When someone mentions a crypto index fund, they are referring to a weighted pools ability to hold multiple tokens and create something that resembles an index fund. This is because, similar to an index fund, the weighted pool has a collection of different tokens that help diversify risk. This is done by putting money in all of the tokens in the pool, instead of just a single token. Let’s look at an example.
$300 worth of tokens deposited in a 50:50 pool
- 50% ETH — $150
- 50% BTC — $150
This is the portfolio in scenario one. This portfolio will perform well if both tokens go up. Of course, this is not always the case. If ETH or BTC go down, then the portfolio will go down altogether. Since this portfolio is 50:50 ETH and BTC, then a major swing in either one of those tokens will have a large impact on the total portfolio performance.
$300 worth of tokens deposited in Starbank weighted pool
- 33% ETH — $100
- 33% BTC — $100
- 16% DOT — $50
- 16% AVAX — $50
This is the portfolio for scenario two. This portfolio will also do well if all the tokens inside do well. The only difference is that this weighted pool holds up to eight different tokens. This makes it extremely easy to invest in a handful of tokens without having to use multiple wallets and it takes away the time needed to manage all of those wallets. An investor can easily add more money into the pool, automatically increasing their investment in all the tokens in the pool. This only requires one transaction and one fee.