Crypto index and basket protocols aim to allow users to gain exposure to a group of assets through a single token. On the latest episode of CryptoSlate’s SlateCast podcast, host Liam “Akiba” Wright and CEO Nate Whitehill spoke to Alvara Protocol co-founder Dominic Ryder about his project’s goal of creating an open standard for crypto baskets.
Ryder explained that Alvara Protocol has built a new token standard that takes time to get full approval, noting that even Vitalik has written articles about the ERC-6551, which is still pending. In contrast, the widely used ERC-20 itself took two years to finalize.
Alvara’s token standard, ERC-7621, intends to standardize how token baskets operate on Ethereum. According to Ryder:
“The idea of the ERC-7621 is to standardize and allow for a comparison of baskets of tokens against each other. At present, there’s a lot of people in this area, but everyone’s doing it a little bit differently.”
Facilitating scalability through decentralization
A key part of Alvara’s strategy to enable scalability is complete decentralization, unlike some competing basket protocols. By allowing fully decentralized management of baskets, with managers able to have full discretion without permission, Alvara believes it has solved the scalability problem.
This contrasts with governance-based models requiring approval for decisions. Alvara’s trust score system mitigates risks from this decentralization. Ultimately, though, by not restricting or gatekeeping what managers can do, Alvara hopes to scale by facilitating thousands of customizable baskets and sub-protocols around them. Ryder elaborated:
“We think we’ve cracked the scalability problem because, as traditional asset managers, it’s 99.9% discretionary. The manager makes the decisions and they don’t ask for people’s approval prior.”
Building trust and reputation
With decentralized management comes potential risks, which Alvara aims to mitigate through “trust scores.” As Ryder explained:
“We’re going to be allowing the DAO to whitelist tokens, how they choose to do that, we’re probably going to set the standard mix as top 100 tokens with DEX liquidity above $1 million on whatever DEX because that way there’s a certain amount of reputability to these tokens already.”
Tokens and managers on the Alvara Protocol will build reputability over time by using decentralized autonomous organizations (DAOs). As Ryder mentioned, the DAOs can whitelist trusted tokens to mitigate risks from new or obscure assets being added to baskets. This curation and governance from the DAOs will provide a layer of reputability and oversight.
Additionally, as managers demonstrate strong performance and accountability to their baskets and the protocol over time, they will earn higher trust scores and reputations. Thus, both tokens and managers have ways to build reputability through governance and proven track records facilitated via the Alvara DAOs.
Passive flows and future potential
As noted on the podcast, the passive inflows from investors that crypto index funds and baskets allow create substantial potential. Wright cited the example of Bitcoin ETFs leading to significant passive inflows and supply squeezes.
If executed successfully, the easy exposure to bundled tokens Alvara offers could attract considerable passive investor funds over time as the project matures. The long-term possibilities are part of what excites the podcast guests.
Whether Alvara Protocol can successfully standardize crypto index tokens through the ERC-7621 remains to be seen, but many are enthusiastic about its future possibilities.
Watch the full podcast below:
NEW PODCAST
Alvara’s ERC-7621 token standard promises a robust framework for crypto indexes
Featuring @dominicVEMP from @AlvaraProtocol with co-hosts @akibablade and @NateWhitehill pic.twitter.com/QdSFrtb4Pc
— CryptoSlate (@CryptoSlate) February 28, 2024
Disclaimer: CryptoSlate made a small investment in Alvara Protocol.
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