An Insight into Phuture
Phuture has experienced some significant changes in the previous few months, which we’re thrilled to discuss in greater detail in this Medium post. For those unfamiliar with Phuture, it is a decentralized protocol for creating and investing in passive index strategies. Our objective is to make token-based indices accessible to everyone by providing a unique, powerful, and flexible index development tool.
To begin, we have changed our name to Phuture. We believe it is no longer important to include DAO in our name as DAO structures grow and become more prevalent, as they have with DeFi. We’ve also chosen a new set of brand colors to go along with the name change, which you’ll see throughout our website and apps.
The redesign represents a shift in the Phuture platform’s approach as it enters a new design space for indexing. A continuous function market maker was at the center of the system in our prior design, offering native exchange functionality and pricing. However, competing with other decentralised exchanges, which is one of the most fiercely contested markets with dominating incumbents, necessitated bootstrapping huge levels of liquidity. Low beginning liquidity would have resulted in a limited asset selection, higher rebalancing costs, and a less than ideal user experience.
Phuture’s new design connects to all of the Ethereum network’s primary liquidity sources, removing all dependency on internal liquidity. As a result, we can provide our users a broad range of assets and the greatest execution from the start. This connects the Phuture platform with our goal of providing our users with an open design space. We’ve avoided the time-consuming liquidity onboarding process that exists in existing Balancer smart pool index designs. These pools have limited liquidity when they are first launched, which inhibits investors from depositing only one item due to the enormous quantities of slippage they will encounter.
Instead, investors must deposit each constituent asset into the pool to bootstrap sufficient liquidity. We believe this is a negative experience because most investors purchase index products because they do not own the underlying tokens. The cost of execution is separated from the value locked inside indices on the platform thanks to Phuture’s utilization of the deepest external liquidity sources. It also gives you the option to invest in any whitelisted asset.
We wanted to design a system that could scale to 100s or 1000s of index products because we freely allow the creation of indices on the platform. As a result, we rethought how we account for each index. At its most basic level, Phuture is built up of pools of similar assets, each of which is given a weight depending on the asset’s total weight across all indices on the platform. As a result, a rebalancing swap between two asset pools influences the weight of numerous indices at the same time. Immediately lowering the computational complexity. Another benefit of this method is that it makes it easier to use assets from other platforms in protocols like yield optimisers.
Idle index assets on the Phuture platform clearly entail a cost of potential. By generating yield on these idle assets, we hope to reduce this cost and improve the performance of our indices. To ensure that we have enough assets on the platform, we use a reserve approach. This methodology establishes a desired asset ratio for each asset on the platform. It enables us to make balances and redemptions easier. Meanwhile, the bulk of the index’s assets are paying interest off-chain. These reserves will fluctuate over time, and keepers’ job is to move assets between off-platform sites and Phuture in order to maintain the correct reserve ratio.
Through two projects, rebalancing bands and rebalancing surfaces, Phuture adds additional rationale to the rebalancing process. These two strategies work together to reduce value leakage during the rebalancing process. More information on these features will be given as the launch date approaches.
We stated at the outset of this post that our goal statement was to make token-based indices accessible to everyone. The Index Creator Tool is the key to bringing our mission to life. It categorizes the crypto markets into sectors and assigns assets to each sector. Furthermore, the tracking mechanism fully supports passive techniques.
This allows you to track a top ranking of assets within a sector using a weighting mechanism of your choice. As a result, an index product is created that will remain representative over any given period of time. We aim to add a lot of dynamic datasets for weighting indices as we increase the feature set.
The introduction of the PHTR governance token allows us to delegate decision-making to the community, incentivize certain platform behavior, and manage index creation tool access. Keepers are also rewarded with the PHTR token for completing platform-critical operations like rebalancing, recapitalization, and repricing.
In conclusion, index platforms fall somewhere in the middle of the flexibility vs. automation dilemma. Constant function market makers (CFMM)-based solutions provide additional automation through rapid rebalancing, but at the cost of flexibility due to the need to adhere to a CFMM architecture. Meanwhile, present systems that rely on external liquidity sources provide flexibility, but they lack the infrastructure needed to scale up rebalancing. Phuture aims to carve out a new niche in this tradeoff sector by integrating dynamic, automatic rebalancing with a flexible index architecture that can create unique index products while ensuring asset productivity
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