The index is maintained on a monthly basis in two phases: Determination Phase The Determination Phase takes place during the third week of the month. It is the phase when the changes needed for the next Reconstitution Phase are determined. Additions and deletions: The tokens being added and deleted from the index calculation are determined&hellip;&nbsp;Read More &raquo;Ongoing Index Maintenance

Ongoing Index Maintenance - My WordPress

Ongoing Index Maintenance

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Creates, maintains, and licenses innovative financial indices for a decentralized world.

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The index value is the spot value of the PONY Index and is calculated with the Laspeyres formula which measures price changes against a fixed quantity weight, the weightfactor. Weightfactor (wf): fixed quantity of tokens determined at the most recent Determination Phase from prices and target weights that. Price (p): value of the vault in&hellip;&nbsp;Read More &raquo;Index Calculation

Index Calculation - My WordPress

Index Calculation

Starting with a broad universe of yield opportunities, Scalara applies a set of screens to arrive at the final set of eligible yield opportunities: Chain screening The PONY Index methodology limits the universe based on the Total Value Locked (TVL) – it has to be at least $1 billion. The blockchains also have to be&hellip;&nbsp;Read More &raquo;Selection Criteria

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Selection Criteria

PONY Index, the Passive Omnichain Net Yield Index, is a digital asset index designed to provide exposure to high quality USD stablecoin yields from all around the blockchain world.

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Objective


<p>Pooling of assets via an index and using auto-compounding vaults socializes a large part of the costs of yield farming.</p>


Low cost


<p>Above all, the index seeks to minimize the risk of loss to the index notional. High safety standards are applied.</p>


Secure principal


<p>Utilizing best-in-class yield farming vaults that optimize the task of reinvesting any distributions, the index does all the work for you.</p>


Net Yield


<p>Attractive yields from all around the blockchain world are collected and made accessible on Ethereum as a single strategy.</p>


Omnichain


<p>The index methodology automates the time-consuming and costly job of yield farming, to be investable through a single token.</p>


Passive

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Creates, maintains, and licenses
innovative financial indices
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<p>Here at Scalara, we leverage our traditional finance expertise and crypto-native know-how to deliver some of the most innovative index products in the DeFi space.</p>



<p></p>



<h4 id="wp-block-themeisle-blocks-advanced-heading-a6deb206" class="wp-block-themeisle-blocks-advanced-heading wp-block-themeisle-blocks-advanced-heading-a6deb206"><strong>We&#8217;ve developed each index with the investor in mind, and each one addresses a unique need.&nbsp;</strong></h4>



<p>We only include protocols with significant usage and commitment to ongoing maintenance and development. To be included in one of our index products, any related DeFi protocol and corresponding tokens must pass a rigorous screening methodology.&nbsp;</p>



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<p></p>



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<h3><strong>The DeFi Pulse Index (DPI)</strong></h3>



<p><strong>Gain exposure to Ethereum&#8217;s blue-chip protocols&nbsp;</strong></p>



<p>The DeFi Pulse Index tracks the performance of blue-chip DeFi protocols offering broad and diversified exposure to the DeFi ecosystem built on Ethereum.<strong><a href="https://www.scalara.xyz/indices/dpi" target="_blank" rel="noreferrer noopener">&nbsp;</a></strong></p>



<p><strong><a href="https://www.scalara.xyz/indices/dpi" target="_blank" rel="noreferrer noopener">Track DPI&#8217;S performance here&gt;</a></strong></p>



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<h3><strong>Flexible Leverage Index (FLI)</strong></h3>



<p><strong>Making leverage strategies simple and accessible.&nbsp;</strong></p>



<p>Our FLI implements a collateralized debt position in a controlled and efficient way to achieve leveraged returns. Packaged up into a simple and accessible.</p>



<p><strong><a href="https://www.scalara.xyz/indices/fli">Track FLI&#8217;s performance here &gt;</a></strong></p>



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<h3><strong>Passive Omnichain Net Yield Index (PONY)&nbsp;</strong></h3>



<p><strong>Stablecoin yields from multiple different blockchains</strong></p>



<p>Looking for yield but tired of bridging, swapping, claiming, selling, reinvesting? PONY Index can simplify your life. The PONY Index is a one-click omnichain yield solution.</p>



<p></p>



<p><strong><a href="https://www.scalara.xyz/indices/pony">Track PONY&#8217;s performance here &gt;</a></strong></p>



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<h3 id="wp-block-themeisle-blocks-advanced-heading-eda8c2bf" class="wp-block-themeisle-blocks-advanced-heading wp-block-themeisle-blocks-advanced-heading-eda8c2bf"><strong>Not seeing the index of your dreams? </strong></h3>



<p>Why not speak to us about developing your very own index? We can create and maintain an index that delivers diversified market exposure and provides a powerfully innovative investment solution for your community.</p>



<p><strong><a href="https://share.hsforms.com/1mLThvHcvTLiD6gWhvgWUIwd1av5">Talk to us &gt;</a></strong></p>


Boring, Simple, Automated Crypto?


<p><strong>Scalara</strong> announces the results of the <strong>July 2022 rebalance</strong> of the Passive Omnichain Net Yield (PONY) Index. This is the first rebalancing of the PONY Index after its inception in the beginning of July. PONY Index is implemented as a single token by <a href="https://ponyfinance.xyz/" target="_blank" rel="noreferrer noopener"><strong>Pony Finance</strong></a>.</p>



<p>The index is a basket of <strong>auto-compounding stablecoin vaults</strong> from multiple blockchains. The vaults are selected and weighted by the <a href="https://www.scalara.xyz/indices/pony"><strong>rules-based methodology</strong></a>&#8216;s broad range of quantitative and qualitative criteria. The result is an index that grows in value based on its underlying stablecoin vaults while offering full on-chain transparency.</p>



<p>Since inception PONY Index’s <a href="https://www.scalara.xyz/blog/pony-index-how-to-calculate-its-net-asset-value"><strong>net asset value</strong></a> grew from $1.10 to $1.1074.</p>



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<h2><strong>PONY Index rebalance weights</strong></h2>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img width="1024" height="454" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3-1024x454.png" alt="Results of July 2022 rebalancing of PONY Index." class="wp-image-1102 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3-1024x454.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3-300x133.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3-768x340.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3.png 1167w" sizes="(max-width: 1024px) 100vw, 1024px" /><noscript><img width="1024" height="454" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3-1024x454.png" alt="Results of July 2022 rebalancing of PONY Index." class="wp-image-1102 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3-1024x454.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3-300x133.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3-768x340.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-3.png 1167w" sizes="(max-width: 1024px) 100vw, 1024px" /></noscript><figcaption>Results of July 2022 rebalancing of PONY Index.</figcaption></figure></div>


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<h2>Rebalance Summary</h2>



<p>The above index weight factors and weights were calculated using vault prices and other input data as of August 8, 2022.</p>



<p>At the July 2022 index rebalance, <strong>four vaults are added</strong> while <strong>three are removed</strong>. As a result, PONY Index will hold vaults from Optimism (51.4%), Polygon (35.5%), and Avalanche (13.1%). The rebalancing implies a one-way turnover of 68%. <strong><a href="https://beefy.com/" target="_blank" rel="noreferrer noopener">Beefy</a></strong> remains the sole yield farming platform used and all employed strategies are stablecoin liquidity pools without impermanent loss. sUSD, <strong><a href="https://synthetix.io/" target="_blank" rel="noreferrer noopener">Synthetix</a></strong>’ overcollateralized stablecoin, is added to the list of eligible stablecoins.</p>



<p>At time of weightfactor calculation the new index composition represented a 10% spot APY, compared to 6.7% based on the previous composition.</p>


