In the fast-evolving world of Web3, it’s often said that if you blinked, you missed it. But sometimes, the most profound shifts aren’t loud explosions; they’re subtle tremors, growing in intensity beneath the surface. I’ve been fortunate enough to spot many of these trends early on, long before they hit the mainstream. And while the market gets noisier and more commoditized by the day—with users, frankly, caring less about the core Web3 tenets of anonymity, openness, or decentralization—some fundamental innovations continue to emerge. One such area, quietly revolutionary, is the evolution of Web3 indexes.
Indexes in traditional finance are nothing new. They’re a cornerstone, offering diversified exposure and benchmarks. But in Web3, with its unique challenges and opportunities, indexes are undergoing a transformation that redefines ownership, liquidity, and even what an asset can be. Let’s dive into how we’ve moved from simple baskets to sophisticated, non-custodial storage mechanisms.
The Evolving Landscape of Web3 Indexes: From Primitive Baskets to Intelligent Portfolios
The journey of Web3 indexes isn’t a linear path but a series of distinct phases, each building on the last, pushing the boundaries of what’s possible in decentralized finance.
The Early Era: 2018–2020
This period saw the birth of Web3 indexes, as rudimentary as a brick, but groundbreaking for their time. They were essentially simple aggregations: a handful of assets grouped under a single banner using the most basic methodologies. Think of the early DeFi indexes, or a straightforward BTC+ETH basket, or even the BED (Bitcoin, Ethereum, DeFi Pulse Index) for some diversified exposure. While a step forward, these early indexes didn’t offer much beyond mere grouping. They were a starting point, hinting at the potential of bundled assets but not yet unlocking their true power.
The Middle Ages: 2021–2024
Thanks to the surge of programmable assets, and particularly the rise of advanced NFTs (NFT 2.0), the index model matured significantly. We started seeing more complex designs that brought genuine innovation. Projects began connecting tokens via intelligent weighting mechanisms, like those employed by SoSoValue, or integrating various yield-generating practices, a strategy refined by platforms like IndexCoop. This era marked a shift towards a more scientific, mathematical approach to index construction, moving beyond simple asset lists to dynamic, performance-oriented models. I personally spent considerable time delving into NFT-indexes during these years, uncovering a myriad of intriguing solutions. But the truly game-changing discovery was still on the horizon.
The Uncomfortable Truth: Why Custodial Indexes Fall Short
Innovation in DeFi often brings new constructs: a vault combining tokens, an LP combining assets for swaps, or recursive loans spiraling into interconnected products. These developments are exciting, yet they often carry inherent flaws. For instance, early bridges fragmented liquidity by minting unique wrapped tokens for every transfer, leading to dozens of incompatible USDT versions. The omnichain approach, thankfully, is now solving this.
Similarly, vaults, while useful, introduced curators. And history tells us that where trust is concentrated, problems inevitably follow. Centralized curators, as we’ve seen, can be compromised or simply act against user interests. The solution, in my view, is startlingly simple yet profound: the ‘curator’ should be every user, interacting directly with synthetic entities, rather than relying on a centralized authority.
The Core Issue: Custodial Indexes Are Not Universal
This brings us to the biggest problem currently facing Web3 indexes: their custodial nature. Platforms like SoSoValue, despite their strong liquidity and marketing, ultimately operate on a centralized model. They dictate the asset evaluation methodology, decide which indexes get created (RWA, DeFi, DePin, etc.), and crucially, they can block or limit access at the interface level. Is this truly aligned with the spirit of decentralization?
In my view, no. It’s a throwback to the early days of ERC/ERP fragmentation for NFTs, where everyone tried to invent their own standard, leading to dozens of localized solutions instead of universal interoperability. In the age of account abstraction, this fragmentation is almost embarrassing. Unification, far from undermining decentralization, actually accelerates it. The world doesn’t need a single platform for all indexes. What we desperately need is a single, universally applicable approach for creating non-custodial indexes.
Unlocking the Illiquid: Non-Custodial Indexes as NFT-Backed Pseudo-Wallets
So, how do we achieve this true non-custodial index? Imagine you have a diverse portfolio—say, 10 unique tokens—and you want to create an index from seven of them. How do you ensure it remains truly non-custodial?
Traditional methods fall short. Granting blanket approvals to a protocol for each token just to create an index feels excessive; you’re not truly creating something new, but reassembling according to someone else’s rules. And relying on platforms that dictate methodologies and rules, as we’ve discussed, simply reinforces custodial control. The answer lies in a different route: creating a pseudo-wallet that serves as the actual storage for the index.
You’ve actually seen an example of this concept in action: Uniswap v3’s LP positions are represented as NFTs. A non-fungible token, built on ERC-721 or similar standards, is inherently a unique identifier embedded directly into a smart contract. This unique identifier can act as a container, a “wallet,” for your index components.
