Opening up discussion on the possibility of tweaking the DPI index rules to be a capped Index. The Index would still be market-capitalization weighted but there would also be a cap so that individual tokens don’t exceed a certain percentage of the portfolio during rebalancing.
I think a weight cap anywhere from 25%-40% could be reasonable.
- Diversification/Concentration Risk - Keeps the Index diversified and from being dominated by a single name.
- Volatility Harvesting - Some benefit to DPI holders during monthly rebalances, selling when a token has high weight, buying back when the price is lower.
- DPI won’t be 100% market cap weighted. DPI could underperform if DeFi megacaps outperform.
Why is this relevant?
- Uniswap - Lots of Uniswap tokens have recently been vested. While Uniswap has a current weight of 32%, Uniswap would have a weight of 45% if DPI was rebalanced today.
Some polls to gauge sentiment.
- No (Current)
- No cap (current)
MARCH DPI Methodology Refinement