Considering the initial phases of the cryptocurrency trading, most of the traders thought it to be best to stake their interest on only a single type of digital asset. For most of the cases, the same strategy still prevails. Many investors still feel it to be safe to start their trading using only a single cryptocurrency. Those traders will concentrate all of their wealth into just a single cryptocurrency for over a long period on contrary to those who invest in the crypto baskets.
But now, things have changed a bit more. As of now, it is not the sole trajectory that the traders bear. Besides making traditional per coin cryptocurrency investments, the traders are now focussed towards buying innovative new assets known as the crypto basket.
In this article, we will stress on the actual concept of the crypto baskets and how it is different from the conventional cryptocurrency investments. If you are a crypto trader, the crypto basket funds might appeal to you to the fullest.
What Are Crypto Baskets?
A cryptocurrency basket refers to the collection of the virtual currencies that are managed as a single asset using the smart contracts. This minimizes the requirement for the holders to continuously monitor the individual currencies. Crypto baskets are also interchangeably used with the crypto index fund.
A crypto basket is one of the key drivers for the remarkable growth of the broader Decentralized Finance or DeFi ecosystem. They offer a powerful tool for the crypto portfolio diversification. As already stated, the token basket or crypto basket contains various cryptocurrencies that are bundled together into a single asset.
By far, the majority of the crypto baskets available on the market are built utilizing Ethereum (ETH) for leveraging the platform’s advanced smart contract utility. In contrast to purchasing the individual tokens and meticulously building and managing a balanced cryptocurrency portfolio, the traders can go ahead and invest in a crypto token basket for achieving diversification. Simplifying the crypto portfolio allocation process, the crypto baskets encourage the participation in the virtual asset class and aid the new crypto investors to manage risks.
What Does Diversification In Investing Mean?
The portfolio diversification practice is a standard risk management practice in the traditional assets market. Theoretically, the less diversified a portfolio, the lower would be the risk.
For instance, if an investor holds a single cryptocurrency and the value of the held crypto tokens falls by 50%, then there will be no way to protect it from the negative impact. But, if an investor holds multiple cryptocurrencies, the portfolio becomes much more resilient against the nosedipping price movement of any specific asset. Therefore, the diversification of the crypto portfolio can reduce the risk and secure the future returns.
This is the reason why many investors these days utilize the diversification strategies for building a portfolio that encompasses the multiple asset classes or the market segments in place of holding a single asset. In the virtual asset ecosystem, the cryptocurrency basket protocols offer these benefits to the investors who are looking to implement a cryptocurrency diversification strategy in the most simplified way possible.
Crypto Baskets & Cryptocurrency Tokenizations
Mostly, the crypto basket protocols make use of a single token for representing each asset in the basket. By following this methodology, each time an investor invests in a token basket’s protocol index token, they are actually buying a portion of the underlying basket proportionate to their investment. While most of the protocols utilizes a single token, the structure and deployment of each token basket varies across the platforms.
In this segment, we will look at the various leading token basket protocols that are available in the market currently.
Blue Token (BLUE)
It is a tokenized crypto basket. The protocol utilizes the funds from the sale of the BLUE tokens for purchasing each of the 14 crypto coins held in its basket product. Thus, the value of the BLUE index token directly correlates to the value of the single basket component that adheres to the below-mentioned allocations:
- Bitcoin (BTC): 25%
- Ether (ETH): 25%
- Cardano (ADA): 10.1%
- Binance Coin (BNB): 7.2%
- Ripple (XRP): 5.8%
- Chainlink (LINK): 4.2%
- Polkadot (DOT): 3.9%
- Solana (SOL): 3.8%
- Stellar (XLM): 2.5%
- Litecoin (LTC): 2.5%
- Curve (CRV): 2.5%
- Algorand (ALGO): 2.5%
- PancakeSwap (CAKE): 2.5%
- Polygon (MATIC): 2.5%
Similar to the other cryptocurrency token basket platforms, BLUE also permits the investors to hold just one token while they are diversifying their cryptocurrency holdings. While some of the crypto baskets are non-custodial, BLUE on the other hand maintains the custody of the tokens that it generates. This means that all the participants share the custodial costs leading to potential cost savings.
Bancor Smart Tokens
The Bancor protocol makes use of the trustless and decentralized token index baskets in the form of the smart tokens. The token baskets on this protocol consisting of two or more digital assets are termed as “Smart Tokens”. These smart tokens are capable of holding multiple token reserves, each with an independent CRR or Constant Reserve Ratio setting. The smart tokens can be bought for any of their reserve tokens or can be liquidated in exchange for them on the Bancor platform.
By utilizing the Set Protocol, the users can generate, rebalance and simultaneously and constantly manage a cryptocurrency portfolio of the Ethereum based ERC-20 Tokens. The collateralized token baskets, also termed as a “Set”, is packed using the smart contracts and are exchanged via a single token. The resultant token is also tradeable on the various cryptocurrency exchanges. For participating in the Set Protocol, the users can invest in the existing indices called Sets or create their very own without the interaction between the underlying tokens.
