Swiss-based index provider Compass Financial Technologies has launched its first crypto asset indices including traditional single-token references as well as innovative risk-controlled varieties.
Professor William Knottenbelt, Director for Cryptocurrency Research and Engineering at the Imperial College.
According to Compass, the new indices aim to bridge the gap between the digital asset ecosystem and traditional financial engineering by offering new tools to invest in the crypto market.
The indices are all compliant with EU benchmark regulations and may be used to underlie new investment products such as ETPs.
The traditional single-token indices track the US dollar price movement of bitcoin, ethereum, dogecoin, ripple, cardano, polkadot, bitcoin cash, litecoin, uniswap, chainlink, stellar, cosmos, dash, eos, tron, and tezos.
Pricing data is obtained from Kaiko, a Paris-based independent digital assets data provider which collects and delivers raw, normalized trade and quote data from 74 exchanges.
Compass also offers risk-controlled indices for each of the above tokens. Each risk-controlled index targets an annualized volatility of 20% by allocating to its reference index according to an algorithm based on the difference between the token’s daily volatility and a daily volatility target.
When the daily volatility of the token is greater than the daily volatility target, the risk-controlled index allocates less than 100% to the reference index, assigning the remaining weight to a non-interest-bearing cash position. Similarly, when the daily volatility of the token is less than the daily volatility target, the risk-controlled index establishes a leveraged position to the reference index (while adhering to the limit on maximum exposure to that particular token).
According to Compass, these risk-controlled indices present an efficient tool to get exposure to the highly volatile crypto market while reducing the possibility of severe drawdowns.
Guillaume Le Fur, Founding Partner of Compass, said: “These innovative indices will open the way to new investment vehicles suited to the risk management of institutional investors.”
Professor William Knottenbelt, Director for Cryptocurrency Research and Engineering at the Imperial College and member of the Compass index committee, added: “Volatility is the number one issue when it comes to crypto assets. I am, therefore, particularly excited by the new family of volatility target indices which will prove very useful in controlling risk in a principled way.”