Index products are one of the most successful financial instruments in traditional markets, with total assets deployed standing at almost 15 trillion USD. Many investors prefer index products because they're simple, easy, and don't require active management. In addition, historical data shows that passively managed portfolios consistently outperform actively managed ones over time.
So, why haven’t crypto index products taken off?
Despite widespread agreement that index products are inevitable in crypto, every attempt so far has failed to gain significant traction. While some early projects showed promise, they ultimately had flaws that prevented them from sustaining long-term success.
Why Haven’t Crypto Index Products Worked?
We believe that there are three main reasons why existing attempts at crypto indexes have failed:
- Timing
- Excess Decentralization
- Poor Design
Timing
In traditional finance, most people don’t actively trade stocks. Instead, they gain market exposure through index funds and ETFs, typically offered by trusted financial institutions. We believe that crypto is on a similar trajectory. However, mainstream adoption remains limited as most financial institutions have been slow to embrace crypto beyond a few major cryptocurrencies.
As a result, the current crypto market is dominated by a different audience: early adopters, enthusiasts, and traders comfortable with high risk—often referred to as "degens". These users prioritize maximizing gains over risk-adjusted returns, often embracing extreme risk in pursuit of high rewards. Consequently, index products, which are designed for stable and broad-based market exposure, have struggled to capture their interest.
However, something changed in 2024.
The growth and proliferation of tokens, protocols, money markets, and yield-generating protocols across multiple chains and layers has made crypto too complex—even for seasoned users. The result? Curation has become a value proposition in itself.
For the first time, index products don’t just offer risk-adjusted returns—they also help users navigate an increasingly large and chaotic market. This bridges the gap between today’s DeFi-native audience and the broader market that will eventually onboard into crypto.
Excess Decentralization
The majority of previous crypto index products were attempts to build fully decentralized index protocols. These projects wanted to decentralize the entire index stack– from methodology design to issuance and rebalancing. While this aligns with DeFi’s ethos, it introduces major inefficiencies:
- It results in high rebalancing costs, leading to substantial NAV decay and increased tracking error.
- Many of these projects are siloed within a particular ecosystem and can only hold native assets on certain chains or layers. Some hold wrapped assets, but this approach adds rigidity, adds risk, and contradicts decentralization by relying on centralized custodians or bridges.
- They become dependent on illiquid DEXs, restricting efficient trading.
- This approach results in capital inefficiency, as productive assets remain idle, unable to generate additional yield.
- The slow minting and redemption process reduces user flexibility and prevents institutional-grade market makers from touching the products.
- There is a lack of accountability in index design and rebalancing decisions.
These projects were attempts to build index products in a DeFi-native way, but they failed to realize that indexes have unique requirements that aren't suited to this approach. Over-optimizing for decentralization breaks every single core value proposition of an index: providing low-cost, liquid, and diversified exposure. Instead, fully decentralized index products became expensive, inefficient, and underwhelming.
Poor Design
Another major issue is the poor structure and design of these protocols. Instead of learning from traditional finance, past projects tried to handle every aspect of index product creation themselves.
In traditional finance, index products are built by three distinct, specialized entities:
- Index Methodology Providers – Create the methodology for index construction.
- Issuers – Handle the actual issuance of the index product.
- Liquidity Providers – Ensure the product has deep, scalable liquidity.
When these three parties work together, they're able to introduce high-quality, liquid indexes that closely track benchmarks and offer a great user experience. Many crypto index products are missing some of these core components, or are designed in such a way that the end product is very low-quality.
For example, many of these projects allow anyone to create an index (essentially acting as the methodology provider and the fund manager). This results in the proliferation of a very high number of low-quality and illiquid index products that consistently under-perform.
OpenDelta: A New Standard for Crypto Indexes
At OpenDelta we believe crypto-native index products are inevitable—but we also recognize that they are one of the hardest products to get right.
Fix What’s Broken, Keep What Works
Rather than reinventing the wheel, we’re adopting a hybrid model that balances decentralization with efficiency.
- Custody and trading are centralized for security, cost efficiency, and execution quality.
- Issuance is decentralized, ensuring permissionless and trustless access to the products.
- We offer institutional-grade security with MPC wallet infrastructure, a bankruptcy-remote corporate structure, and periodic public proof-of-reserves by leading financial auditors.
- We utilize off-exchange settlement, meaning funds are never held by centralized exchanges or untrusted third parties.
- Our products offer multi-chain asset exposure, as we're able to include native assets from any L1 or L2 in our indexes.
- Efficient rebalancing via centralized exchanges reduces costs, allowing us to charge a low management fee resulting in minimal NAV decay and tracking error.
- We're able to offer fast creations and redemptions, allowing us to be compatible with the requirements of top-tier liquidity providers.
Every OpenDelta index product is backed by top-tier methodology providers and liquidity partners from day one, ensuring strong returns, deep liquidity, and seamless scalability.
Creating The Next Generation of Index Products
Exchange-Traded Products (ETPs) in traditional finance primarily generate revenue through management fees, which, despite being relatively low, can add up to substantial sums given the scale of assets under management (AUM). For example, the SPDR S&P 500 ETF (SPY) has an expense ratio of just 0.0945%, yet it still generates over $500 million annually in fees. While some additional revenue comes from securities lending, the vast majority comes from these management fees, benefiting the institutions that create and distribute these products.
With crypto, index products can be structured differently. Rather than relying solely on management fees, on-chain indexes can tap into secure and scalable yield opportunities that aren’t as readily available in traditional finance. One of the most significant advantages is the ability to stake the underlying assets, generating additional returns that can be passed directly to index token holders.
The OpenDelta index protocol is designed to integrate staking and other DeFi-native yield mechanisms, allowing index products to capture and distribute more of the economic value generated by their underlying assets. This approach has the potential to create some of the best-performing index products to date, as it enables more efficient capital deployment while maintaining transparency and accessibility.
Crypto Native Index Products Are Inevitable
Crypto index products are no longer just about passive exposure—they are now a tool for simplifying access to an increasingly complex market. OpenDelta is building the infrastructure that is able to harness the immense potential of these products.
🚀 Many more exiting updates to come. Follow us to keep up to date!