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<figure class="aligncenter size-full"><img width="480" height="239" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="http://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002.png" alt="" class="wp-image-864 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002.png 480w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002-300x149.png 300w" sizes="(max-width: 480px) 100vw, 480px" /><noscript><img width="480" height="239" src="http://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002.png" alt="" class="wp-image-864 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002.png 480w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002-300x149.png 300w" sizes="(max-width: 480px) 100vw, 480px" /></noscript></figure></div>


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<p><em>Scalara is dedicated to creating and maintaining indices for a decentralized world.</em></p>


July 2022 Rebalance PONY Index


<p><strong>Scalara</strong> announces the results of the <strong>July 2022 rebalance</strong> of the DeFi Pulse Index.</p>



<p>The <strong>DeFi Pulse Index</strong> is a digital asset index designed to track the performance of some of the largest protocols in the Decentralized Finance (DeFi) space. Over the last three months the DeFi Pulse Index returned <strong>-28%</strong> beating Ethereum&#8217;s -40%.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img width="476" height="547" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-2.png" alt="" class="wp-image-1093 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-2.png 476w, https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-2-261x300.png 261w" sizes="(max-width: 476px) 100vw, 476px" /><noscript><img width="476" height="547" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-2.png" alt="" class="wp-image-1093 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-2.png 476w, https://matthewd210.sg-host.com/wp-content/uploads/2022/08/image-2-261x300.png 261w" sizes="(max-width: 476px) 100vw, 476px" /></noscript><figcaption>Coingecko data.</figcaption></figure></div>


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<h2>DeFi Pulse Index rebalance weights</h2>



<p class="has-text-align-center"><img class="lazyload" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://lh3.googleusercontent.com/CaD2PruqCp_fdFiWrwYGKd93F7zvqDQ-VyNw1pLzJIE-nXN64k4WsBWDe03WP1zGN2LcmHmJxj6ndRcMUD4ZbPtH7MllWQRxvgd1sUK6agLxw7Gqs8Ntlcd8mED4mmoJ1kJVsSD-e3l4WqpKFzCHqMo" width="624" height="404"><noscript><img class="lazyload" src="https://lh3.googleusercontent.com/CaD2PruqCp_fdFiWrwYGKd93F7zvqDQ-VyNw1pLzJIE-nXN64k4WsBWDe03WP1zGN2LcmHmJxj6ndRcMUD4ZbPtH7MllWQRxvgd1sUK6agLxw7Gqs8Ntlcd8mED4mmoJ1kJVsSD-e3l4WqpKFzCHqMo" width="624" height="404"></noscript></p>



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<h2>Rebalance summary</h2>



<p>The above index weight factors and weights were calculated using prices and circulating supplies of all 14 constituents as of July 24, 2022.</p>



<p>At the July 2022 index rebalance, <strong>no tokens are added while the smallest token FARM is removed</strong>, reducing the number of constituents to 13.</p>



<p>The total one-way turnover of the rebalancing is 5.2%. Starting with this rebalance the index is rebalanced on a quarterly basis, hence the turnover is higher compared to the previous rebalances that were run on a monthly basis. For <strong>most constituents</strong> of the DeFi Pulse Index, the index <strong>weight only changed marginally </strong>this quarter. UNI’s 39% allocation under market cap weighting once again would have breached the allocation limit of 25% for any single constituent without any capping. The <a href="https://www.scalara.xyz/blog/methodology-change-defi-pulse-index-introduction-of-flexible-capping">Flexible Capping</a> rule moved its weight half the way from the current weight to the 25% target to reduce turnover. FARM’s weight would have been below the 0.5% threshold and therefore the token was removed from the index following the <a href="https://www.scalara.xyz/blog/methodology-change-defi-pulse-index-introduction-of-minimum-weight-requirement">Minimum Weight Requirement</a> rule.</p>



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<p><em>Scalara is dedicated to creating and maintaining indices for a decentralized world.</em></p>


July 2022 Rebalance DeFi Pulse Index


<h2>PONY Index&nbsp;simplifies the tedious task of finding attractive yield opportunities for stablecoins all around the blockchain world.</h2>



<p>In this article we show how the <strong>Net Asset Value (NAV)</strong> of PONY, the token implementation by <a href="https://ponyfinance.xyz/" target="_blank" rel="noreferrer noopener"><strong>PONY Finance</strong></a> that tracks <a href="https://www.scalara.xyz/indices/pony"><strong>PONY Index</strong></a> can be calculated. The NAV of an index token is an important metric for both traders and holders.</p>



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<h2>Why do I need NAV?</h2>



<p>An index is a basket of assets. PONY Index specifically is a basket of <strong>auto-compounding vaults</strong> holding <strong>stablecoins</strong>. Currently these vaults are all from <a href="https://beefy.finance/" target="_blank" rel="noreferrer noopener"><strong>Beefy Finance</strong></a>. The NAV of such a composite index token is the sum of the values of all its constituents.</p>



<p>Related: <a href="https://www.scalara.xyz/blog/why-invest-in-an-index">Why invest in an index?</a></p>



<p>When buying an index tracking token on a decentralized exchange (DEX) the user doesn’t necessarily pay this NAV though. Instead she pays the current market price quoted by the automated market maker (<a href="https://www.defipulse.com/blog/amms-derivatives-markets-history" target="_blank" rel="noreferrer noopener"><strong>AMM</strong></a>) on a specific DEX pool. This market price is deterministically set by the&nbsp;AMM based on the current token ratio or liquidity distribution in the pool. If the market price is above the NAV, the token is said to trade at a <strong>premium</strong>, if it is below NAV, it is trading at a <strong>discount</strong>.</p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img width="1024" height="440" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount-1024x440.png" alt="Schematic of index token trading at a premium or at a discount." class="wp-image-1009 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount-1024x440.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount-300x129.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount-768x330.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount.png 1133w" sizes="(max-width: 1024px) 100vw, 1024px" /><noscript><img width="1024" height="440" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount-1024x440.png" alt="Schematic of index token trading at a premium or at a discount." class="wp-image-1009 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount-1024x440.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount-300x129.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount-768x330.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/pony-premium-discount.png 1133w" sizes="(max-width: 1024px) 100vw, 1024px" /></noscript><figcaption>Schematic of index token trading at a premium or at a discount.</figcaption></figure></div>


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<p>Ignoring any fees and gas that have to be paid to acquire the constituents, NAV is an approximation of the value of the <strong>assets that are necessary to mint</strong> an index token. Equivalently it is the value of the asset a holder receives when redeeming (burning) the index token. Minting and redeeming (actions often referred to as happening in the &#8220;primary market&#8221;) is fully permissionless in DeFi and therefore open to anyone &#8211; in contrast to <a href="https://www.blackrock.com/au/intermediaries/ishares/authorized-participants-and-market-makers" target="_blank" rel="noreferrer noopener">TradFi</a>.</p>



<p>Keeping an eye on the <strong>difference between NAV and market price</strong> is important when dealing with index products.</p>



<p>For example, see below the spread between NAV and market price for DPI, the token tracking the <a href="https://www.scalara.xyz/indices/dpi"><strong>DeFi Pulse Index</strong></a>:</p>



<figure class="wp-block-image size-large"><img class="lazyload" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://lh4.googleusercontent.com/_kF7nrCezyqS2Iio0lsy9WrTY2SRLHsGBq-dft8EPMg0rRnUGL50-2eRChTxs_9iSuRY7Cj6nx1-zOngd6EZ7CQOs_yhH1rGZXP7QAv9VehoLaA_RJID4NMxs_dWvOm1QQEUCFCg" alt="DPI NAV-price spread"/><noscript><img class="lazyload" src="https://lh4.googleusercontent.com/_kF7nrCezyqS2Iio0lsy9WrTY2SRLHsGBq-dft8EPMg0rRnUGL50-2eRChTxs_9iSuRY7Cj6nx1-zOngd6EZ7CQOs_yhH1rGZXP7QAv9VehoLaA_RJID4NMxs_dWvOm1QQEUCFCg" alt="DPI NAV-price spread"/></noscript><figcaption>DPI spread. Data from Dune, @jdcook, Feb. 25, 2022</figcaption></figure>



