To Go Bankless or Not To Go Bankless

    (That is the question #3). Why might someone go Bankless? Outline the BED index strategy deployed by Bankless DAO. Show how the BED index strategy has performed over time compared to a more traditional investment route (such as sticking your money into the S&P 500). Use this analysis to suggest why or why not someone should consider going Bankless.

    Introduction

    The purpose of index products is to create an easy, hands off and efficient way to invest in a basket of diversified investments. Index Coop is on a mission to be the largest provider of structured decentralized finance products and has partnered with Bankless, a leading educational resource on open finance, to launch BED — an index product that gives new crypto users a way to invest in a “bankless” revolution thesis.

    The bankless thesis focuses on crypto as providing a viable alternative to today’s analog banks and banking infrastructure. This new option '''of self-sovereign money and banking, is supported by a world where private keys act as money and code makes that money programmable.

    Enter the Bankless

    The BED index includes the top three investable assets with real usage and large capitalizations around the theme of blockchain: BTC, ETH, DeFi (DPI).

    Their strategy is to allocate an equal weight of 33% to the three chosen assets:

    • Wrapped BTC (wBTC) which is a token replicating BTC price
    • Wrapped ETH (wETH), which is a token replicating ETH price
    • DeFi Pulse Index (DPI), which is an index of the top DeFi projects

    A monthly rebalance takes place to allocate new resources accordingto their value, including DeFi projects inside DPI.

    Methodology

    I solved this bounty using data from Velocity. For the BED Index performance, I queried the ethereum.token_prices_hourly table for price data for BED Token as:

    token_address = '0x2af1df3ab0ab157e1e2ad8f88a7d04fbea0c7dc6'

    and for SP500, the terra.oracle_prices table for:

    symbol = 'mSPY'

    I limited the analysis to the date where I had price data for both indexes, July 21st 2021.

    Here I should note that the mSPY index is a mirrored Index for the SP500 on terra blockchain and small differences to the SP500 traded on stock exchanges may appear. Also, special thanks to Discord user @maniac

    Results

    The visualization shows both indexes, BED and SP500 in a log scale. This is shown only from mid July 21st, since before there are no data available. One can observe that BED has a greater lot a variability, at least compared to traditional investment assets.

    Conclusion

    The BED Index has performed better than the SP500 on the selected timeframe, but this difference would not be for me the main reason one should decide to go bankless.

    In my opinion, the biggest advantage of the BED Index is to get exposure to the crypto markets with minimum effort and costs, one gets exposure to the main 3 crypto investment thesis (digital gold/SOV, programmable money, decentralized finance) and doesn't need to operate in multiple chains or relocate assets monthly, the index does that for you. I would compare it to an ETF in traditional finance. And although one should have some crypto knowledge by opening a wallet and purchasing the asset outside CEX, the upside is worth it. I see it as investing early in the finance of the future, like investing in cars when people were still driving horse carriages.

    So if anybody with a long time investment strategy is wanting to get exposure to crypto without having to invest a lot of time reading all the news and learning about the different blockchain, the BED Index is a nice way to do it. (Not financial advise).

    On a Methodology perspective, I really wanted to compare both performances with a common basis, say how would 1000$ invested in day X would perform on both indexes. Unfortunately, I didn't get it right after some tries and decided to plot the values without a common origin, which makes the comparisation much more difficult.

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    The table below shows the price for BED and SP500 index on July 21st, 2021 and March 6th, 2022. The performance of the indexes in this time frame is +5% for BED and -3,9% for SP500