How are indexes managed internally?
Last updated
Last updated
Vault is an ERC-4626 compliant contract that accepts deposits, issues shares, and allocates funds to different strategies to earn yield.
Strategy is an ERC-4626 compliant contract that can be added to a vault that earns yield on an underlying asset.
So at its core, an index is a smart contract that manages multiple underlying strategies. Smart contracts are digital contracts stored on a blockchain that are automatically executed.
The job of an index is to manage assets between strategies that do the yield generation. As mentioned earlier, funds in indexes are managed by smart contracts, but there are also so called strategist addresses which are necessary for setting up the allocation of funds in strategies, you can find more information about this here.
Since the index not only runs automatically but is also manually curated, certain operations require rights for partial adjustment of predefined parameters. The addresses used for this purpose are called strategist's addresses.
Strategist addresses are the addresses for regular index maintenance processes. They are limited in terms of authority over the indexes, being able only to customize specific aspects. Strategists can adjust the withdrawal/deposit buffer, change the allocation of strategies in the index, i.e. do rebalancing of strategies within the index, and initiate harvesting to collect yields.
Access to strategist addresses is protected by multi-signature, which means that every action performed must be confirmed by at least 3 of the 5 addresses.
Strategists' actions are publicly viewable. To view their actions one can visit the strategy and indexes page in blockchain explorer. Strategists use several methods for managing the indexes:
This method collects all the income that the strategy has generated since the last harvest and reinvests it. Also at this point, it redistributes assets from the withdrawals/deposits buffer to the strategy and vice versa if necessary.
To see strategy harvests go to the strategy address and click on the transactions tab, find there transactions with the Harvest method.
In trade, there is almost always a spread between the price that a buyer will pay and the price that a seller will sell an asset. When an order is made, this difference in price between buyer and seller expectations results in price slippage. This parameter is controlled by the Set SlippagĐĩ method.
Add a Strategy to the index. If the team finds a new strategy that is suitable, it can be added to an existing index using addStrategy method.
Update Strategy Debt Ratio method changes the quantity of assets strategy may manage.
Indexes are regularly monitored by the locus team with the purpose of changing assets allocation when necessary. This may also be referred to as rebalancing. Read more about what parameters the team monitors to do rebalancing here Strategies allocation scoring explained.
Developers have access for working on the infrastructure of indexes and deploying new strategies.
Access to developers' addresses is also protected by multi-signature, every action must be confirmed by at least 3 of the 5 addresses.