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<h2>How to calculate NAV</h2>



<p>As written above, the NAV of an index token is defined as the <strong>sum of the values of its holdings</strong>:</p>


<p>\[NAV = \sum_{V\ in\ PONY} value_{V}\]</p>



<p>To find the value of vault token <em>V</em> in PONY, one has to multiply the <em>weightfactor</em> of <em>V</em> with the price of <em>V</em>. The <em>weightfactor</em> (not to be confused with the “weight” which typically refers to the percentage allocation) quantifies how many <strong>units of vault <em>V</em> are in one unit of PONY</strong>. Since there is a streaming fee continuously deducted from the token balance, the index implementation protocol&nbsp;<a href="https://kuiper.finance/"><strong>Kuiper</strong></a>&nbsp;introduces an <em>IBRatio</em> factor. The <em>IBRatio</em> is used to adjust the token balances so the <em>weightfactors</em> can remain constant between rebalances. At index inception the ratio is set to 1 and afterwards it is decreasing according to the streaming fee:</p>


<p>\[value_{V} = IBRatio \cdot weightfactor_{V} \cdot price_{V}\]</p>



<p>IBRatio and weightfactors are publicly accessible on the Kuiper website by looking up&nbsp;<a href="https://etherscan.io/token/0x0d97fee619d955509e54b046c9992b6e9f5b0630">PONY’s Ethereum contract address</a>:</p>



<figure class="wp-block-image size-large"><img width="1024" height="368" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1024x368.png" alt="Kuiper Finance basket manager for PONY." class="wp-image-1015 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1024x368.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-300x108.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-768x276.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image.png 1233w" sizes="(max-width: 1024px) 100vw, 1024px" /><noscript><img width="1024" height="368" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1024x368.png" alt="Kuiper Finance basket manager for PONY." class="wp-image-1015 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1024x368.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-300x108.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-768x276.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image.png 1233w" sizes="(max-width: 1024px) 100vw, 1024px" /></noscript><figcaption>https://app.kuiper.finance/</figcaption></figure>



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<p>Current Beefy vault prices are available through <a href="https://api.beefy.finance/mootokenprices" target="_blank" rel="noreferrer noopener"><strong>Beefy&#8217;s pricing API</strong></a>. As of writing, the following vaults are part of PONY Index:</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Beefy API Key</strong></td><td><strong>Vault</strong></td></tr><tr><td>mooMaiUSDC-miMATIC</td><td>MAI-USDC LP (Quickswap/Polygon)</td></tr><tr><td>mooMaiMAI-av3CRV</td><td>MAI/DAI/USDC/USDT (Curve/Avalanche)</td></tr><tr><td>mooJoeUSDC.e-USDC</td><td>mooJoeUSDC.e-USDC (Trader Joe/Avalanche)</td></tr><tr><td>mooCurveAm3CRV</td><td>DAI/USDC/USDT (Curve/Polygon)</td></tr><tr><td>mooCurveG3CRV</td><td>fUSDT/DAI/USDC (Curve/Fantom)</td></tr></tbody></table><figcaption>PONY Index constituents as of July 1, 2022.</figcaption></figure>



<p>The respective vault pages show a more granular break-down of each Beefy vault.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img width="725" height="311" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1.png" alt="Break-down of MAI/DAI/USDC/USDT vault on Beefy Finance." class="wp-image-1017 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1.png 725w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1-300x129.png 300w" sizes="(max-width: 725px) 100vw, 725px" /><noscript><img width="725" height="311" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1.png" alt="Break-down of MAI/DAI/USDC/USDT vault on Beefy Finance." class="wp-image-1017 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1.png 725w, https://matthewd210.sg-host.com/wp-content/uploads/2022/07/image-1-300x129.png 300w" sizes="(max-width: 725px) 100vw, 725px" /></noscript><figcaption>Break-down of MAI/DAI/USDC/USDT vault on Beefy Finance.</figcaption></figure></div>


<p>Note that <strong>even stablecoin prices fluctuate</strong>. This fluctuation is typically small though, in the order of +/-25bps around $1 at regular times. Hence, the vault prices and as a result PONY NAV will fluctuate as well. The diversifying effect of having exposure to several stablecoins may lower this volatility though on the index level.</p>



<p>Combining above formulas, the NAV can be calculated as:</p>


<p>\[NAV = IBRatio \sum_{V\ in\ PONY} weightfactor_{V} \cdot price_{V}\]</p>



<p>Scalara publishes the current NAV on the <a href="https://www.scalara.xyz/indices/pony" target="_blank" rel="noreferrer noopener">index page (&#8220;Data&#8221; tab)</a>.</p>



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<h2>What to do with NAV?</h2>



<p>The previous sections hopefully made it clear that a discrepancy between NAV and market price can indicate an <strong>arbitrage opportunity</strong>. In reality, of course, there are a lot more practical considerations to be made. Gas fees, bridging fees and delay, price impact, to name a few, have to be considered. On the other hand there may be pool imbalances (e.g. on Curve) or &#8220;positive&#8221; slippage that can be <strong>at times in favor of the minter</strong>. We will not get into details of the profitability of such strategies though.</p>



<p>Below chart shows a high level schematic of minting PONY. This is only one path though, vaults and pools often allow any asset combination in it to be deposited (e.g. MAI or USDC or any mix of it in the Quickswap vault). </p>



<figure class="wp-block-image size-large"><img class="lazyload" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://lh6.googleusercontent.com/Z1A0KB3_8IEjCSDl4UEHv7Ox6gqBMqzLwI1F_-U1N1DELoTmCHLk1jDGGsDeO-25z8Dk6jagLABA0ks53TsrJaU-y-PRVIMELzWFRYoRdlQCnzcODCc5zQhgbA2fk-m1Fw58sfJoTNpnVnUIcA" alt="PONY minting schematic."/><noscript><img class="lazyload" src="https://lh6.googleusercontent.com/Z1A0KB3_8IEjCSDl4UEHv7Ox6gqBMqzLwI1F_-U1N1DELoTmCHLk1jDGGsDeO-25z8Dk6jagLABA0ks53TsrJaU-y-PRVIMELzWFRYoRdlQCnzcODCc5zQhgbA2fk-m1Fw58sfJoTNpnVnUIcA" alt="PONY minting schematic."/></noscript><figcaption>PONY minting schematic (USDC path).</figcaption></figure>



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<p><em><strong>None of the above should be considered investment advice. Please do your own research.</strong></em></p>



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<p><em><strong>Scalara</strong>, a subsidiary of&nbsp;<a href="https://defipulse.com/"><strong>DeFi Pulse</strong></a>, creates and maintains indices for a decentralized world.</em></p>


PONY Index: How to calculate its Net Asset Value


<h2>Find out how the PONY Index methodology screens the vast universe of yield opportunities in DeFi to find its constituents.</h2>



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<p>The <a href="https://www.scalara.xyz/indices/pony"><strong>PONY Index</strong></a> is a passive strategy that simplifies the tedious task of finding and earning stablecoin yields across the blockchain universe. The index is maintained by <a href="https://www.scalara.xyz/"><strong>Scalara</strong></a>, the methodologist and index provider of <strong><a href="https://www.defipulse.com/" target="_blank" rel="noreferrer noopener">DeFi Pulse</a></strong>. The index is available as a single token, PONY, through the <strong><a href="https://ponyfinance.xyz/" target="_blank" rel="noreferrer noopener">Pony Finance</a></strong>. In the following article, Scalara highlights the selection criteria that a yield opportunity has to pass to join the PONY Index.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full is-resized"><img src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony_logo.png" alt="PONY Index logo" class="wp-image-987 lazyload" width="83" height="84" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony_logo.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony_logo-298x300.png 298w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony_logo-150x150.png 150w" sizes="(max-width: 83px) 100vw, 83px" /><noscript><img src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony_logo.png" alt="PONY Index logo" class="wp-image-987 lazyload" width="83" height="84" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony_logo.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony_logo-298x300.png 298w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony_logo-150x150.png 150w" sizes="(max-width: 83px) 100vw, 83px" /></noscript></figure></div>


