A customised future: collateralised indices as a foundational model for Web3 derivatives

Many still think of indices as nothing, but “market‑movement gauges”, often confusing them with indicators. In fact, Web 3.0 and Web3 enable remarkably intricate and interesting models.

Web3 entrepreneur Vladimir Menaskop explains them for ForkLog readers.

Why indices—and collateralised ones at that?

The answer becomes clear if you study crises, especially that of 2008. One cause of the Great Recession was a multibillion‑dollar bubble in derivatives such as CDO and CDS. The collateral behind such assets was at best partial and at times outright “junk”.

Derivatives are a fine consequence of humanity’s ability not only to look ahead, but to shape it. Small wonder that one of this class’s basic instruments is the futures contract.

Collateralised derivatives help hedge a host of risks, including in DeFi. Yet in Web3 this vital instrument still lacks mass attention.

LP tokens and NFT positions

A liquidity‑pool token (LP) is often technically an ERC‑20. In truth it is a complex derivative.

On the one hand, it embeds the split between the pair inside it—for example DAI‑ETH—or even several assets, as in asynchronous pools on Balancer or Curve. On the other, it also embeds rewards, which can be claimed externally or auto‑compounded, turning an annual percentage rate (APR) into an annual percentage yield (APY).

Moreover, LPs themselves can be treated as an option (for a full, mathematically grounded example see here).

Once you factor in impermanent loss inside a pool, it becomes clear that any LP is also about working a price range—whether within concentrated liquidity or across the full range, as in Uniswap v2.

With concentrated liquidity in Uniswap v3 and its analogues, NFT 2.0 becomes relevant: a second‑order derivative distinct from the invested assets. We lock fungible tokens and receive a single non‑fungible one. The smart contract records the initial assets and their ratio.

Such derivatives can be developed further. LP tokens and NFT positions are collateralised by underlying assets yet can trade as independent entities.

Both LPs and NFTs are genuine indices composed of two or more assets, reflecting their ratios not only on‑chain but in real time.

Playing with rewards

Consider two projects:

• the well‑known Alchemix;
• the less popular but equally interesting Flashstake.

Alchemix lets you do the following. Post, say, ETH in AAVE, receive the derivative wrapper aETH, then post it again to mint alETH, which can be used elsewhere in DeFi. Why? You earn rewards on the AAVE deposit while retaining usable liquidity—akin to liquid restaking tokens. In effect you monetise both the base asset and its rewards.

Flashstake, for its part, literally “allows you to lock up cryptocurrency and receive instant profit from the future”. The flow resembles Alchemix’s, but the result is a derivative of the fc‑sGLP variety.

PieDAO once proposed its own reward‑distribution model; my last experiment, however, showed thin liquidity, making it more a theoretical curiosity than a practical case—albeit notable for its visualised money‑flow scheme.

Another approach, built on a probabilistic payout model, was offered by Asymetrix. That model has since migrated to Velodrome and its peers, but there it is also backed by voting via locking the base token, whereas Asymetrix attempted pseudo‑random reward distribution. The output was a token representing a forecastable payout model and a time window for claiming.

All of these are fairly primitive indices. Let’s take a step into more elaborate constructs.

Maverick, Pendle and trading trends

We have already discussed Uniswap‑style positions, but for obvious reasons concentrated liquidity requires repositioning. Do it too often and DeFi strategies become unprofitable; too rarely and your range drifts out of bounds, yielding nothing.

Previously, with LPs and NFTs, we had a second‑order derivative on liquidity and rewards. Here, we try to separate rewards from the principal and monetise them independently. The separation is not yet complete, but the direction matters: a reward‑only index hedges impermanent loss and other risks.

What to do?

One approach is to automate repositioning, as Maverick set out to do: it enables a derivative not only on price, but on direction.

Why does this still count as an index? First, because it is collateralised by a base position. Second, because it provides a toolset for building index models with varying levels of nesting.

On the other pan sits Pendle, which, despite a temporary slump in TVL, still holds its ground, and is built on fully separating rewards from the “body” of the underlying assets.

