How Does Index Coop Work?

DeFi|Risk B-|7 mechanisms|4 interactions

Index Coop is a decentralized organization that creates crypto index funds, making it easy to get diversified exposure to DeFi and other crypto themes with a single token. Their flagship product, the DeFi Pulse Index (DPI), tracks top DeFi tokens in one basket, similar to how an S&P 500 ETF tracks stocks. They also offer leverage products like ETH2x that give you 2x exposure to Ethereum price movements through automated rebalancing. All products are built on Set Protocol smart contracts and charge a streaming fee similar to traditional ETF expense ratios. Eight-plus audits completed from firms like OpenZeppelin.

TVL

$15M

Sector

DeFi

Risk Grade

B-

Value Grade

D+

Core Mechanisms

2.2.2

Index tokens (DPI, MVI, DATA) as capitalization-weighted baskets of ERC-20 DeFi tokens

Built on Set Protocol. Users can issue and redeem index tokens. Portfolio automatically rebalanced based on market cap weighting. DPI is the flagship product tracking DeFi assets.

4.1.4

Leverage tokens (ETH2x, BTC2x) with automated rebalancing to maintain target leverage ratio

Flexible Leverage Index products maintain target 2x leverage through automated rebalancing using Aave and Compound for borrowing. Volatility decay applies over time.

5.1.1

INDEX token-weighted governance with 70% community allocation via liquidity mining

INDEX enables community ownership and governance. 70% allocated to community through staking-based liquidity mining. 10M total supply.

2.1.2

Streaming fee (annual management fee) charged on index token holders

Index products charge a streaming fee similar to traditional ETF expense ratios. Fee accrues continuously and is deducted from index token value.

6.4.1

Oracle feeds for constituent token pricing and leverage product rebalancing

Price feeds required for accurate index weighting calculations and leverage token rebalancing triggers.

5.2.1

On-chain governance proposals for index methodology and product parameters

DAO governance controls product listings, methodology changes, fee parameters, and treasury spending.

7.1.1

INDEX token liquidity mining rewards for index token staking and LP provision

INDEX emissions distributed to incentivize liquidity provision for index products on DEXs.

How the Pieces Interact

Leverage token rebalancing↔Market volatilityHigh

Automated rebalancing of 2x leverage products during rapid market drops means buying more exposure after dips and selling after pumps. In highly volatile sideways markets, this creates persistent value erosion through volatility decay, potentially delivering worse returns than the target leverage ratio suggests.

Low INDEX FDV ($2.8M)↔Governance over $14M+ AUMMedium

INDEX governance token FDV is only $2.8M while it governs $14M+ in protocol TVL. Acquiring 51% governance control could cost less than $1.5M, enabling an attacker to redirect treasury funds or modify product parameters.

Multi-protocol constituent exposure↔Index rebalancingMedium

If a constituent protocol in DPI is exploited, the index continues holding the compromised token until the next rebalancing. Slow governance response to exclude a compromised constituent could expose index holders to preventable losses.

Leverage products (Aave/Compound dependency)↔DeFi lending rate volatilityMedium

Leverage tokens borrow from Aave/Compound. Spiking borrow rates during high utilization increase the cost of maintaining leverage positions, eroding returns for leverage token holders without their awareness.

What Could Go Wrong

  1. Index tokens (DPI, MVI, etc.) hold baskets of underlying DeFi tokens, creating compounded smart contract risk across all constituent protocols
  2. Leverage products (ETH2x, BTC2x) use automated rebalancing that can amplify losses during rapid market moves and may suffer from volatility decay over time
  3. INDEX governance token has extremely low FDV ($2.8M) relative to protocol AUM, creating a potential governance attack vector where acquiring majority voting power is cheap

Governance Capture via Cheap INDEX Acquisition

Tail

Trigger: Attacker acquires majority INDEX voting power at low cost to manipulate protocol parameters or drain treasury

  1. 1.Attacker accumulates INDEX tokens on thin secondary markets — Majority voting power acquired for under $2M due to low FDV
  2. 2.Malicious governance proposals passed to redirect treasury or modify fee parameters — Protocol treasury drained or fees redirected to attacker
  3. 3.INDEX holders realize governance has been captured — Remaining INDEX and index product holders rush to exit
  4. 4.Index products face redemption cascade — Forced selling of constituent tokens amplifies market impact
See all 2 collapse scenarios in the full risk report →

Risk Profile at a Glance

Mechanism Novelty3/15
Interaction Severity5/20
Oracle Surface3/10
Documentation Gaps1/10
Track Record4/15
Scale Exposure3/10
Regulatory Risk2/10
Vitality Risk9/10
B-

Overall: B- (30/100)

Lower score = safer

More on Index Coop

Is Index Coop Safe?

Safety analysis

Is Index Coop a Good Investment?

Value analysis

Full Risk Report

All mechanisms & interactions

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