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<h2>Goal and rationale</h2>



<p>The PONY Index is a <strong><em>Passive</em></strong> strategy that simplifies the task of harvesting yield on top of secure stablecoin exposure. Its <strong><em>Omnichain</em></strong> approach allows it to find attractive yield opportunities beyond Ethereum. Utilizing curated vaults allows users to get the <strong><em>Net Yield</em></strong> without all the work: Claiming, selling and reinvesting of incentives or other distributions is costly and takes a lot of time. PONY Index&#8217;s major features are:</p>



<ul><li><strong>Secure principal</strong><br>The number one priority of the PONY Index is to minimize the risk of loss to the index notional.</li><li><strong>Transparent</strong><br>On-chain implementations of PONY Index such as $PONY token allow users to benefit from full blockchain transparency. At all times users can verify their holdings and exposures.</li><li><strong>Attractive yield</strong><br>The PONY Index seeks to provide a stable and competitive yield. Its goal is to beat “local” yield opportunities on Ethereum Mainnet such as simple lending.</li><li><strong>Single token</strong><br>The index is investable and makes a single ERC20 token that tracks the index possible.</li><li><strong>Passive</strong><br>The index methodology aims to balance the trade-off between yield and risk.</li><li><strong>Low cost</strong><br>Pooling of assets through an index and utilization of curated yield farming vaults socializes large parts of the maintenance fees.</li></ul>



<p>Related: <a href="https://www.scalara.xyz/blog/why-invest-in-an-index">Why invest in an index?</a></p>



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<h2>Methodology</h2>



<p>The core of the PONY Index methodology is the rigorous&nbsp;<strong>selection of eligible yield opportunities</strong>. The index is reviewed on a monthly basis.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full is-resized"><img src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony-funnel.png" alt="PONY Index funnel" class="wp-image-990 lazyload" width="389" height="439" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony-funnel.png 480w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony-funnel-266x300.png 266w" sizes="(max-width: 389px) 100vw, 389px" /><noscript><img src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony-funnel.png" alt="PONY Index funnel" class="wp-image-990 lazyload" width="389" height="439" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony-funnel.png 480w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/pony-funnel-266x300.png 266w" sizes="(max-width: 389px) 100vw, 389px" /></noscript></figure></div>


<p><strong>Chain screening</strong><br>PONY Index&#8217;s goal is to bring &#8220;omnichain&#8221; yields back to Ethereum. Therefore, it has to be possible to bridge any selected yield vault to Ethereum Mainnet. Only chains that allow for efficient bridging in both directions are eligible. Bridges have to be audited and be considered safe and mature.<br>In addition, the chain needs to have a Total Value Locked (TVL) of at least $1 billion.</p>



<p><strong>Yield farming platform screening</strong><br>Yield farming vaults play an important part in the PONY Index design: They are the actual index constituents. Hence, the vault tokens have to be transferable.<br>Farming vaults compound the trading fees, deposit fees or incentive tokens that build up the yield of a strategy.<br>PONY Index only selects vaults that do this process automatically as the index is a passive vehicle. Claiming of rewards, selling, and reinvesting has to be an automated part of the vault design.<br>Only existing, &#8220;off the shelf&#8221; vaults are considered. Vaults have to be live for at least a month to ensure that the design has been thoroughly tested.<br>In order to do a fair comparison, only the yield net of fees are considered in the selection process.</p>



<p><strong>Stablecoin exposure screening</strong><br>PONY Index applies a very strict screen when it comes to its stablecoin selection. This means that only vaults that farm a small set of high quality stablecoins can be selected.<br>Most importantly, the stablecoin has to be pegged to the US Dollar.<br>The stablecoin has to be either fully collateralized with fiat USD or be significantly overcollateralized with crypto assets. This means that so-called &#8220;algorithmic&#8221; stablecoins, that are undercollateralized and hence are completely depending on the peg mechanism for stability, are not eligible.<br>The market cap of the stablecoin has to be greater than $100 million and the its price must have shown price stability over the past 6 months.<br>The stablecoin cannot have hidden dependencies to or backing by ineligible stablecoins.</p>



<p><strong>Yield source screening</strong><br>There are plenty of strategies that a vault could employ to generate yield. In order to not put the index notional at risk and avoid impermanent loss only a small set of strategies can be selected:<br>Only overcollateralized lending and stable-stable liquidity pools pass these strict criteria.</p>



<p><strong>Risk score screening</strong><br>PONY Index utilizes the <a href="https://docs.beefy.finance/safu-protocol/beefy-safety-score" target="_blank" rel="noreferrer noopener">Beefy &#8220;Safety Score&#8221;</a>. This score aggregates several important safety aspects of yield farming: Complexity and maturity of the strategy, impermanent loss, market capitalization of assets and their volatility, audits by trusted reviewers and contract verification. Only vaults scoring above 8 (out of 10) can be selected.<br>If the Safety Score is not available Scalara will mimic Beefy&#8217;s methodology.</p>



<p><strong>Weighting</strong><br>Several metrics have to be considered when determining the final weights of the eligible yield opportunities: Yield, risk, diversification, capacity, and turnover. PONY Index solves this problem by solving a simple optimization problem:</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img width="572" height="309" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/optimization-2.png" alt="PONY Index weighting optimization." class="wp-image-998 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/optimization-2.png 572w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/optimization-2-300x162.png 300w" sizes="(max-width: 572px) 100vw, 572px" /><noscript><img width="572" height="309" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/optimization-2.png" alt="PONY Index weighting optimization." class="wp-image-998 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/optimization-2.png 572w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/optimization-2-300x162.png 300w" sizes="(max-width: 572px) 100vw, 572px" /></noscript></figure></div>


<p>In the objective function the exposure to a yield-capacity score is maximized. The score is a weighted geometric average of yield and underlying TVL. The second term in the objective function is a measure for diversification (<a href="https://en.wikipedia.org/wiki/Herfindahl%E2%80%93Hirschman_index" target="_blank" rel="noreferrer noopener">Herfindahl Index</a>, the larger the more concentrated).</p>



<p>The constraints ensure a minimum weighted risk score of the index (1) and minimum weighted underlying TVL to lower the dilution sensitivity (2), limit turnover (3) and concentration (4).</p>



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<h2>Conclusion</h2>



<p>PONY Index <strong>simplifies </strong>the complex, time-consuming and costly job of finding <strong>attractive yields</strong> to be earned on top of stablecoin exposure. At times of low real rates globally this task becomes more pressing for more and more people. But simplifying a strategy into a one-token solution isn’t the only benefit of PONY Index. Full <strong>on-chain transparency</strong> allows users to verify at all times their index holdings and underlying exposures.</p>



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<p><em><strong>Scalara</strong>, a subsidiary of&nbsp;<a href="https://defipulse.com/"><strong>DeFi Pulse</strong></a>, creates and maintains indices for a decentralized world.</em></p>


PONY Index: A methodology deep dive


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<p><strong>Scalara will end maintenance and publication of the Scalara NFT Index after June 30, 2022.</strong> </p>



<p>Note: Scalara does not control any token implementations of its indices. The token contract tracking the index and any bridged versions are created in a completely permissionless fashion.</p>



<p>If you have any related questions, please <a href="https://share.hsforms.com/1mLThvHcvTLiD6gWhvgWUIwd1av5" target="_blank" rel="noreferrer noopener">reach out</a>.</p>



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<p><em><a href="https://www.scalara.xyz/"><strong>Scalara</strong></a>, a subsidiary of&nbsp;<a href="https://defipulse.com/"><strong>DeFi Pulse</strong></a>, creates&nbsp;and maintains indices for a decentralized world.</em></p>