Together, these two architectures allow an index model composed solely of rewards accrued upon confirmation of a given trend. If asset A rises and we receive rewards of X, the system auto‑distributes them. The index itself may take the form of an NFT, a wNFT or any other asset embodying the right to those rewards and tied to the operation of a price oracle, since what we need is price‑trend confirmation.

And that is far from the end of the evolution.

Collateralised wNFT indices

Imagine you hold a set of popular stablecoins: DAI, USDT, USDC. You could simply keep them, or deposit them in AAVE or into Uniswap pools. In the latter case you get these pairs:

• DAI — USDT;
• DAI — USDC;
• USDT — USDC.

From three ERC‑20s you thus create three simple indices in the form of LPs (ERC‑20) or NFT positions (ERC‑721).

Wrap all this in an NFT and you get a wNFT. Look at this example (as well as the transaction). The result is a single wNFT that:

• combines three NFT positions;
• which in turn combine three pools in varying proportions;
• drawn from three base tokens: DAI, USDT, USDC;
• as well as the pools’ rewards.

Why build such a “metastablecoin”? Many reasons; two will do. First, blacklisting: there are enough examples from Tether, Centre and other issuers. Second, you collect rewards from the base pools and can swap the metastablecoin directly; crucially, it does not sit on a single smart contract but can be created on any proxy.

Beyond that, we can construct:

• a BED index: bitcoin, Ethereum and DeFi assets across any network—from layer‑two EVM chains to Solana;
• indices from fractionalised NFTs of any kind, be they wrapped CryptoPunks or the exotic Pandora;
• and even ZKP strategies on this base, assembled with ease.

A brief word on the last.

ZKP indices: the future, but not for everyone

I have lived and worked inside the crypto‑offshore for years, but recent trends—the rise of CBDCs, the advent of MiCA, and cases against bZx, Lido, other DAOs and Tornado Cash—suggest it, too, must evolve.

ZKP strategies are one way forward. We have seen how to build a wNFT index collateralised by anything. Next, encrypt its elements:

• first create a key (key‑NFT, kNFT) to the wNFT index (wNFTi), where the kNFT is a simple NFT granting access to liquidity X on a network. The key holds nothing but a link to the wNFTi;
• encrypt the index collateral inside the wNFTi: with ZKPs we know its value and even the set of assets, but not the precise composition;
• encrypt the escrow linking the kNFT to the wNFTi, decentralising it to the desired degree;
• encrypt the exact conditions under which kNFT ownership unlocks liquidity. A simple example: require, in addition to ownership, a code stored not in plaintext but as a hash;
• turn the whole thing into an off‑chain pin that grants access to the key; “burning” the key opens the path to liquidity.

These ZKP indices can underpin a range of mechanics. Three examples:

1. A professional DeFi participant creates a strategy with verified returns and raises stablecoin liquidity against it. Providers receive rewards from the strategy without knowing it; the initiator acquires extra liquidity. Thus, income grows in absolute terms, not percentage terms. Say the yield is 10%: absent external funds the seller would earn $100; with pooled liquidity, $10,000.
2. Swaps can be executed without relying on omni‑ or cross‑chain solutions—no bridges or heavier frameworks like LayerZero. This will always be a one‑off that can be extended or used once, for example to close a complex loop in a CBDC world where cash simply will not exist.
3. Finally, one can build a lending protocol without asset approvals by a DAO or anyone else. This nudges AAVE’s model closer to Uniswap’s and opens a spectrum of opportunities for participants.

Conclusions

If you are just entering the market for DeFi derivatives—or are curious about certain vectors within it—pay close attention to collateralised derivatives, particularly indices built along the lines sketched above.

First, this market is (for now) free of the hype surrounding programmable assets, on which it rests, or DAOs—giving you time to prepare.

Second, mastering these instruments will let you live inside the crypto‑offshore for another five to seven years—no small span by today’s standards.

Third, it is simply interesting. Netstalking 2.0—be it hunting for crypto treasures or working with super‑complex constructs—lets you peer into the future and try to tune it, customise it, to your needs.