Colony Avalanche Index brings indexed crypto investing to Avalanche

In a first for the Avalanche network, ecosystem accelerator Colony Lab has partnered with the crypto index platform Phuture to offer indexed exposure to the blockchain’s top decentralized applications. The tokenized model revolves around CAI, or the Colony Avalanche Index token.

CAI holders benefit from diversified positions in the Avalanche ecosystem’s top assets, removing the guesswork investors face when choosing which projects to back. The index dynamically re-balances, ensuring it always comprises the highest performing Avalanche tokens, setting it apart from similar crypto and traditional stock indexes.  

Why use a crypto ecosystem index? 

Choosing where to invest in a rapidly expanding cryptocurrency ecosystem is never easy. With an explosion of projects spanning niches such as decentralized finance, blockchain gaming and non-fungible tokens, there are bound to be some complete flops mixed in with the big winners. 

Indexes, like that recently launched for the Avalanche network by Colony Lab and Phuture, provide simultaneous exposure to a range of top assets from across an ecosystem’s sectors. Investors needn’t spend time digging through whitepapers to determine which projects to back. Nor do they need to manually take positions in multiple tokens to take advantage of the highest growth opportunities or mitigate risk via diversification.  

Index funds are common in traditional finance and usually come in the form of mutual funds or exchange-traded funds. Commenting on CAI in a press release detailing its launch, Phuture co-founder, Charles Story, noted that around 18% of the equity market is held in index funds. He added: 

As crypto adoption soars, so too will the demand for passive investment tools, which help investors gain risk-averse, simple-to-use and time-efficient access to the best performing projects. CAI delivers this for investors in the Avalanche ecosystem.”

Comprising a diversified collection of top assets, indexes often offer attractive returns to investors. For comparison, over the last 10 years, the S&P 500 — one of the planet’s most famous equity indexes — has returned an average of more than 12% annually. 

The S&P 500 has offered investors attractive returns over the last 10 years. Source: MacroTrends 

Index investing is often considered lower risk, too. Diversification ensures that a single asset’s poor performance does not have an outsized impact on an investor’s overall portfolio when compared to taking isolated exposure to single stocks or cryptocurrencies. 

What makes CAI unique?

Traditional index funds are usually managed by a fund manager who attempts to buy as many of the assets that comprise a particular index as possible. The investors themselves do not select which stocks to include, making it a passive investing strategy.  

Like traditional indexes, CAI is a passive investment. However, unlike the S&P 500 and other stock indexes, CAI adjusts its basket of assets dynamically based on recent top performers from across the Avalanche ecosystem. The monthly adjustments ensure that investors are always exposed to those tokens leading Avalanche’s continued growth, such as the GameFi title DeFi Kingdoms or the ever-popular Trader Joe decentralized exchange.

Innovative passive investment options like CAI are likely to gain traction as the crypto market grows over the coming years and more risk-averse investors seek high growth opportunities. Given their clear advantages, it’s safe to assume that their percentage of the entire market will eventually mirror that seen in equities.