Scalara to wind down  support of Scalara NFT Index


<h2>Learn about how Scalara curates the DeFi Pulse Index through its methodology and the rationale for each rule.</h2>



<p>The <strong><a href="https://www.scalara.xyz/indices/dpi" target="_blank" rel="noreferrer noopener">DeFi Pulse Index</a></strong> is a benchmark that offers exposure to the Decentralized Finance (DeFi) sector. The index is maintained by Scalara, the methodologist and index provider. It is implemented as a single token, DPI, by the <a href="https://indexcoop.com/" target="_blank" rel="noreferrer noopener"><strong>Index Coop</strong></a> and <strong><a href="https://www.tokensets.com/" target="_blank" rel="noreferrer noopener">Set</a></strong>. In the following article, Scalara highlights the selection criteria for a protocol to join the DeFi Pulse Index. For each rule the purpose or rationale is listed.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img width="80" height="80" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/dpi_logo.png" alt="DeFi Pulse Index DPI logo" class="wp-image-946 lazyload"/><noscript><img width="80" height="80" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/dpi_logo.png" alt="DeFi Pulse Index DPI logo" class="wp-image-946 lazyload"/></noscript></figure></div>


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<h2><strong>Goal and rationale</strong></h2>



<p>The DeFi Pulse Index is designed to be a <strong>benchmark of the decentralized finance space</strong>. Similar to other basket indices, its main goals are:</p>



<p><strong>Diversified</strong><br>Diversification is one of the key features of indices. A broad index diversifies away the specific risk attached to any single asset. The remaining systematic risk of the targeted factor, the DeFi sector, remains. In the long run, passively tracking a broad market benchmark has proven to beat most attempts to actively pick and chose winners.</p>



<p><strong>Exposure to DeFi sector</strong><br>The DeFi Pulse Index aims to generate returns that on average would mimic that of the broader DeFi sector. More specifically, the index seeks to provide exposure to large, high quality DeFi projects.</p>



<p><strong>At a low cost</strong><br>Constructing one’s own DeFi portfolio is time consuming, requires constant maintenance and may cost a lot in gas. The DeFi Pulse Index takes care of rebalancing and general maintenance and effectively socializes related costs.</p>



<p><strong>Investable</strong><br>The DeFi Pulse Index methodology ensures that the index can be replicated by a token implementation. As a result, users are able to hold a single ERC20 token that represents the full basket of index components.</p>



<p>Related: <a href="https://www.scalara.xyz/blog/why-invest-in-an-index">Why invest in an index?</a></p>



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<h2><strong>Methodology</strong></h2>



<p>The core of the DeFi Pulse index methodology is the <strong>selection of eligible index components</strong>. The four key goals previously discussed are the basis for the formation of the DeFi Pulse Index methodology and its evolution.</p>



<p>DeFi related tokens are reviewed on a quarterly (at index inception monthly) basis to determine which tokens qualify. The methodology is broken down into four subsections consisting of a variety of <strong>qualitative and quantitative criteria</strong>. These subsections are as follows: Token Descriptive Characteristics, Token Supply Characteristics, Project Traction Characteristics and Protocol User Safety Characteristics.&nbsp;</p>



<figure class="wp-block-image size-large"><img width="1024" height="440" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel-1024x440.png" alt="DeFi Pulse Index selection filter" class="wp-image-945 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel-1024x440.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel-300x129.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel-768x330.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel.png 1215w" sizes="(max-width: 1024px) 100vw, 1024px" /><noscript><img width="1024" height="440" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel-1024x440.png" alt="DeFi Pulse Index selection filter" class="wp-image-945 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel-1024x440.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel-300x129.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel-768x330.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/funnel.png 1215w" sizes="(max-width: 1024px) 100vw, 1024px" /></noscript></figure>



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<h2><strong>Token Descriptive Characteristics</strong></h2>



<p><strong>Ethereum Mainnet</strong><br>The token and protocol must be available on the Ethereum blockchain. The Ethereum blockchain remains the prime standard from a <strong>security and maturity</strong> perspective. User activity and project viability on Ethereum can be a strong indicator for long-term resilience.</p>



<p><strong>DeFi Pulse Leaderboard</strong><br>The token must be associated with a DeFi protocol listed on the DeFi Pulse Leaderboard. The DeFi Pulse Leaderboard screens protocols for their <strong>true total value locked</strong> (TVL). This value is used as a preliminary metric for assessing a project&#8217;s traction and usefulness.</p>



<p><strong>Not considered a security</strong><br>The token must not be considered a security by the corresponding authorities across different jurisdictions. If a singular constituent is a security it would disallow some market participants from investing in the index. It is important for the DeFi Pulse Index to be <strong>accessible to everyone</strong>.</p>



<p><strong>Bearer instrument</strong><br>While DeFi and blockchains are still a nascent technology and not yet as standardized as traditional financial markets, <strong>simplicity</strong> is an important aspect. In order to mitigate financial and regulatory risk, the DeFi Pulse Index will not include non-bearer instruments such as wrapped tokens, tokenized derivatives, synthetic assets and tokens tied to physical assets or other tokens.</p>



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<h2><strong>Token Supply Characteristics</strong></h2>



<p><strong>Predictable token supply curve</strong><br>It must be possible to reasonably predict the token’s supply over the next five years. This is necessary as large token unlocks and amounts being released into supply may cause disadvantages such as <strong>dilution</strong>, especially towards passive holders.&nbsp;</p>



<p><strong>Sufficient circulating supply</strong><br>Liquidity is key for executing transactions that will allow buyers to enter and exit the market as they please. This is essential for <strong>efficient price discovery</strong>. Furthermore, low float assets can be easy to manipulate.  A minimum of 7.5% circulation of the five year supply acts as a baseline filter for liquidity requirements.&nbsp;</p>



<p><strong>Reasonable and consistent DeFi liquidity on Ethereum</strong><br>Liquid constituents are crucial to ensure that the DeFi Pulse Index trades as close as possible to its net asset value. The ability to buy and sell at a <strong>fair market value</strong> gives investors fair entries and exits. Without liquidity, assets cannot be <strong>cashed out quickly, fairly and easily</strong>. This would interfere with the fundamental goal of allowing investors to control their exposure freely.</p>



<p><strong>Passive holders cannot be disadvantaged</strong><br>The token’s economics must not have locking, minting or other patterns that would significantly disadvantage passive holders. The DeFi Pulse Index is a <strong>spot index</strong> that, if implemented, must allow for the quick liquidation of a position. Being able to fully and immediately redeem ensures that any product tracking the index is <strong>priced close to net asset value</strong>. In addition, holding the unlocked or unstaked version of a token typically strictly underperforms due to constant dilution.</p>



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<h2><strong>Project Traction Characteristics</strong></h2>



<p><strong>Utility</strong><br>The project must have a use-case that will benefit the DeFi space over time. The protocol must generate <strong>real economic activity</strong> and not contain ponzi-esque frameworks. Some of the more mature financial services that DeFi is offering are lending, trading and asset management.</p>



<p><strong>Usage</strong><br>The baseline measure of a protocol&#8217;s usage comes from the <strong>total value locked</strong> (TVL). TVL, according to DeFi Pulse, is the real value locked inside a protocol that generates economic activity. TVL must be examined in conjunction with qualitative examination to ensure the <strong>value is being used for the protocol’s service</strong> rather than an abstract ecosystem fund for example. Also, usage should not be concentrated in a small number of users or be limited by high barriers of entry.</p>



<p><strong>Maturity</strong><br>Protocols may be launched and gain enormous traction within a short period of time. The DeFi Pulse Index aims to select projects that will <strong>retain traction and usage</strong> and are already battle tested. As a result, projects must be at least 180 days old. This also aids in any teething issues a protocol may experience from growing quickly.</p>



