Topic: Idea for a decentralized Cryptocurrency Index Fund (Read 148 times)

If a lot of people think having an index coin that stores other coins is valuable, then why shouldn't it be possible to exchange newly mined coins to other cryptocurrencies?

Mainly the coin would be used much like Bitcoin is being used today, as a store of value in the Crypto space. Except that maybe the coins would have to be exchanged through the API of a centralized exchange (maybe there are also decentralized exchanges with API access idk) which isnt crucial to be 100% decentralized for the integrity of the coin, as exchanges can always be switched should they start acting shady. The exchanged Cryptos could then be sent to wallets of their respective cryptocurrencies that were created algorithmically at the start and maybe their private keys would have been encrypted/destroyed so that the wallets act symbolically as holding all these cryptocurrencies without anybody ever gaining access to those coins. Wouldn't then the intrisic value of the coin be in how much other crypto it locked up in its vaults?

Not only that, the problem in this case is that there's literally no reason for this coin to be "widely accepted" because BTC and ETH already exists. In the first place, what would the coin be used for? Besides being sold on exchanges.

Tbh though, you might as well just use a centralized something-like-an-ETF because there's no way such a coin would end up being decentralized in the first place.

Aye. Nothing wrong with thinking of ideas.

Yes, I totally see that. It only works as intended when it is widely accepted but the only way for it to be widely accepted is for it to work, obviously...

But same as Bitcoin solved an intriguing trustless transaction problem, wouldn't it also be interesting if there was a cryptographic way so that a cryptocurrency can store/lock other crypto assets much like a fund does in the traditional form?

Just as a mental excercise maybe?

Pretty much. But think about it though, what would be the reason why people would buy a certain coin/token on exchanges that pretty much doesn't do anything for them? Remember that for that coin to be exchanged for other cryptos, people would actually have to want/need it first. It worked for bitcoin simply because it's the first of it's kind.

That's a very good point. It relies on the network effect, so in the beginning it can only be a "normal" Cryptocurrency until it gets listed on the exchanges and can start to exchange itself automatically to these other cryptos.

But Bitcoin faced the same issue in the beginning, didn't it? It is only a useful currency if a lot of people are using it. Classical network effect?

So how would the coin be worth anything if all that happens is that it automatically gets exchanged for other top coins? To be able to buy crypto, you'd have to exchange something else that has value(e.g. fiat, other cryptos), which this coin doesn't.

I had an idea a while back and just want to get some opinions on the possibility/plausability of such a crypto project.

The idea is that in the traditional world of finance, index investing is becoming more and more popular, and while there are some centralized options to buy Crypto index funds, they are kinda old-school, as a company will be holding the Cryptocurrencies for you.

Therefore, the interesting part is what if there could be a Cryptocurrency that, whenever a coin is mined, automatically exchanges it for some top Cryptocurrencies (say top 10 Cryptos by market cap), and then destroys the keys for those newly purchased Cryptocurrencies so they are forever locked up/lost. (The miners will be paid via the transaction fees)

The coins would be "backed" by the "destruction" of the other Cryptocurrencies when it was mined, and exchanged for those other Cryptocurrencies. While Cryptocurrencies aren't backed by much, each coin of this Cryptocurrency would be backed by the value it locked up in the process of mining and selling it for those Cryptocurrencies.

Since the major use case of Cryptocurrencies these days is using them as investments, this would provide a convenient way for investors who want easy exposure to the Crypto markets, while investing in a decentralized asset themselves. And also increasing the scarcity of the Cryptocurrencies in the index, as it destroys the private keys for the crypto holdings in that index.

I would just like to discuss this interesting idea, as I haven't seen such a frankly absurd proposal on the internet yet