I’ve walked around DAOs, startups, and various projects, sharing this “crazy idea,” trying to explain its profound implications. And through these conversations, I stumbled upon a paradoxical but undeniable truth:
The Most Liquid Market in the World Is the Market of Illiquids
Think about it. The poorest populations globally often own real estate—from humble shacks to small apartments—collectively worth trillions of dollars. Yet, each individual property, on its own, has discrete and often very low liquidity. The same principle applies to digital assets. Millions of new tokens flood the market annually, but only a few thousand achieve meaningful liquidity. And with NFTs, discrete liquidity is the norm.
What do we do with this “long tail” of assets? Discard them? Humanity has done that for millennia, resulting in overwhelming waste. The solution, staring us in the face, is resource optimization and recycling—including literal waste. A non-custodial index, which is inherently anonymous, open, and decentralized, embodies this exact principle. It provides a mechanism to aggregate, revalue, and create new liquidity for these vast pools of otherwise illiquid assets.
Beyond the Basics: The Transformative Power of True Non-Custodial Indexes
The implications of this non-custodial approach are vast and incredibly exciting, opening doors to entirely new financial primitives within Web3.
True Meta-Indicators: Aggregating Collective Wisdom
Imagine a scenario with thousands, even millions, of participants, each creating their own DeFi index. One user might have UNI, LINK, JUP, AAVE. Another, UNI, AAVE, LINK, CAKE, YFI, SKY. A third, UNI, LINK, HYPE. By analyzing the intersections across these individual, user-created indexes, we can identify assets with the highest collective conviction. UNI, in this example, would have the highest weight in a meta-index, followed by LINK and AAVE. This process can scale to any number of participants, continually increasing the accuracy and robustness of the meta-index, all while individual tokens remain securely within their original micro-indexes.
Forging Meta-Stablecoins: A Shield Against Centralization
With these non-custodial indexes, we can even create meta-stablecoins. Why is this crucial? For many reasons: to hold multiple yield-bearing and regular stablecoins in one place, to insulate against censorship or freezing by centralized stablecoin issuers (like Tether) or nation-states, and to forge entirely new markets. In a world where MiCA-compliant stablecoins and CBDCs are rapidly approaching, a meta-stablecoin isn’t just a clever wrapper; it’s a vital necessity, offering resilience and true financial sovereignty.
The Dawn of Open Options: New Financial Primitives
Perhaps the most intriguing development is the ability to create a market for open options. By combining a prediction market (like Polymarket) with a marketplace of these non-custodial indexes, we move beyond simple bets on price movements. We unlock a flexible mechanism for forming options, complete with all their core components:
- Premium: Defined by the collective bets.
- Expiration Date: Set by the index creator.
- Underlying Asset: The index itself, a basket of assets.
- Strike Price: Set by the creator or platform, potentially even open-ended.
- Exercise Style: Dependent on the platform or creator.
This model allows for powerful scenarios:
- ZKP-Barter: “Like-for-like swaps.” You offer illiquid tokens, I offer mine, and we swap only if predefined on-chain conditions are met (e.g., tokens had trading activity in the last six months, or possess a minimum number of holders). This is verifiable, trustless exchange for the long tail.
- Shared Yield Distribution. Imagine a platform hosting 1,000 indexes. If 10 of them “explode” in value, the platform could take a percentage for facilitating the market, distribute some to less successful participants as incentive, and reward the successful index creator. This fosters a collaborative environment where picking winners benefits the ecosystem.
Many other scenarios are not just possible but inevitable. The creativity this unlocks is immense.
The key takeaway here is profound: Indexes are an inevitable future of Web3. The question isn’t if they will exist, but what form they will take. The choice before us is clear: custodial or non-custodial.
For those eager to explore this frontier, several platforms are already pushing the boundaries:
- indexcoop.com — One of the earliest index-primitive solutions.
- reserve.org — An index-as-a-basket-sale model.
- coinmetrics.io/cmbi — Classical indexes for new markets.
- glider.fi/onboarding/0 — Portfolio-style index management.
- sosovalue.com — Custodial indexes based on their own methodology.
- vexy.fi/#/veAERO — NFT LP-style indexes from Velodrome.
- app.envelop.is/indexpage — The first fully non-custodial indexes.
This shift towards non-custodial indexes is not just about technical elegance; it’s about reclaiming the core ethos of Web3. It’s about empowering every user, democratizing access to liquidity, and fostering a truly decentralized financial ecosystem. The future of indexes isn’t just about diversification; it’s about ownership, sovereignty, and unlocking the hidden value in the vast, illiquid corners of our digital world. Next time, I’ll dive into the practicalities of tokenizing your illiquid assets. Until then, keep building, keep exploring, and remember the power of true decentralization. See you!