<p><strong>Solvent</strong><br>The protocol or project must not be insolvent. The DeFi Pulse Index aims to track the DeFi space over a long period of time. As a result, selected projects should have a long, healthy life expectancy. Insolvent projects are unlikely to repay their debts and hence have a severely reduced longevity.</p>



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<h2><strong>Protocol User Safety Characteristics</strong></h2>



<p><strong>Security review</strong><br>Security professionals must have reviewed the protocol to determine that <strong>security best practices</strong> have been followed in regards to user asset safety. Additionally, an <strong>audit is necessary</strong> to ensure there are no malicious intentions present within the smart contracts.&nbsp;</p>



<p><strong>Security exploitation response</strong><br>In the event of a safety incident, the team must have responded promptly and addressed the incident responsibly in the aftermath, providing users of the protocol with a <strong>reliable solution</strong> and the decentralized finance community with adequate documentation to provide <strong>transparency about the incident</strong>. Security issues happen to even the largest cryptocurrency projects, however if the team deals with them in a professional manner then they may still be included in the DeFi Pulse Index. Repeat exploitations will result in a removal of their product from the Index.</p>



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<h2>Sit back and relax</h2>



<p>The ultimate purpose of the DeFi Pulse Index is to serve as a representation of the DeFi space as a whole. The criteria shown above are a culmination of standards aimed to curate DeFi protocols into a tradeable, user-friendly and efficient benchmark. The projects that comprise the index provide <strong>useful services</strong> whilst being <strong>well-known and reputable</strong>. Since exposure gained to them is via their tokens, the tokenomics may not put passive holders at a disadvantage. Making sure the index can be replicated by a token implementation has to be kept in mind of course. Scalara wants you to be able to sit back and relax when getting your DeFi exposure.</p>



<p>Find the complete index methodology <strong><a href="https://www.scalara.xyz/indices/dpi" target="_blank" rel="noreferrer noopener">here</a></strong>.</p>



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<p><em><a href="https://www.scalara.xyz/"><strong>Scalara</strong></a>, a subsidiary of&nbsp;<a href="https://defipulse.com/"><strong>DeFi Pulse</strong></a>, creates&nbsp;and maintains indices for a decentralized world.</em></p>


DeFi Pulse Index: A methodology deep dive


<h2>Learn how Scalara utilizes the Polygon ecosystem to build more accessible indices with better methodologies.</h2>



<p>Starting in the fall of 2021, many protocols had to deal with the same problem: Ethereum Mainnet <strong>gas prices were soaring</strong>. This was throwing a wrench into old and new projects alike. The economic viability of many projects was in question. This left users wondering who would spend more on transaction fees than the trading notional?</p>


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<figure class="aligncenter size-full is-resized"><img src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/gas-prices-eth.png" alt="Ethereum gas price over time." class="wp-image-903 lazyload" width="423" height="253"/><noscript><img src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/gas-prices-eth.png" alt="Ethereum gas price over time." class="wp-image-903 lazyload" width="423" height="253"/></noscript></figure></div>


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<p>At the time, Scalara was in the middle of coordinating the <a href="https://www.scalara.xyz/indices/fli"><strong>Flexible Leverage Indices (FLIs)</strong></a> roadmap in collaboration with the <a href="https://indexcoop.com/" target="_blank" rel="noreferrer noopener"><strong>Index Coop</strong></a> and <a href="https://www.setprotocol.com/" target="_blank" rel="noreferrer noopener"><strong>Set</strong></a>. FLIs are an index suite that provides 2x and -1x exposure to major tokens like <strong>ETH, MATIC </strong>and <strong>BTC</strong>. Therefore, our predication was that trading volumes would suffer significantly at high gas prices.</p>



<p>Related: <a href="https://www.defipulse.com/blog/flexible-leverage-index" target="_blank" rel="noreferrer noopener">Flexible Leverage Index is Live</a></p>



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<h2>Cheaper access</h2>



<p>One solution was to wait for <strong>bridging of FLIs to Polygon</strong>. This would allow users to benefit from the <strong>low transactions fees and fast execution</strong> that Polygon offers. Users would be able to quickly bet on rising or falling markets and only pay fractions of a cent for each trade.</p>



<p>We had seen the same happening with our first index, the <a href="https://www.scalara.xyz/indices/dpi"><strong>DeFi Pulse Index</strong></a>, whose DPI token implementation was <strong><a href="https://polygonscan.com/token/0x85955046df4668e1dd369d2de9f3aeb98dd2a369" target="_blank" rel="noreferrer noopener">bridged to Polygon</a></strong>. This proved to be desirable as the bridged version has steadily gained more users.</p>



<figure class="wp-block-image size-full"><img width="786" height="437" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/dpi-polygon-users.png" alt="DPI token holders over time on Polygon" class="wp-image-918 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/dpi-polygon-users.png 786w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/dpi-polygon-users-300x167.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/dpi-polygon-users-768x427.png 768w" sizes="(max-width: 786px) 100vw, 786px" /><noscript><img width="786" height="437" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/dpi-polygon-users.png" alt="DPI token holders over time on Polygon" class="wp-image-918 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/dpi-polygon-users.png 786w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/dpi-polygon-users-300x167.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/dpi-polygon-users-768x427.png 768w" sizes="(max-width: 786px) 100vw, 786px" /></noscript><figcaption>Data from Dune (@dfp)</figcaption></figure>



<p>Also our recently launched <a href="https://www.scalara.xyz/blog/what-is-the-scalara-nft-index-nfti"><strong>Scalara NFT Index</strong></a> is progressing in that direction. Its token implementation, NFTI, is now <a href="https://app.slingshot.finance/trade/NFTI" target="_blank" rel="noreferrer noopener"><strong>available on Polygon</strong></a>. This allows users to get access to highly-valued <strong>blue-chip NFT collections</strong> at a low cost<strong>.</strong> Scalara is spearheading the movement of making highly desirable Ethereum Mainnet NFTs accessible on Polygon.</p>



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<h2>Better index solutions</h2>



<p>Simple bridging was an adequate solution for DPI and NFTI as these indices are simple baskets. The composition of baskets usually changes infrequently.</p>



<p>But FLIs on the other hand <strong>change their composition very frequently</strong>. Periodically, the index rebalances the collateralized debt position towards its target exposure (2x or -1x respectively). However, even if bridged to Polygon, the internal rebalancing transactions would remain on Ethereum. Therefore, FLI token implementations would continue to accrue very high gas fees.</p>



<p>The aforementioned problem was resolved by utilizing <strong>the Polygon ecosystem</strong>. Index Coop and Set implemented the token <strong>natively on Polygon</strong>: That means that the internal rebalancing transactions are executed on Polygon. As a result the <strong>maintenance costs are cut significantly</strong>. Furthermore, lower transaction fees made it possible to <strong>improve the index methodology</strong>. One new feature was to increase the rebalancing frequency. This makes the index <strong>safer</strong> by moving away from dangerous leverage levels even more frequently. In addition, the index remains <strong>closer to its target leverage</strong>.</p>



<p>Related: <a href="https://www.scalara.xyz/blog/flis-are-coming-to-polygon">FLIs are coming to Polygon</a></p>



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<h2>Scalara indices availability on Polygon</h2>


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<figure class="aligncenter size-full"><img width="543" height="335" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/logo-polygon.png" alt="Tokens tracking Scalara indices are available on Polygon." class="wp-image-831 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/logo-polygon.png 543w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/logo-polygon-300x185.png 300w" sizes="(max-width: 543px) 100vw, 543px" /><noscript><img width="543" height="335" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/logo-polygon.png" alt="Tokens tracking Scalara indices are available on Polygon." class="wp-image-831 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/logo-polygon.png 543w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/logo-polygon-300x185.png 300w" sizes="(max-width: 543px) 100vw, 543px" /></noscript></figure></div>


<p>Explore where  Scalara indices are available on Polygon to trade, mint or LP on <a href="https://www.scalara.xyz/products"><strong>scalara.xyz/products</strong></a>.</p>



