Synchrony Index Strategies

Published on: 29.09.2021

Synchrony explains an aspect of investing called knowledge-based index investing, and how it can help specifically with getting people into investing assets in a smart and safe manner.

What is Index Investing

Index investing is a type of passive investment that focuses on building a return on assets that emulates a broader market index. With portfolio management tools, investors are able to utilize indexes like S&P 500 and NASDAQ 100 in the United States or Euro Stoxx 50 in order to diversify their portfolios through buying underlying shares and managing the portfolio manually. However, it is also possible to use an automotive portfolio management service like an exchange-traded fund, or an ETF (to be discussed later on). In order to have a diverse portfolio, it is important to take into account the specifics of the method you choose to take. A passively managed index and portfolio come partly with lowered expenses and without the usual and known risks within the market that are offset by diversifying your asset portfolio.

To start index investing, a typical approach for a new investor is to take a sample of the index’s holdings. That way, if there is a dip in the market, the holds will not be completely lost because of one or two assets. There is another way with mutual funds or ETFs. ETFs are attractive to both institutions as a hedging strategy and authorized providers via arbitrage additionally, as shares of the ETF are available on an exchange, an investor can get access to its basket of assets without the need to buy each asset individually and in the correct weights.

As a passive investment, these ETFs lower the fees because you do not have to actively manage accounts or hire someone who manages these accounts, it is managed by the index itself. Since you are sampling different assets within the market, you buy multiple, long-term investments, mainly based on their market capitalization. However, some of these assets could have huge holds on the market, in which a dip could be substantial for many. Therefore, it is important to find a well-diversified group of assets to mitigate not only the risk of losing a lot of money but also the potential volatility of one singular asset.

Synchrony Index Investment Tools

Synchrony believes in the power of diversified index investing, so we offer 3 general implementations for our indices:

✔️ Synchrony Indices: These indices are created by the Synchrony team in collaboration with their strategic partners in order to provide customers with a single-click solution to get exposure to the various instruments on the Solana ecosystem.

✔️ Community Indices: These indices are created by the community, for the community, by configuring Synchrony Index Parameters.

✔️ Portfolio Indices: In order to have a portfolio that is hands-off, investors can use portfolio indices as a means of automated portfolio management.

Builder UI example

Highly Configurable

Each of Synchrony’s indices is completely configurable, enabling high specificity to execute a variety of strategies. Users can define the parameters for which an asset, or strategy, would be considered a candidate for inclusion into a pool, essentially earmarking a dataset. The index can then be configured by a multitude of options, including but not limited to:

• chosen weighting metrics;

• minimum and maximum weights;

• rebalancing periods;

• deviation thresholds;

• the minimum and maximum number of assets to be returned by the index (10)

Whitelisting

Token or strategy whitelisting enables users to specify a dataset they want an index to evaluate. For instance, a user may only wish to evaluate a few of the tokens on the Solana Ecosystem Index instead of the entire index, and weigh them accordingly. This feature enables strategy authors a high degree of specificity and freedom with strategy implementations, without imposing overly restrictive limitations.

Dynamic by Design

As it exists today, most on-chain implementations of an index exist as static weights and static compositions, where rebalancing returns a pool to its initial state. No on-chain implementations of an index-pegged pool enact dynamic compositions, until Synchrony’s inception. Synchrony pool weights are dynamically adjusted to track a proper implementation of an index, and the pool’s composition is also dynamic as the protocol has the authority to add and remove assets from the pool.

Composable, Modular, & Powerful

Each index is instantiated as an index-pegged pool with an accompanying fungible token representing proportional ownership of its underlying assets. Indices can therefore compose, or be composed of, another index’s tokens.

One of the more powerful features of Synchrony’s indices is the ability to index any on-chain instrument. Tokens, liquidity pools, strategies, and even indices themselves, are all fair game; there is very little that Synchrony’s suite of indices cannot evaluate. As such, Synchrony’s indices are suitable for a wide range of use-cases, from portfolio management to copy-trading.