{"id":19393,"date":"2024-12-10T17:00:00","date_gmt":"2024-12-10T15:00:00","guid":{"rendered":"https:\/\/forklog.com\/en\/a-customised-future-collateralised-indices-as-a-foundational-model-for-web3-derivatives\/"},"modified":"2024-12-10T17:00:00","modified_gmt":"2024-12-10T15:00:00","slug":"a-customised-future-collateralised-indices-as-a-foundational-model-for-web3-derivatives","status":"publish","type":"post","link":"https:\/\/u1f987.com\/en\/a-customised-future-collateralised-indices-as-a-foundational-model-for-web3-derivatives\/","title":{"rendered":"A customised future: collateralised indices as a foundational model for Web3 derivatives"},"content":{"rendered":"

Many still think of indices as nothing, but<\/a> \u201cmarket\u2011movement gauges\u201d, often confusing them with indicators. In fact, Web 3.0 and Web3 enable remarkably intricate and interesting models.<\/p>\n

Web3 entrepreneur Vladimir Menaskop explains them for ForkLog readers.<\/p>\n

Why indices\u2014and collateralised ones at that?<\/strong><\/h2>\n

The answer becomes clear if you study crises, especially that of 2008. One cause of the Great Recession was a multibillion\u2011dollar bubble in derivatives such as CDO<\/span> and CDS<\/span>. The collateral behind such assets was at best partial and at times outright \u201cjunk\u201d.<\/p>\n

Derivatives are a fine consequence of humanity\u2019s ability not only to look ahead, but to shape it. Small wonder that one of this class\u2019s basic instruments is the futures<\/span> contract.<\/p>\n

Collateralised derivatives help hedge a host of risks, including in DeFi. Yet in Web3 this vital instrument still lacks mass attention.<\/p>\n

LP tokens and NFT positions<\/strong><\/h2>\n

A liquidity\u2011pool token (LP) is often technically an ERC\u201120. In truth it is a complex derivative.<\/p>\n

On the one hand, it embeds the split between the pair inside it\u2014for example DAI\u2011ETH\u2014or even several assets, as in asynchronous pools on Balancer or Curve. On the other, it also embeds rewards, which can be claimed externally or auto\u2011compounded, turning an annual percentage rate (APR<\/span>) into an annual percentage yield (APY<\/span>).<\/p>\n

Moreover, LPs themselves can be treated as an option<\/a> (for a full, mathematically grounded example see here<\/a>).<\/p>\n

Once you factor in impermanent loss inside a pool, it becomes clear that any LP is also about working a price range\u2014whether within concentrated liquidity or across the full range, as in Uniswap v2.<\/p>\n

With concentrated liquidity in Uniswap v3 and its analogues, NFT 2.0<\/a> becomes relevant: a second\u2011order derivative distinct from the invested assets. We lock fungible tokens and receive a single non\u2011fungible one. The smart contract records the initial assets and their ratio.<\/p>\n

Such derivatives can be developed further. LP tokens and NFT positions are collateralised by underlying assets yet can trade as independent entities<\/a>.<\/p>\n

Both LPs and NFTs are genuine indices composed of two or more assets, reflecting their ratios not only on\u2011chain but in real time.<\/p>\n

Playing with rewards<\/strong><\/h2>\n

Consider two projects:<\/p>\n