<p><strong>DeFi Pulse Index:</strong> Blue-chip index of leading DeFi protocols. <em>Don&#8217;t put all your eggs in one basket.</em></p>



<p><strong>Flexible Leverage Indices:</strong> Automated strategies for leverage and inverse exposure. <em>Stay clear from liquidations.</em></p>



<p><strong>Scalara NFT Index:</strong> Simple access to the well-established and highly-valued NFTs. <em>Earn yield on top.</em></p>



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<p><em><a href="https://www.scalara.xyz/"><strong>Scalara</strong></a>, a subsidiary of <a href="https://defipulse.com/"><strong>DeFi Pulse</strong></a>, c</em>reates<em> and maintains indices for a decentralized world.</em></p>


Scalara indices on Polygon


<h2>Find out how the PONY Index collects high quality stablecoin yields from different blockchains, farming platforms, and stablecoins.</h2>



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<p>In contrast to traditional finance, there are <strong>plenty of attractive yield opportunities available in DeFi</strong>. This is not only the case for volatile assets but also for tokens with very small price swings such as stablecoins. Investors can find these yield opportunities on different chains, different platforms, and using different stablecoins. At times of <strong>record high inflation</strong>, DeFi is one of the few places left offering <strong><a href="https://en.wikipedia.org/wiki/Real_interest_rate" target="_blank" rel="noreferrer noopener">positive real interest rates</a></strong>.</p>



<p>In the following article we explain how the <strong>Passive Omnichain Net Yield (PONY) Index</strong> simplifies the task of finding and earning these stablecoin yields.</p>



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<h2>Rationale for the PONY Index</h2>



<p>Over the last few months the <strong>demand for a simple low volatility strategy that focuses on yield generation</strong> was getting louder. Such a strategy, if <strong>implemented as an investable index</strong>, would offer a safe haven investment for both risk averse retail investors or DAOs that have to manage future liabilities. Furthermore, passive strategies like indices are also popular as simple long term investments.</p>


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<figure class="aligncenter size-full"><img width="480" height="239" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002.png" alt="PONY Index stablecoin yield" class="wp-image-864 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002.png 480w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002-300x149.png 300w" sizes="(max-width: 480px) 100vw, 480px" /><noscript><img width="480" height="239" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002.png" alt="PONY Index stablecoin yield" class="wp-image-864 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002.png 480w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image002-300x149.png 300w" sizes="(max-width: 480px) 100vw, 480px" /></noscript><figcaption>PONY Index. Schematic.</figcaption></figure></div>


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<p>Current stablecoin yield solutions are <strong>sub-optimal</strong> for a variety of reasons:</p>



<ul><li>It is very <strong>time consuming</strong> to track developments across chains, yield farming platforms and stablecoins.</li><li>Bridging, staking, claiming and reinvesting across chains <strong>requires technical expertise</strong>.</li><li>Frequent claiming and reinvesting of distributions in a diversified strategy is <strong>costly</strong>.</li><li>Simple lending on Ethereum Mainnet <strong>lags other opportunities</strong> like providing liquidity or integrating other chains </li><li>Undiversified yield farming suffers from <strong>concentration risk and volatile yields</strong></li></ul>



<p>The PONY Index is a <strong><em>Passive</em></strong> strategy and solves the above problems. Its <strong><em>Omnichain</em></strong> approach allows it to find better yield opportunities beyond Ethereum. Utilizing curated vaults allows users to get the <strong><em>Net Yield</em></strong> without all the work: Claiming, selling and reinvesting of incentives or other distributions is costly and takes a lot of time.</p>



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<h2>Goal of the PONY Index</h2>



<p>The main features of the PONY Index are:</p>



<ul><li><strong>Secure principal:</strong> The number one priority of the PONY Index is to minimize the risk of loss to the index notional. </li><li><strong>Attractive yield:</strong> The PONY Index seeks to provide a stable and competitive yield. Its goal is to beat &#8220;local&#8221; yield opportunities on Ethereum Mainnet such as simple lending.</li><li><strong>Single token:</strong> The index is investable and makes a single ERC20 token that tracks the index possible.</li><li><strong>Passive:</strong> The  index methodology aims to balance the trade-off between yield and risk.</li><li><strong>Low cost:</strong> Pooling of assets through an index and utilization of curated yield farming vaults socializes large parts of the maintenance fees.</li></ul>


<div class="wp-block-image">
<figure class="aligncenter size-full is-resized"><img src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony_logo.png" alt="PONY Index logo" class="wp-image-863 lazyload" width="150" height="151" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony_logo.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony_logo-298x300.png 298w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony_logo-150x150.png 150w" sizes="(max-width: 150px) 100vw, 150px" /><noscript><img src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony_logo.png" alt="PONY Index logo" class="wp-image-863 lazyload" width="150" height="151" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony_logo.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony_logo-298x300.png 298w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony_logo-150x150.png 150w" sizes="(max-width: 150px) 100vw, 150px" /></noscript><figcaption>PONY Index.</figcaption></figure></div>


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<h2>What is inside the PONY Index?</h2>



<p>The index holds <strong>yield farming vaults</strong> that the index methodology selects and weights. These vaults run automated yield farming strategies using solely stablecoins as underlying: Either they provide liquidity in a pure stablecoin pool or deposit stablecoins in a lending protocol to earn trading and lending fees. In addition, in order to maximize yield the vault strategy will typically try to earn and reinvest incentives.</p>



<p>Therefore, through the vaults, the PONY Index is <strong>effectively holding stablecoins</strong> (and of course any incentive tokens the vaults may temporarily hold before selling and reinvesting).</p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img width="1024" height="349" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27-1024x349.png" alt="" class="wp-image-1004 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27-1024x349.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27-300x102.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27-768x262.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27.png 1294w" sizes="(max-width: 1024px) 100vw, 1024px" /><noscript><img width="1024" height="349" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27-1024x349.png" alt="" class="wp-image-1004 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27-1024x349.png 1024w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27-300x102.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27-768x262.png 768w, https://matthewd210.sg-host.com/wp-content/uploads/2022/06/comp-june-27.png 1294w" sizes="(max-width: 1024px) 100vw, 1024px" /></noscript><figcaption>PONY Index composition. Indicative data as of June 27, 2022.</figcaption></figure></div>


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<h2>How are the yield opportunities selected?</h2>



<p>The selection of eligible yield opportunities is the core of the index methodology. Therefore, in order to be eligible for the index, yield opportunities have to pass a <strong>rigorous set of screens</strong>. In this process, the methodology considers all relevant aspects of yield farming.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full is-resized"><img src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-funnel.png" alt="PONY stablecoin yield index selection criteria" class="wp-image-843 lazyload" width="636" height="305" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-funnel.png 918w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-funnel-300x144.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-funnel-768x369.png 768w" sizes="(max-width: 636px) 100vw, 636px" /><noscript><img src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-funnel.png" alt="PONY stablecoin yield index selection criteria" class="wp-image-843 lazyload" width="636" height="305" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-funnel.png 918w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-funnel-300x144.png 300w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-funnel-768x369.png 768w" sizes="(max-width: 636px) 100vw, 636px" /></noscript><figcaption>PONY index selection criteria.</figcaption></figure></div>


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<p><strong>Chain screening </strong><br>The PONY Index methodology limits the universe based on the <strong>Total Value Locked</strong> (TVL). The blockchains also have to be connected to the Ethereum network and allow for <strong>efficient bridging</strong>.</p>



<p class="has-text-align-left"><strong>Yield farming platform screening</strong><br>Only platforms with transferable vaults, available &#8220;off the shelf&#8221; are eligible. The vaults have to already <strong>incorporate claiming, selling and reinvesting</strong> of any incentives or distributions. Only the <strong>yield net of fees</strong> is considered.</p>



