In the last few months, Phuture has undergone some major changes which we are excited to talk more about in this Medium post. For new readers, Phuture is a decentralised protocol built for the creation and investment of passive index strategies. Our mission is to provide easy access to token based indices through a unique, powerful and flexible index creation tool.
Firstly, we have rebranded to Phuture. It is our view that as DAO structures proliferate and become more ubiquitous, as they have in DeFi, it is no longer necessary to explicitly include DAO in our name. Along with the name change we have adopted a new set of brand colours that you will see persist across our site and application. Finally, to round off the rebrand Phuture has adopted a fresh new logo.
The rebrand symbolises a new direction for the Phuture platform as it moves into a new design space for indexing. In our previous design, a constant function market maker was at the heart of the system providing native exchange functionality and pricing. However, it also required bootstrapping vast amounts of liquidity to compete with other decentralised exchanges, which is one of the most ferociously contested markets with dominant incumbents. Ultimately, low levels of initial liquidity would have led to limited asset choice, greater rebalancing costs and a less than optimal user experience.
Phuture’s new design connects into all major liquidity sources on the Ethereum network removing all reliance on internal liquidity. As a result, we can provide our users with a wide selection of assets and the best execution from day one. This aligns the Phuture platform with our goal of enabling an open design space for our users. We have circumvented the cumbersome liquidity onboarding process that is present in existing index designs based on Balancer smart pools. When these pools are initially created, they have limited liquidity which prevents investors from depositing just one asset due to the large amounts of slippage they will experience. Instead, investors are required to bootstrap sufficient liquidity by depositing each constituent asset into the pool. We think this is a poor experience, since most investors are buying index products because they don’t already own the underlying tokens. Phuture’s use of the deepest external liquidity sources separates the cost of execution from the value locked inside indices on the platform. Furthermore, it provides the freedom to invest with any whitelisted asset.
Of course, since we freely allow the creation of indices on the platform we needed to build a system that could scale to 100s or 1000s of index products. So we rethought the way that we account for each index. At a high level, Phuture is made up of pools of like-kind assets that each are assigned a weight, based on an asset’s cumulative weight across all indices on the platform. Therefore, one rebalancing swap between two asset pools simultaneously affects the weight of multiple indices. Instantly reducing computational complexity. The other advantage to this approach is that it simplifies the process of utilising assets off platform in protocols such as yield optimisers.
Clearly, idle index assets sitting on the Phuture platform have an opportunity cost. We aim to minimise this cost by generating yield on these idle assets, improving the performance of our indices. We leverage a reserve model to ensure we have enough assets on the platform. This model defines a target ratio of each asset that must be maintained on the platform. It allows us to facilitate rebalancing and redemptions. Meanwhile the rest of the index assets sit off chain earning interest. These reserves will fluctuate over time and it is the role of keepers to transit assets between off-platform locations and Phuture, supporting the target reserve ratio.
Phuture brings more logic to the rebalancing process through two initiatives; rebalancing bands and rebalancing surfaces. In unison these two concepts minimise the value leakage through the rebalancing process. More information will be released on these features closer to launch.
At the start of this post we stated our mission statement was to provide easy access to token based indices. The Index Creator Tool is the gateway that turns our mission into a reality. It defines sectors within the crypto markets and attributes assets to each sector. Moreover, it fully enables passive strategies through the tracking functionality. This lets you track a top ranking of assets within a sector by a chosen weighting method. The upshot of this is an index product that will remain representative over any given interval of time. As we expand the feature set we expect to include numerous dynamic datasets for weighting indices.
The introduction of a governance token, PHTR, allows us to distribute decision making to the community, incentivise specific platform activity and administer access to index creator tools. In addition, the PHTR token is used to reward keepers for performing platform critical functions such as rebalancing, recapitalisation and repricing.
In summary, index platforms can be said to sit somewhere in the tradeoff space between flexibility and automation. With designs based on constant function market makers (CFMM) providing more automation through instantaneous rebalancing, but losing flexibility from having to adhere to a CFMM architecture. Meanwhile, current designs based on external liquidity sources deliver flexibility, but lack the infrastructure to automate rebalancing in a scalable way. Phuture looks to occupy a new segment of this tradeoff space by combining dynamic, automated rebalancing with a flexible index architecture, that is capable of delivering innovative index products and ensures maximum productivity of assets.
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