Thread by @RobertoTalamas

1/ The DeFi Pulse Index (DPI) now has over $35M in assets showing increased demand for crypto indexes

While DPI is a good investment for beginners, it may not provide the diversification that sophisticated investors demand, leaving them overexposed to individual DeFi assets

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2/ Index funds are by far the most traded instruments in traditional finance. They provide diversification, broad market exposure, have lower fees, and seek to match the return of the market (or asset class) creating the perfect investment vehicle for new investors

3/ Despite these attributes, index funds can become highly concentrated depending on their construction methodology reducing the diversification benefits of the product. This applies in particular to capitalization-weighted indexes like the S&P 500 and the DeFi Pulse Index

4/ Since diversification is among the top reasons investors flock to index funds, it's important to consider it from two different perspectives:

1) Diversification in the form of uncorrelated assets
2) Diversification in the form of equal risk-taking

5/ After analyzing the DeFi Pulse Index we found that four assets account for 77% of the portfolio's total risk

6/ Check out our latest report for @masonnystrom’s and my detailed analysis of DPI through this framework of diversification

messari.io/article/rethin…