Thread by @masonnystrom

Crypto-native indices transform the design space for indices from a 1-dimensional space consisting of just asset exposure, to a multi-dimensional space consisting of meta-governance and fund management strategies.

This design sets the stage for the evolution of index protocols.

In traditional finance constructing an index is a one-dimensional design space consisting of just asset exposure (i.e what assets are in the index).

Additionally, Index managers like Vanguard historically abstain from voting.

The three axes are as follows:

1. Asset returns – price appreciation from assets

2. Fund management strategies – active yield generated by allocating index assets to other protocols

3. Metagovernance – voting in protocols with assets in indices

The combined features offer index investors a combination of governance delegation and yield strategies on their tokens, which form the basis for enticing investors to buy these indices for reasons beyond index composition.

The two emerging approaches of index protocols are broken into two broad categories:

1. Top-down or Investor Focused Approach
2. Bottoms-up Asset Focused Approach

Top-down (Investor Focused) Approach –prioritizes satisfying investor demand for performant and diversified market indices

Bottoms-up (Asset Focused) Approach – prioritizes the accumulation of governance power and fund management strategies

As the battle for aggregation rages onward, index protocols present a unique opportunity to accumulate a significant amount of assets under management with their multi-dimensional design space.

We call it passive investment meets passive participation.

messari.io/article/index-…