<p><strong>Stablecoin exposure screening</strong><br>The underlying stablecoin has to be pegged to USD and either be <strong>fully collateralized with fiat</strong> (or cash equivalent) or <strong>over-collateralized with crypto assets</strong>. There can not be a no hidden dependency or backing to an ineligible stablecoin. Furthermore <strong>market cap and maturity</strong> of the project are evaluated.</p>



<p><strong>Yield source screening</strong><br>The yield earning vault strategy <strong>does not incur impermanent loss</strong> and does not put the stablecoin notional at risk. The yield source should have significant <strong>capacity</strong> to avoid quick dilution.</p>



<p><strong>Risk score screening</strong><br>Scalara uses <strong><a href="https://docs.beefy.finance/safu-protocol/beefy-safety-score" target="_blank" rel="noreferrer noopener">Beefy&#8217;s Safety Score</a></strong> or mimics its calculation if not available.</p>



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<h2>How are final components selected and weighted?</h2>



<p>All vaults that pass the aforementioned eligibility screens (chain, yield farming vault platform, stablecoin exposure, yield source, risk score) compose the <strong>selection list</strong>.</p>



<p>The index determines the final index composition and the respective weights by solving an <strong>optimization problem</strong>. Using an optimizer allows to find an optimal solution under <strong>multiple objectives while satisfying several conditions</strong>.</p>



<p>In short, the solution <strong>maximizes</strong> an aggregate score that is based on <strong>yield and size of the yield opportunity</strong>. The size of the yield opportunity is relevant to favor more sustainable yields. In addition, a <strong>concentration penalty</strong> tilts towards a more diversified basket with a stable yield. At the same time constraints enforce a feasible<strong> turnover</strong> at rebalancing.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img width="200" height="195" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/opt-1.png" alt="" class="wp-image-900 lazyload"/><noscript><img width="200" height="195" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/opt-1.png" alt="" class="wp-image-900 lazyload"/></noscript></figure></div>


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<h2>How can users get exposure?</h2>



<p>PONY DAO will implement the PONY Index as a single token. Expect more information to come out in the near future. You can stay up-to-date through:</p>



<ul><li>PONY Finance: Follow on <a href="https://twitter.com/PonyFinance" target="_blank" rel="noreferrer noopener"><strong>Twitter</strong></a> or visit <a href="https://ponyfinance.xyz/" target="_blank" rel="noreferrer noopener"><strong>Website</strong></a> or join <strong><a href="https://discord.gg/UfpsZUFuDu" target="_blank" rel="noreferrer noopener">Discord</a></strong></li><li>Scalara: Follow on <strong><a href="https://twitter.com/Scalara_xyz" target="_blank" rel="noreferrer noopener">Twitter</a></strong> or visit <strong><a href="https://www.scalara.xyz/" target="_blank" rel="noreferrer noopener">Website</a></strong></li></ul>


<div class="wp-block-image">
<figure class="aligncenter size-full is-resized"><img src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-logo-2.png" alt="PONY Finance powers the PONY token" class="wp-image-884 lazyload" width="248" height="52"/><noscript><img src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/pony-logo-2.png" alt="PONY Finance powers the PONY token" class="wp-image-884 lazyload" width="248" height="52"/></noscript><figcaption>PONY Finance powers the PONY token and PONY DAO.</figcaption></figure></div>


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<p><strong>Summary: PONY Index provides exposure to high quality USD stablecoin yields across multiple chains, platforms, coins, and yield sources. The index simplifies this complex task into a passive strategy accessible on Ethereum.</strong></p>



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<p><em><strong>Scalara</strong>, a subsidiary of&nbsp;<a href="https://defipulse.com/"><strong>DeFi Pulse</strong></a>, creates and maintains indices for a decentralized world.</em></p>


What is the PONY stablecoin yield index?


<h2><strong>Scalara</strong> announces a change to the methodology of the <strong>DeFi Pulse Index</strong> to be effective starting with the May 2022 rebalancing.</h2>



<p>The <a href="https://www.scalara.xyz/indices/dpi"><strong>DeFi Pulse Index</strong></a> is a digital asset index designed to track the performance of some of the largest protocols in the Decentralized Finance (DeFi) space.</p>



<p>Scalara has decided to change the ongoing maintenance rules that are part of the index methodology. The current rules in methodology v0.5 state that the rebalance takes place on a monthly basis.</p>



<p>The methodology update to v0.6 will <strong>adjust the DeFi Pulse Index rebalancing frequency from monthly to quarterly in January, April, July, and October</strong>. The rebalancing results become effective on the first business day of the following month. This change will become effective immediately. Therefore, there will not be a May rebalance. </p>



<p>The ongoing index maintenance will now state the following:</p>



<p>“<em>The index is maintained on a quarterly basis (in January, April, July, and October) in two phases:</em>”</p>



<p>The adjustment to quarterly rebalancing reduces the DeFi Pulse Index’s maintenance cost whilst still retaining its target exposure.</p>



<p><em>Related: <a href="https://www.scalara.xyz/blog/why-invest-in-an-index"><strong>Why Invest in an Index?</strong></a></em></p>



<h2><strong>Why the adjustment to quarterly rebalancing?</strong></h2>



<p>The primary objective of a blue-chip index is to <strong>represent the economic reality</strong> of the underlying market. For the DeFi Pulse Index this target market consists of <strong>DeFi projects with significant usage, traction and integration</strong>. Rebalancing quarterly does not distort what the index seeks to represent. This is the case because a market cap weighted index like the DeFi Pulse index maintains its exposure automatically. Only component changes, changes in circulating supply, and capping require updates.</p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img width="480" height="288" src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" data-src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image004.png" alt="Turnover DeFi Pulse Index, rebalancing frequency monthly" class="wp-image-818 lazyload" data-srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image004.png 480w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image004-300x180.png 300w" sizes="(max-width: 480px) 100vw, 480px" /><noscript><img width="480" height="288" src="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image004.png" alt="Turnover DeFi Pulse Index, rebalancing frequency monthly" class="wp-image-818 lazyload" srcset="https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image004.png 480w, https://matthewd210.sg-host.com/wp-content/uploads/2022/05/image004-300x180.png 300w" sizes="(max-width: 480px) 100vw, 480px" /></noscript><figcaption>Figure 1: One-way monthly turnover. Scalara data.</figcaption></figure></div>



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<p>Since the introduction of the <a href="https://www.scalara.xyz/blog/methodology-change-defi-pulse-index-introduction-of-minimum-weight-requirement"><strong>Minimum Weight Requirement</strong></a> and <a href="https://www.scalara.xyz/blog/methodology-change-defi-pulse-index-introduction-of-flexible-capping"><strong>Flexible Capping</strong></a>, the monthly rebalancing turnover has decreased to 1-2%. This indicates that monthly rebalancing is not necessary to maintain target exposure. Turnover due to capping and issuance is not necessary every month. Especially the Minimum Weight Requirement implicitly increased the barrier for new additions. Figure 1 highlights the one-way turnover for the past few months. The April rebalance involved the extraordinary resolution of the <strong><a href="https://www.scalara.xyz/blog/defi-pulse-index-update-rgt-tribe-merger">RGT-TRIBE merger</a></strong>.</p>



<p>If the target exposure remains stable, it is optimal to reduce the number of rebalances. This is because each rebalance has a fixed cost associated with it. Hence, the <strong>maintenance cost of the index decreases</strong> if we reduce the rebalance frequency.&nbsp;</p>



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<p><strong>In summary, adjusting the DeFi Pulse Index rebalancing frequency reduces the maintenance effort of the index. This can be achieved without significantly affecting its main objective of providing diversified exposure to blue-chip DeFi protocols.</strong></p>



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<p><em><a href="https://www.scalara.xyz/"><strong>Scalara</strong></a>, a subsidiary of <a href="https://defipulse.com/"><strong>DeFi Pulse</strong></a>, c</em>reates<em> and maintains indices for a decentralized world.</em></p>


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