Index Fund

Rather than trying to pick winners, an index fund manager simply buys and holds the assets that make up a chosen index, in the same proportions, and rebalances on a set schedule as prices move or the index rules change. The goal is to match the index's return, not beat it, which usually means lower fees and less trading than an actively managed fund.

Crypto index products split into two broad categories. Centralized versions are run by a licensed asset manager that custodies the underlying coins and sells fund shares to investors; Bitwise's 10 Crypto Index Fund, launched in 2017 as the first crypto index fund, tracked the ten largest coins by market cap and converted into an exchange-traded fund listed on NYSE Arca in December 2025. Decentralized, or on-chain, index funds instead wrap a basket of tokens inside a smart contract: Index Coop's DeFi Pulse Index, for example, is minted and redeemed directly against its underlying tokens on Ethereum, with no company holding custody.

Sector indexes let investors bet on a theme, DeFi, Layer 1s, gaming tokens, without researching every project individually, and market-cap-weighted designs automatically shift allocation toward whatever is currently leading that sector. This makes index funds a common way to build a diversified portfolio with one purchase instead of dozens.

• Cap-weighted indexes can end up concentrated in one or two dominant assets.
• On-chain funds carry smart contract and oracle risk on top of normal market risk.
• Rebalancing triggers taxable events and, on-chain, gas costs that eat into returns.
• Few crypto index products are regulated the way a traditional ETF is, though that is slowly changing as issuers pursue listed conversions.