The SmartIndex ETF project will enter soon the alpha phase, as the first tests on mainnet have been already performed.
This write-up aims to explain how will the ETF project work.
How does the ETF works?
The basic mechanism was already explained here:
- Alice enters the ETF frontpage, where there's a wallet address to deposit any desired amount of BCH to invest. Keep in mind that a minimal deposit amount is enforced, it will be at least 0.2 BCH.
watchdog running on the server detects a new input transaction.
- The server starts moving the assets: a 1% fee goes to the SmartIndex portfolio and a 0.5% fee to the admin wallet, the rest is used to buy the tokens and staked them. This also includes farming liquidity pools.
watchdog mints SIDX-ETF tokens that represents the share Alice will have in
the ETF. This is a simple SEP20 token and it's alrady deployed on mainnet and verified.
- Assets in the ETF portfolio and their yields can be tracked just like SmartIndex portfolio, in the ETF section.
- If SIDX token holders make a change in the portfolio assets allocation, this will be reflected on the ETF portfolio. The idea is that ETF investors can take profit of good strategies without doing nothing.
- Alice can redeem her tokens just sending them back to the wallet. The server will do the reverse process (unstake and sell the assets) and send to Alice her corresponding investment.
What assets will the ETF portfolio hold?
The ETF portfolio will hold liquid assets in the same proportion as SmartIndex portfolio, such as:
The ETF portfolio won't hold illiquid assets as they can't be redeemed at investor's will. Some examples are:
Also, SIDX token holders can make changes to the ETF portfolio composition, like banning one asset or adding another one not reflected in the SmartIndex portfolio.
How is SIDX-ETF minting amount calculated?
Every time the watchdog detects a new incoming transaction, it mints SIDX-ETF tokens using this formula:
The first minting will be of 1 SIDX-ETF, regardless of the USD amount invested.
What happens when a investment is redeemed?
Once Alice wants to redeem her investment, she just sends her SIDX-ETF tokens to the watchdog address.
The proportion that the tokens represent will be unstaked, sold for BCH and send back to Alice. The SIDX-ETF tokens will be burned.
A withdrawal fee can be applied if SIDX token holders vote for it.
And to the ETF portfolio yields?
Staked tokens and farms in the ETF portfolio gives yields, that can be weekly farmed and re-invested in their respective staked tokens and farms. This way, when investors redeem their tokens, they claim a share of the initial investment plus the yields.
- Reinvestment in just certain tokens or farms.
- Buy another assets not initially included in the ETF portfolio.
- Take a fee of the yields and distribute it as they wish.
As always, those changes need to be voted and approved.