Crypto finance group Zichain has announced two index funds based on leading cryptocurrencies, enriching the cryptocurrency investment landscape with much-needed instruments.
The two funds, Blue Index Fund (BCIF) and Second Tier Index Fund (STIF) have been available to a limited number of investors since December 2017. The group plans to launch both funds for a wider audience at the end of the third quarter of 2018. Currently, Zichain is in the process of undergoing the required legal proceedings for making this possible.
Traditional Instruments Applied to Modern Assets
In traditional investments, index funds provide a portfolio balanced to mimic the behavior of stock market indices. For example, a fund designed to follow the Nasdaq index will have the investment spread across the stocks listed in the index. Unless this is managed poorly, the fund should provide the same returns as the index. The main idea behind index funds is to spread the risk and reduce costs, as portfolio turnover should be low.
Of course, in the regulated stock markets, several well-known indices, such as Standard & Poor’s or Dow Jones, exist. Investors can choose from a variety of funds, knowing exactly which assets will be covered by their investments.
In the new market of cryptocurrencies, no such well-known indices are provided, but Zichain is working hard to change this. The new funds cover over 20 leading cryptocurrencies.
Fund Features
The newly launched BCIF and STIF funds may be financial instruments for the unconventional cryptocurrency market but present investors with familiar features and tools. Investors used to the high standards of traditional index funds have access to real-time market data, performance calculations allowing them to track their investments, and advanced financial reporting.
Technological Implementation
Cryptocurrencies provide the advantage that investments are represented as digital assets. The new funds themselves will be tokenized as digital assets on the public Ethereum blockchain, in the form of standardized ERC-20 tokens.
ERC-20 tokens are implemented in smart contracts. This allows features, such as automatic rebalancing and smart execution. Whilst automatic rebalancing is also possible in traditional index funds, smart contracts on a public blockchain make this process transparent to investors. This transparency increases user confidence in the system and the fund operator’s auditability.
Zichain has taken an additional step to provide security to its investors by using a European licensed company for secure asset storage. The cryptocurrencies acquired by the funds are located in clustered storage facilities, secured by multi-signature accounts. This step ensures that no single individual or system can access the stored assets.
The Zichain Ecosystem
Zichain focuses on decentralized asset management, combining experience obtained in traditional finance with state of the art technology targeting cryptocurrency investments.
The company’s development is focused on four key products: a platform aimed at asset managers to launch their own funds, several cryptocurrency index funds, including these latest two offerings, a multilingual news and market data provider based on artificial intelligence, and licensed crypto to fiat currency broker.
