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Indexed Finance

Indexed Finance is focused on the development of passive portfolio management strategies for the network.
Indexed Finance is managed by the holders of its governance token, which is used to vote on proposals for protocol updates and high-level index management such as the definition of market sectors and the creation of new management strategies.[7][8]

On 14 October 2021, Indexed finance was exploited for $16 million. The attacker executed an elaborate flash loan attack to exploit the functional logic of one of the project's .[9]

Overview

Indexed Finance is a decentralized protocol for passive portfolio management on Ethereum. Indexed Finance started in August 2020, and it went live on the mainnet in December 2020. The project had an initial private investment by Molly (The creator of HEGIC) and one of the founders, totaling $125,000.[10] 
The indexed protocol is focused on portfolio management, which is similar to Exchange Traded Fund (ETF). The Assets Under Management tracks the underlying assets’ performance. Index pools are then tokenized into a token that represents the pool.

An mechanism is integrated into the Indexed Finance protocol to rebalance the index pools. NDX token holders passively manage the pools via governance, including management strategies and the market sector’s definition.

Indexed Finance was founded by two people, Dillion Kellar and an anonymous person known as PR0. Currently, there are a total of 5 members working on the project.[11]

Index Pools

This is the first product developed by Indexed Finance a set of capitalization-weighted index pools designed to replicate the behavior of index funds, which historically actively managed funds on the stock market.

Index pools simplify asset management on Ethereum the way that index funds do for the stock market: by creating a single asset that represents ownership in a diverse portfolio that tracks the market sector the index represents. Each index pool has an  index token which anyone can mint by providing the underlying assets in the pool, burning to claim the underlying assets or swapping with exchanges to easily manage their exposure to specific markets.
wikiIndex pools regularly rebalance their underlying assets to better represent the market sectors they track. Portfolio targets are set using[1] and [2]. As with index funds, the only roles for humans in managing index pools are the initial determination of weighting and asset selection rules, the definition of market sectors, and the classification of assets into those sectors. These roles are carried out by NDX governance, which has mandatory time-locks for all governance decisions.[3]

Governance

The NDX governance organization is responsible for:

  • Upgrading proxy implementations as needed.
  • Deploying new index pools.
  • Managing the token categories which indices select from and creating new ones.
  • Approving pool controllers that implement new management strategies.
  • Setting configuration values such as swap fees.

NDX Token Distribution

NDX is the governance token for Indexed. The initial supply of 10,000,000 NDX will be distributed as follows:

  • 20% will go to the founders, investors, and future team members, subject to vesting periods.
  • 5% will be used to reward keepers who update the oracle and trigger periodic updates on the pool controller.
  • 25% will be distributed through liquidity mining to users who stake index tokens or their  Ether pair LP tokens.
  • 20% will be distributed to users after January 22, 2021, in a manner determined by governance.
  • 30% will be made available to the NDX treasury over 9 months, beginning March 1, 2021.[12]

Early Governance

The security of the project is ensured while distribution is underway, and the team will retain the ability to create and vote on governance proposals while the tokens are vesting. Additionally, the voting period on the governor contract is temporarily set to a value that corresponds to about 12 hours in blocks; after January 7, 2021, anyone can call a function on the governor to set the voting period to its permanent value, which is closer to 3 days.

Keepers

The 5% allocation for keepers is currently held by the timelock contract and will be transferred once the development and testing of the keeper bot and contract are completed.

Index Controller

The index pool controller is a contract that tracks token values and sets portfolio targets using an adjusted capitalization-weighted formula. The NDX governance DAO has the ability to create and manage token categories on the controller, which are baskets of assets with some arbitrary commonality.

Category Token Selection

The current rules for inclusion in each category can be found on their respective pages on the app.

Index Hack Attack

On 14 October 2021, Indexed finance was exploited for $16 million. The attacker executed an elaborate flash loan attack to exploit the functional logic of one of the project's .
The hacker took funds from the DEFI5 and CC10 pools by attacking the smart contract code governing how the pools calculate the value of deposited assets. By pumping flash-loaned assets into the pools in exchange for UNI tokens, the hacker managed to trick the algorithm into calculating the pool’s value much lower than it should have been.

This allowed the hacker to mint huge quantities of the pool’s index tokens which were then burned to claim the underlying assets. After the hacker paid off the initial flash loans, they managed to escape with $11 million worth of assets from the DEFI5 pool and a further $5 million from the CC10 pool.[13]

Summary

Index pools are tokenized portfolios that double as AMMs. The pool contract is designed to be able to radically change the composition of its portfolio without needing to access external liquidity.

The Index Pool contract is a fork of the [6]. The primary changes made to the contract were to enable more dynamic pool management so that assets can be bound, rebound, and reweighed gradually and without the need to access external liquidity.

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Indexed Finance

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December 12, 2023

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