Kassandra Protocol
Kassandra is a decentralized autonomous organization that governs a set of tokenized data-driven investment funds, bringing a new class of investment products to the DeFi ecosystem: actively managed investment baskets without compromising the pillars of decentralization. All investment products made available through the Kassandra Protocol are permissionless, non-custodial, and actively managed by a third party.
The Kassandra Protocol allows partnerships with quantitative investment funds, external data providers, and fund managers to create a diversified portfolio of investment products, all managed by the Kassandra DAO.
The Kassandra DAO is controlled by the holders of the $KACY governance token, which is used to vote on proposals for protocol updates, to manage the existing investment products, and to create new products with new management strategies.
As for traditional fund managers, the Kassandra DAO benefits directly and indirectly from the success of the investment products deployed through the Kassandra Protocol.
Motivation
In the traditional market, exchange-tradable funds (ETFs) are investment funds that are traded directly on the stock exchange, where the index value is composed of the assets that the fund maintains in its portfolio. ETFs are a way to facilitate investor access to and exposure to a basket of assets while simplifying the operation by outsourcing management.
The development of decentralized financial products in the blockchain is a very recent field but experienced rapid growth in the last year with the popularization of many DeFi protocols. And despite recent progress, the notion of a financial product similar to an ETF done in a decentralized way is still new, but totally doable: creating a set of smart contracts on the blockchain that issue a redeemable token equivalent to a quota of a decentralized managed fund.
Currently, there are some protocols such as Index Coop, Indexed, Set Protocol that allow the creation of baskets of assets with a redeemable token that the value is represented by the assets that make up the basket. However, currently, no product has yet been developed that allows the creation of indexes based on strategies generated by data provided externally by a data provider, to carry out active asset management, nor the notion of a decentralized autonomous organization that curate and govern those investment products and accrue financial return through the success of these products.
As for Kassandra, we aim to build the first decentralized autonomous organization that works as a quantitative investment management organization for the cryptocurrency market, dedicated to producing returns for its investors by adhering to data-driven mathematical and statistical methods. Product will always come first, reliance on our products are key to attract and retain new users. We are very motivated and committed to bringing this vision to life.
Kassandra Protocol
The Kassandra Protocol is the core technology that allows the DAO to deploy investment products. It starts from the premise of building tokenized investment baskets that are permissionless, non-custodial, and actively managed, but yet monetary efficient.
Given an investment basket, it is necessary for the protocol that price changes of the underlying assets do not change the percentage shares of each asset in the basket, preserving the original participation weights of the assets. But being these investment baskets actively managed, it is also crucial that external data providers could change the asset allocations, giving new participation weights to each asset.
Smart Indexed Pools
As our first generalized approach to create tokenized investment baskets, we borrowed the design of Smart Indexed Pools (SIP) from Balancer Protocol and added oracle compatibility to allow active management from third-party data providers.
Under the hood, a SIP works essentially as an Automated Market Maker (AMM) for multiple assets, but with dynamically adjustable weights, that can be changed using external data. Using this approach removes the need for rebalancing operations by creating small arbitrage opportunities that external users can profit from and ensure that the desired proportions of each asset in the investment basket are maintained.
By making a monetary deposit in a SIP, the user will receive a deposit representative token, namely Index Token, that represents a fractional ownership of assets in the pool. The assets managed by the pool will have adjusted participations changed by the data provider, and at any time, the user can return his Index Token to the protocol to redeem his investment, which will be evaluated by the total value of the assets managed by the pool at the time of the redemption — functioning similar to a traditional market ETF.
The Firs SIP
For the development and launch of the first SIP, Kassandra partnered with the social data company for cryptocurrencies Heimdall, and will launch the first SIP and Index Token, namely $HEIM. The investment basket represented by this token will have its weights defined by the Social Score data provided by Heimdall, becoming a financial product that delivers exposure to the most socially active cryptocurrencies in the market.
Heimdall’s Social Score does not necessarily represent cryptocurrencies with the most social posts or the largest number of active users but rather represents an approximation of the network factor of the communities of these cryptocurrencies. For Heimdall, more important than how many are talking about a certain asset is who is it, so the Social Score can often be quite high even for projects that are not yet widely known, as long as those that socially interact with the projects have a lot of reach and social influence, in this way, the Social Score is often a pre-indication of a project that is becoming more popular.
Given a whitelist of tokens and currencies that can be invested, the composition asset strategy for SIP of $HEIM will be as follows:
- The protocol will choose the ten tokens with the best social activity in the last 30 days, using Heimdall’s Social Scores, and make a weighted investment in each one, according to their respective social scores.
Frequently and smoothly, the protocol will use the new Social Score data to update the investment weights within the investment basket, and can even rotate the ten invested tokens with others available on the whitelist. For a more in-depth analysis and strategy, performance backtests, check out the document dedicated to the $HEIM token available on the Kassandra website.
Whitelist Mechanism
The $KACY token holders can participate in the whitelist curation process for SIPs, thus defining a list of the tokens that SIPs can trade and add to their portfolios, which is one of the key activities done by token holders for long-term protocol success.
The success of SIPs depends essentially on two factors, first, the data provided by the company that feeds the Index, in the case of the first Index Pool, by Heimdall, and its strategy using its Social Score. That is, for an Index Pool to be profitable, it is important that it has a good operating strategy, and that depends exclusively on the company that provides the data. But secondly, the success of the Index Pools depends on the curation done by the $KACY token holders to define which tokens can be invested by the SIPs. This feature is essential, and it is the one that guarantees the security of the protocol without relying mostly on the trust in the company that provides the data. Without this feature, it would be possible for the company providing the data to issue a new, worthless, token and to make the entire SIP buy that token, in an attempt to Rug Pull. However, with a whitelist, this exploit is impossible, as there is a well-defined list, approved by governance, of which tokens the protocol can invest.
The creation of a whitelist has the role of curation since it is essential that for every investment a fundamental analysis is carried out a priori. In this way, any Index Pool uses a double system to make investments, at first a market curation is made, defining which cryptocurrencies are worth investing given the analysis of $KACY token holders, and then investments are automatically managed by SIPs data providers.
Fees
The SIP is a generalized and dynamically adjustable AMM, any swap carried out through the pool is subject to a fee of 0.3% that goes directly to the portfolio holdings.
A 3% fee is implemented when redeeming any SIP token, which will be sent to a wallet under the control of the Kassandra DAO. The fees collected this way are under total governance control and can be used for the purchase and subsequent burn of the $KACY token.
As an additional rule, to flow value to the $KACY token holders, every SIP must hold at least 5% of the $KACY token as part of the portfolio. This holding percentage of the $KACY token ensures that the success of the SIPs will result in the growth of the $KACY token value.
Learn more about Kassandra:
- Website: https://kassandra.finance/
- Twitter: https://twitter.com/dao_kassandra
- Github: https://github.com/KassandraFinance
- Discord: https://discord.gg/hDjzQWJ8