Similar to the other collateralized index tokens, the value of the BasketCoin token tracks the underlying asset reserves. Speaking more specifically, the BSKT token basket comprises of the below-mentioned cryptocurrencies:
- ETH: 25%
- BTC: 25%
- SmartKey (SKEY): 10%
- DOT: 10%
- YF-DAI: 10%
- USD Coin (USDC): 10%
- BSKT: 10%
Each of the crypto basket coin in the token basket has been allocated to the various platforms offering revenue potential via the unique buy-back process of the platform. Additionally, 90% of the protocol revenue is committed to the BSKT token burning, while the leftover 10% is allocated to the project expenses.
sDeFi stands for the Synthetic DeFi Index token that is supported by the Synthetix protocol, tracks a cryptocurrency basket of DeFi tokens making use of the price feeds supplied by the decentralized Chainlink oracles. Thus, the sDeFi holders bear exposure to a dozen of various tokens permitting them to more conveniently implement a cryptocurrency diversification strategy.
Additionally, the sDeFi token is exchangeable for the other Synthetix native assets on its Synthetix Exchange or Kwenta derivatives platform. In contrast to many other protocols supporting the custom token baskets, the Synthetix Community coverns the sDeFi assets that votes on the sDeFi asset reserve allocation.
How Are Crypto Baskets Different From The Traditional Crypto Investments?
Cryptocurrency might not be a traditional investment. But the most familiar investment strategy for crypto is to simply buy into one currency at a time. The conventional crypto investments usually involve one primary coin, one mining setup if the traders possess any interest in mining and one designated wallet. For instance, if a trader is inclined towards Monero (XMR), he will only buy the Monero coins, store them in an XMR wallet and prepare a mining rig for mining new XMR tokens.
Alternatively, the trader can choose to purchase a virtual cryptocurrency basket and indulge in trading with the various coins at a time. Every cryptocurrency basket will contain a small bundle of tokens but the basket itself will be managed as a single asset working through the smart contracts.
Considering the variety, a crypto basket will work just as a sampler basket of a particular type of physical goods such as cheese, wine or chocolate or like digital goods such as a collection of the e-gift certificates or a collection of the digital vouchers. Such baskets in either physical or digital form consist of a little bit of everything inside.
Another very interesting thing about the crypto baskets is that similar to the holiday baskets or the travel baskets, they possess the power to subscribe to a certain unifying theme. For instance, a cryptocurrency basket can be curated for containing a specific number of the high profile crypto coins, a set of the proof-of-work coins or a collection of the privacy tokens.
There exists some services that permits the crypto basket buyers to quickly view the summaries on the overall volatility of the basket, the amount of the developer activity going into the basket and the several other metrics that are aiding them to learn even more regarding their crypto goodie collection. These are some of the most fascinating features that being a trader you can expect if you want to look into the crypto baskets.
How Will Crypto Baskets Be As An Investment?
By far, you have already learned the difference between the crypto baskets and the traditional cryptocurrency investments. At this moment, you might be wondering whether crypto basket investing will be a rewarding investment. Below are some of the advantages of the crypto baskets and the crypto basket token that you might want to know if they resonates:
Cryptocurrency Baskets Offer “Starter Pack” Introduction To Crypto
Although there are some cryptocurrency baskets that are being developed for the high profile and the seasoned crypto traders, many of those that are now available in the market might appeal more to the crypto beginners or newbies. These baskets are meant to offer a taste of trading ways in various currencies before the trader settles on the ones that they are mostly attracted to. If you have not yet determined your trading preferences for the crypto tokens, then the basket might serve as a good mode of introducing yourself to the crypto space.
Helps You To Start Crypto Trading With Multifarious Assets
This is another appealing thing about the cryptocurrency baskets. They offer the buyers some diversification in the cryptocurrency assets from the get go. This also indicates that the traders might diversify their risks and begin their trading journeys from a very resilient cryptocurrency portfolio.
Simplifies Your Cryptocurrency Asset Management
The crypto token baskets might make multiple crypto asset management very easier and simpler for the traders. If you are making use of a consolidated basket, you will save time on going on the internet and researching the individual tokens and the investment strategies. Thus, you also drop the time consumption where you build the multi-coin portfolio from scratch.
With this, there are also some drawbacks of the crypto baskets and its investment. The cryptocurrency baskets might not prove to be ideal for you if you have already determined your preferences with coins or if you really want to stick to a single currency that you like. There is no need to buy crypto basket just for the sake of buying if you are focussed in just a coin or two.
Yet the crypto baskets are a relatively new innovation in the crypto market. However, there are still some ravishing possibilities for both the newbies and the serious traders as far as they are concerned. The crypto basket index is very helpful in this. You need to stay updated with the market and know about the coin baskets. It is possible that in the near future you might find your most preferred basket aligning with your crypto investment interests.