Index Funds: A Tool for Crypto Mass-adoption

Over the last few years, the steadily increasing relevance and uptake of cryptocurrency have created new investment options for people across the globe. On average, such investment opportunities are vastly more profitable than traditional investment schemes — Bitcoin alone created over 100,000 millionaires worldwide. Decentralized Finance investment plans (such as yield farming) have raised over 60% ROI in 2021.

The opportunities with cryptocurrencies are huge, but they also come with very significant risks. The highly volatile nature of crypto has (thus far) mostly appealed to either daredevils or accredited investors, with higher risk tolerances.

Risk-averse individual investors have steered clear of crypto for the most part. In the now seemingly-inevitable future where cryptocurrencies become the norm, it is crucial for the industry to find a way of catering to investors with lower risk tolerances. In a curious case of the old leading the new, traditional Index Funds could be key to the mass adoption of crypto by grassroots investors.

Index Funds for Individual Investors

Decentralized Finance (DeFi) is a revolutionary new financial system, based on the blockchain concept, that guarantees safety and integrity while operating in a decentralized fashion, with no single entity having power over the entire system.

This new system now offers several traditional financial tools, such as dividends, controlled lending & borrowing, currency exchange, and even derivatives. One equally important tool is still missing, however: a tool familiar to any traditional investor, and one that could catapult DeFi towards mass adoption.

Index Funds were introduced in 1976 as a way to cater to individual investors who were risk-averse and found direct investment in individual stocks to be too risky. An Index Fund is a portfolio of stocks or bonds, typically within a chosen field, that have been curated to mimic the performance of the market.

The basic premise behind Index Funds is that the market will always eventually outperform an individual investment. This means that instead of picking and choosing individual stocks, investors can benefit from the growth of all the stocks within their invested Index Fund.

Similarly, investors are protected against the sudden drop in value for a particular stock or asset within an Index Fund, by being able to rebalance such losses against the relatively stable value of the sum of all stocks within the Fund.

Index Funds allow individual investors to learn, and reap significant rewards from the market, without being fully committed to it. If buying individual stocks directly is like jumping into a pool, Index Funds are like dipping your feet in from the edge, testing the water before making the jump.

Even ace investors like Warren Buffett have said that Index Funds are a must-have tool for investors looking to protect their funds, or invest conservatively. This is because Index Funds typically offer broader exposure, lower risks, and reduced costs.

How Cryptocurrency Will Benefit From Index Funds

Just like the traditional stock market, the cryptocurrency market also has many potential investors who are being deterred from participating by the high risk associated with existing investment options.

These users, while typically only looking to contribute a relatively small amount of equity individually, account for a massive amount of the available “money market” en-masse. By bringing Index Funds to the crypto market, the door will be opened for all these investors to join in.

Index Funds spare investors the tiring tasks of researching and picking individual cryptocurrencies for investment, and then manually rebalancing their portfolio – both highly time-consuming tasks, especially to do well. For this reason, they’re the ideal choice for risk-averse investors, as well as stabilizing tools for larger market players.

Perhaps most importantly, Index Funds could provide an on-ramp for skeptics to set foot in the crypto space, and be able to experience it positively, without being bombarded by crypto’s inherent volatility. By bringing in these new investors into the crypto market, Index Funds could very well turn out to be a key tool to set up this new asset class for mass adoption.

The first player in the DeFi space to introduce true Index Funds to crypto is ExpX Finance. This Crypto Index Fund platform has a good selection of high-quality Index Funds for different risk levels and investment types.

Additionally, the platform allows any user to create their own Index Fund, and then request it to be made available for general participation — a fantastic way for any established VC, large crypto investor, or influencer to effectively set up their own portfolio of selected investment opportunities, and allow others to join them.

Making Mass Adoption a Reality

While there is no question that blockchain-based cryptocurrencies have already achieved incredible success, the Holy Grail of the mass adoption of crypto by the average person on the street still seems distant.

To enable this, the DeFi space needs trailblazing protocols like ExpX that take cues from existing financial system concepts to solve the practical problems of crypto. Easing the barriers to entry, and increasing the practical use-cases of cryptocurrency are actions that could prove to be the tipping point for users worldwide to grab the opportunity, and adopt the incredible innovation crypto brings.