Indices are quite popular in traditional finance in their stable growth in value that is derived from their underlying assets.
However the creation and management of an Index has always been limited due to its capital intensive nature as well as the complexity of moving large amounts of money to maintain risk and reward ratios. Public has also been limited by the rules and methodologies of the central parties managing the funds. We strongly believe that DeFi can completely revolutionize Index products as well as active fund management to the benefit of the entire world by its trustless, secure and open source nature.
At Symmetry, an Index or an actively managed fund can be created by anyone in less than 5 minutes. It is a basket of cryptocurrency tokens with different weights. The price of a fund is determined by the weighted price movements of its underlying assets. Therefore the owner of a fund token effectively holds the value of tokens contained within the basket, allowing them to easily diversify their portfolio with just one token.
In addition, funds on Symmetry can refilter (reconstitute), reweigh and rebalance automatically using the rules specified by their creators and managers, maintaining desirable risk-to-reward ratios and making them the most reliable assets that follow the performance of tokens they contain.
Benefits of Indices and Managed Funds
Here are some of the reasons why holding an Index or a managed fund is order of a magnitude better than just holding crypto.
Easier way to diversify your portfolio instead of buying & selling assets separately. Saves time & fees.
Improved risk-to-reward ratios for any budget user. Whether you prefer higher risk higher reward portfolio, or a less volatile one with a steadier growth, there can be a fund for you.
Rebalancing. This is one of the most important aspects of funds on Symmetry. Without rebalancing, more volatile assets start taking higher and higher portion of a fund making it riskier over time. In such case, all it takes is for that one asset to go down that will bring a substantial part of your portfolio down with it. This is why every fund needs to update its holdings regularly to maintain the target asset weights and therefore perform reliably. Our protocol rebalances automatically whenever needed and earns fees when it acts as a liquidity provider on prism.ag
With Symmetry, you can create your own fund, or purchase one created by someone else. When creating one, you can select all assets that you want to be included in it, as well as their corresponding weights, and rebalancing method. Type of rebalancing you choose is important and will affect overall performance of the fund, because of this, we created Index Simulator, which we’ll talk about here.
Difference between a Symmetry Index and an Actively Managed Fund
The only difference between the two is that in actively managed funds, the manager has the ability to change the fund rules and composition at any time in their attempts to maximize the fund performance. Whereas in Indices, the rules are predefined and can not be changed.
A manager of an actively managed fund can turn it into an index, giving up their control. If an actively managed fund is converted into an index, it can no longer be converted back to an actively managed fund.