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What Is DeFi Pulse Index Token (DPI)?
The DPI token is a one-stop crypto index token that offers exposure to the biggest Ethereum-compatible DeFi projects in a single digital asset.
Updated October 3, 2023 • 2 min read
Summary
Launched in September 2020, the DeFi Pulse index token (DPI) is an Ethereum-based digital asset focused on the decentralized finance (DeFi) sector. The DPI token can be thought of as a cost-effective approach to hold popular DeFi tokens within Ethereum’s DeFi ecosystem. It consists of the top DeFi tokens based on market capitalization, and is rebalanced on a quarterly basis. The DPI token can be bought and sold on some standard crypto exchanges as well as compatible decentralized exchanges (DEXs). New DPI tokens can be both minted from and redeemed into the underlying components of the index using Set Protocol.
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What Is DeFi Pulse?
DeFi Pulse is a website that measures, tracks, and ranks projects in the decentralized finance (DeFi) sector within the wider crypto economy. Scalara, DeFi Pulse’s index publishing arm, creates investable indices in crypto aimed at diversified exposure & automated strategies.
Within the burgeoning DeFi sector and the crypto sphere in general, many crypto investors desire streamlined ways to diversify their portfolio of crypto assets in a cost-effective manner. Numerous projects are answering the call and releasing solutions — generally in the form of crypto index tokens that track the price of a bundle of DeFi tokens in one digital asset.
What Is DPI? On-Chain Tokens
DPI is one such token: a cost-effective approach to holding some of the most popular DeFi governance tokens by purchasing a single token. Examples of DeFi projects include platforms like decentralized exchanges (DEXs) — which are crypto exchanges that use smart contracts to enable you to buy and sell cryptocurrencies — and peer-to-peer (P2P) lending and borrowing protocols.
DPI employs diversification, a popular risk management strategy that aims to minimize the risk of a specific digital asset by spreading funds across multiple digital assets. In the case of DPI, the digital assets are all DeFi governance tokens, allowing a buyer to gain cost-effective exposure to the theme of decentralized finance.
DPI is weighted by market capitalization, meaning that the percentage of the index represented by an individual token is determined by its market capitalization relative to that of other tokens. This means the largest governance token (by market cap) makes up the largest portion of the index, and the smallest governance token has the smallest allocation within the index.
Top DeFi Tokens in the DeFi Pulse Index: Then and Now
Launched in September 2020, DPI is an Ethereum-based ERC-20 token. The index was created by the DeFi analytics company DeFi Pulse (now known as Scalara) and the token implementation is maintained by the Index Cooperative, a DAO which offers other crypto structured products. DPI is composed of the top DeFi protocols based on total value locked (TVL), which means the amount of monetary value held in a specific protocol. Initially composed of the top 10 DeFi tokens, the DeFi Pulse Index now features a more flexible basket that changes with market conditions. One quarter, it might include 17 different top DeFi tokens; the following quarter, the basket might include 14 tokens.
DeFi Pulse Index Tokenomics, Rules, and Requirements
The DeFi Pulse Index token has several rules, metrics, and safeguards that crypto tokens must adhere to if they are to be included in the basket. These are some of the most important ones:
Only Ethereum tokens: At the time of writing, the DeFi Pulse index token is composed of only tokens that can be found on the Ethereum blockchain. In addition, these DeFi projects must be featured on the DeFi Pulse website.
Predictable token supply: All tokens within the DPI token must have a predictable token supply release schedule. In addition, at least 7.5% of the supply must already be in circulation, which precludes many nascent DeFi projects.
Project vetting: The project has to be at least 180 days old and must be widely considered a useful project. The project must undergo a safety review and have a track record of quickly and transparently resolving potential concerns or software bugs.
As mentioned above, the DPI token is weighted by market cap and features the top Ethereum-compatible DeFi tokens. These tokens are rebalanced on a quarterly basis. This includes increasing and decreasing the percentage of any given project that’s represented by the DPI crypto token, and also removing and adding projects based on monthly rankings.
How to Purchase the DeFi Pulse Index (DPI)
You can purchase the DeFi Pulse index token on a centralized crypto exchange (CEX) like you would many other cryptocurrencies. In addition, as it uses the ERC-20 token format, you can also buy and sell DPI tokens using a variety of DEXs.
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