DeFi Pulse Index: Intro, Pros & Cons, and How to Buy
Filip Dimkovskion May 1, 2022.
The DeFi pulse index (usually labeled as DPI in the DeFi space) is a digital asset & predictor that’s specifically designed to track DeFi tokens’ performance and serve as an indicator of the decentralized finance market.
This index is tracked by a token called the DPI token and is a capitalized index that allows everyone to invest in DeFi. As is the case with most of the DeFi space, the token is built on the ERC-20 network (Ethereum) and has a maximum supply of 470,000 tokens. If you want to learn more about the DeFi Pulse Index and why it’s important, continue reading.
What Does DPI Solve?
The team that built the DeFi Pulse Index had one goal - to establish a precise standard that empowers the inclusion of new & reputable DeFi projects in the decentralized finance space. Since it’s an index, it tracks some of the most valuable DeFi projects and shows the direction where the market is headed.
Normally, for a DeFi project to be included in the index, it has to fulfill all of DPI’s strict criteria. This is why DPI is important and solves plenty of problems for the DeFi space. Since DPI has many strict criteria, it’s in all DeFi projects' interest to get included in it, as they’ll get more recognition by the community. So, new projects must fulfill all of DPI’s criteria, leading to an overall better space in DeFi with more reputable & useful projects.
How Does DPI Work?
As we previously mentioned, DPI’s goal is to establish a strict standard for new DeFi projects, empowering more reputable projects to be launched in the decentralized finance space. As a result, new tokens and dApps must embrace the safety and decentralization standards set by DPI.
Now that we got the basics out of the way, let’s discuss the details behind how DPI works. For a project to qualify to be included in DPI, it must fulfill the following criteria:
- The token cannot be wrapped, i.e. it cannot be managed by any central authority (like a firm)
- The token cannot represent certain market assets, like options, futures, or physical world items.
- The token cannot be on any blockchain other than Ethereum’s.
- After launch, the token must be able to function independently for a minimum period of time before it’s launched in the index.
- Before inclusion, the token must have a minimum circulating supply, as well as a predictable total supply & market cap.
The Benefits of DPI
There are many benefits of DPI, and it’s widely believed to be one of the most positive influences in the DeFi market. Its pros include:
DPI is a first-of-its-kind index. The token isn’t derivative or synthetic - it simply represents the value of the best DeFi projects, similarly to the way the S&P 500 represents the US market.
Since DPI represents the DeFi market, it must subscribe to basic DeFi values & criteria. This means that the token must be fully decentralized, i.e. there is no middleman to oversee the transferring, borrowing, and lending of assets. This is exactly why DeFi is much more efficient than traditional finance, which is tightly represented in the DeFi Pulse Index.
As of May 2022, buying one DPI token is not expensive at all - the current price for one DPI token is $150, though it has had an all-time high of $650. Throughout history, the vast majority of reputable cryptocurrencies have surpassed their previous peaks at one point or another, so buying DPI at its current price might leave you with a 4x return on your investment if it ever reaches its all-time high again.
The Risks of DPI
As is the case with any investment, there are potential benefits and risks. Regarding DPI, the risks are the following:
Even though DPI is an index, it isn’t necessarily much more stable than other DeFi tokens. When underlying tokens are bought and sold, the price of DPI will also fluctuate, so the volatility is more or less the same as any other cryptocurrency
Smart Contract Risk
SC risks are a thing for all tokens on ETH’s network, as there have been rare cases in the past where a bug was exploited. However, with the advancements of smart contracts and the direction they’re headed in, something like this occurring in the future has a low probability.
Risk of Regulatory Oversight
As crypto becomes more attractive to people all around the world, there will eventually come a time when it gets regulated. If a country legally regulates the DPI token, that will definitely impact its price and liquidity, though we’re uncertain in which direction it will steer it.
How to Buy DPI
If you believe that decentralized finance has an appealing future, then buying the DPI token is probably one of your safest options. To buy DPI, do the following steps:
- Find a reputable centralized or decentralized exchange of your choice (you can consider Uniswap, Hotbit, Gemini, Kucoin…)
- Fill your wallet with crypto (most exchanges will ask for ETH when buying DPI)
- Save your wallet’s details and hold your DPI.