PoS assets considered for inclusion into the basket are filtered by minimum thresholds of a $500mn market cap and $1mn in daily volume. Assets are then multi-factor ranked through the following two inputs: staking ratio (number of tokens staked on the network relative to the supply) and reward ratio (value of rewards generated relative to the price of the token). We believe the staking ratio maximizes a ‘quality’ factor while the reward ratio maximizes a ‘growth’ factor. These factors are equally weighted. The basket is then comprised of the top 3 tokens, is market cap weighted, and rebalanced monthly.
*This basket is expected to expand to 4 tokens when Polkadot is live
Other Forms of Implementation:
Note: We are not interested in data mining for the best possible model, but below are other possible implementations.
Equal weighted – We would not want to implement this model because it requires frequent rebalancing, which incurs transaction costs, slippage, and security risks, all the while underperforming a market cap weighted basket.
Lower market cap threshold – The purpose of this initial offering is a blue chip-like index of PoS assets. Staker intends to work on a small-cap implementation at a later date.
Real reward rate – PoS assets, in our opinion, trade independently of reward and inflation rates because robust valuation frameworks do not exist for this asset class yet. Staker does not believe inflation rates generally impact the value at which a network’s token trades at.