Why PowerPool Is NOT😱 an Index?…

The need of issuing a decentralized crypto index was indispensable. Thus, different projects tried to solve this in various ways applying different solutions acquired from a centralized market scheme.

The idea of creating the 🐝DeHive Index as a fully decentralized crypto index was born out of the market demand and growing interest in the decentralization of the global financial sector. We know that the current market already has a few solutions presenting itself as a crypto index protocol.

So in this article, we would like to review some of them and clarify the difference between PowerIndex by PowerPool and DeHive crypto index.

PowerPool overview🧐

Power Pool is a young DeFi protocol whose main focus is turned towards providing the possibility of lending token’s governance and metagovernance. The PowerIndex is a separate initiative made by PowerPool that is aimed to be a crypto index. The core concept lays on the AMM-like balancing model of providing an equivalent amount of tokens to the pool and creating an index in exchange.

Let’s have a closer look at PowerIndex features and possibilities it offers:

• the “index” is created after providing selected tokens into one pool (which represents an extended Balancer AMM curve model)
• the first two indexes are forced to contain CVP — PowerPool’s native token
• the input or output is either in Ether or one of the underlying tokens (or all of the selected tokens in the proportion regulated by the pool’s curve)
• users need to pay a commission in the amount of 0.1% for any input or output transaction (the commission then goes to the protocol’s treasury contract and is distributed among CVP holders)
• protocol users play the roles of liquidity providers that should regulate the number of underlying tokens in the pools (so again as in any traditional AMM).

Basically, the initial index’s contracts are entirely based on Balancer’s AMM pool model for several tokens (8 in PIPT and YETI). The pools have its own price curve and rebalancing mechanism adjusted to price fluctuations, and the mandatory inclusion of a CVP token.

The first index -PIPT — does not have any economic justification, no model, no indicator that this index could represent. All tokens behind the index are invested in equal proportions, including the native CVP token (12.5% ​​each) being not a crypto basket, but just a pool of tokens.

✅PowerPool pros:

• PowerPool is focused on working with DeFi tokens in a mean of being governance tokens to introduce the meta-governance idea as a prior;
• the PowerIndex also provides the possibility of protocol governing by getting LP-tokens in a mean of “shares” as soon as the user makes an input to the pool;
• The platform provides its own ecosystem: meta-governance, pools for indexes, a system of oracles, lending and liquidity mining opportunities.

❌PowerPool cons:

• The opportunities for yield farming are very limited. The passive income is generated only from swap commissions and native token mining, so the APY the user will get is quite low;
• the platform charges the commission in case of deposit or even if you want to make a redemption of the underlying assets;
• There are swap and arbitrage opportunities within the pools, which leads to price fluctuations consequently. This makes them potentially vulnerable to front-running and other standard pool attacks that swing the price;
• the first indexes launched include the protocol’s native token which is not very market objective and “health economy” practice;
• PowerIndex LP-tokens represent a share in the pool rather than a calculation-based amount equivalent to the deposit.

🐝DeHive overview🧐

DeHive is a decentralized protocol that provides its users with the opportunity to invest in the cryptocurrency index. The DeHive Index is driven by an economic model that creates an analogy of traditional exchange indexes based on the principle of market pairs. Therefore the index allows for the creation of a user’s native crypto portfolio.

Let’s dig deeper into the basic features of DeHive Index:

• the DeHive Index is fully decentralized and regulated by strong market economy rules (which makes “the game” highly objective and secure);
• smart-contract mechanism purchase the underlying crypto assets to provide the index;
• the prices of the selected underlying tokens are checked by built-in oracles on each interaction with the protocol;
• Smart contract issues the crypto-index to the user in the amount corresponding to the recalculation of the weights of the selected underlying crypto assets;
• the protocol contract redeems the chosen set of underlying tokens and securely stores them assigned to the user;
• in case of staking the index within the platform, the mechanism sends the underlying currencies separately to the yield farming protocols using the most optimized strategies.

**📊The protocol first index is based on the economy and financial strategies applied by DeHive team DeFi experts and analysts. **The token selection is made covering different areas of the crypto market and various DeFi aggregators and liquidity pools.

The ratio of tokens in the “index pool” is based on financial econometric equations to build an optimal portfolio for a user. In addition, the platform provides an opportunity to issue custom indexes featuring users’ own unique set of crypto assets.

✅DeHive Index pros:

• the protocol does not use AMM pools to generate the index or rebalance the prices of the underlying assets;
• index underlyings and their proportion bases on strong market economy models and calculations;
• there is an ability of redemption of your investment at any time, including the ability to exit in underlying currencies covering both strategies: in a balanced set of tokens or in one, selected token;
• the user has the ability to “exit” protocol in ETH at any time, the platform does not provide any limitations in these terms;
• the protocol offers wider opportunities for yield farming due to separate token distribution to the other (partnering) yield farming protocols;
• since there is no possibility for swap or arbitrage and underlying assets are taken at the current rates — there are no risks in terms of price fluctuation within the protocol.

❌DeHive Index cons:

• In order to use the protocol, the user has to own DHV tokens, which have a supportive role in the protocol’s tokenomics. The user needs to provide a certain amount of DHV to the treasury when buying an Index. But in case you do not have enough DHV tokens — the protocol will provide you an alternative for it;
• the ratio of the underlying tokens differs and is based on market rules, so there is no ability to provide “an equal” amount of different tokens in return for the index;
• the protocol does not allow for swapping, so there is no arbitrage opportunity.

✍🏻Final thoughts…

The question regarding clarifying the difference between those two projects has its right to exist taking into account the general similarities between their names. Yet, if it comes to the deeper examination and technical analysis, we can surely underline the big difference in the core concept of those two protocols.

Nevertheless, the PowerIndex cannot be considered as an authentic decentralized crypto index in a full manner mainly due to its AMM-like structure and no economically justified background behind the index indicators.

In contrast, the DeHive Index is regulated by strong market economy rules and does not suffer from the automatic assets’ price rebalancing. Thus, the applied strategy helps to reflect the real market situation and create a profitable crypto portfolio for index holders. So you can treat the 🐝DeHive crypto-index not only like a crypto-basket with passive income but also as a functional economical metric of a DeFi market.