a huge array of conditions to ensure only the best projects are included.
The tokens on the DPI are tracked, weighted, analyzed in terms of performance, value, and so on…
If you got stuck on the part I’m talking about the “huge array of conditions”, then these are some of them:
- Assets must be on the ETH Blockchain;
- Assets must be listed on DeFi Pulse;
- Assets must be considered Securities;
- Bearer Instruments Only: No Wraps, Synths, Claims or Physicals;
- Predictable Supply with a minimum of 7.5% 5 year-supply circulating;
- Tokens can’t have minting or locking mechanisms (to avoid screwing hodlers);
- Projects need to be useful;
- Projects can’t be a Ponzi or have Ponzi gimmicks;
- Projects need to be widely used;
- Projects must be active for at least 180 days before applying to DPI;
- Insolvent projects are barred (duh!)
- Protocol must be considered secure by security professionals;
- Customer Support and Dev Teams Must Have a Stellar Crisis-Response History;
So, when I talked about how this project had a huge array of demands from the DeFi assets it includes, I wasn’t kidding.
Of course, this just gives you a SICKENING advantage as you are guaranteed to have the “creme de la creme” in quality, security and fundamentals.
Finally, the index is weighted and valued as follows:
“But Max, if I wanted to see this crazy math formula I would have just googled it”
Rest assured, I’m no rocket scientist either but this is fairly simple to understand.
You see, this “rocket science formula” says, in layman terms, that the Index Value is the result of the sum of circulating supply of point “n” for “t” tokens * the price of “t” over the divisor.
But… what is the divisor?
Well, it’s a number you always have access to, and that changes depending on the determination, but we’re going too deep if we start approaching that.
Just remember that all tokens and all prices are measured, and any token with a 25%+ weight during determination (the point at which prices and supplies are “snapshotted”) will have its excess redistributed to other tokens in the DPI.
So, you don’t just have a “buy this collective of tokens” project, you have a project that is capitalizing on the best DeFi projects, looks at fundamentals, looks at the overall DeFi Scenario, including circulating supplies, and the weight of tokens related to others and more…
It’s a project with a lot of thought poured into it and it gives a sickening advantage to everyone who:
- Knows DeFi is Important
- Knows Blockchain is Important
- Knows ETH is Important
…but at the same time knows nothing about market analyzis, being it technical or fundamental.
Basically, newbs can just grab DPI and be exposed to DeFi in a wise and pragmatic manner without needing to put the brainwork down in order to do the analysis themselves.
I don't know about you, but I have more tokens than I can properly manage and so I leave some in that "dormant" state in which I only seriously look at them during bull markets.
Well, DeFi was a niche in which exposure shouldn't be focused on one single protocol, project, or token - you know, the eggs on the same basket are extra dangerous here as the "party" is just starting.
DPI gets you the exposure you usually get by manually controlling and investing in several different tokens, except it only cherry-picks the best opportunities, the ones with the highest potential and track record, and it does all of the sorting for you.
You now can hold one single token to have a responsible, wise, and well-laid out DeFi investment plan.
This is a crazy advantage that will save you time and hassles, and you won't have to multitask different wallets and websites to take a quick look at how every token is performing, or manually do those weight adjustments.
Just look at the graph at whatever time scale you'd like, it always looks great. In fact, we are only a bit short of the All-Time Low.
This may be discouraging if you think of a new token, but remember we're talking about a DeFi Index of the best DeFi projects here, like SUSHI, UNI, FARM, MKR, you name it.
If you are on the fence on DeFi as a whole, you can have your doubts, but if you're bullish on DeFi then you must know this is an insane time to get in - heck this is mainly the reason that leads me to write this post... the price is delicious right now!
It's sickening cheap and, since I don't believe it's the big bear yet, I'm bullish on getting returns sooner rather than later.