2. Index Construction

Asset Universe Definition

The asset universe forms the foundation of each iTokens index, representing the pool of eligible assets from which index constituents are selected. This universe is defined using clear, objective criteria to ensure the indices are representative, reliable, and aligned with their intended market or theme.

• Selection Criteria Assets are selected based on the following criteria:

• Token Type: Eligibility is restricted to specific asset classes, such as native blockchain tokens, governance tokens, or ecosystem-specific tokens. Derived tokens, such as liquid staked tokens, wrapped tokens, and derivatives, are excluded from consideration for index inclusion. Pegged tokens, including stablecoins, are also excluded.

• Liquidity: Assets must meet defined liquidity thresholds to ensure practical replicability and minimize market impact during index rebalancing. Such thresholds are defined within individuals indices methodology.

• Ecosystem Relevance: For thematic indices, assets must be closely aligned with the index’s theme (e.g., Starknet ecosystem tokens for a StarkNet-specific index).

• Team and Community Activity: Projects must demonstrate active engagement through social network accounts, indicating ongoing development and community involvement.

• Data Availability: Assets must have sufficient, reliable, and consistent data to support accurate and transparent index construction. Data sources must be defined in each index-specific methodology.

• Tradeability: Tokens must be actively traded on venues defined in the individual index methodologies, ensuring accessibility and liquidity for index replication.

• Other Factors: Additional considerations, such as age of the token, listing on recognized exchanges, and technical viability, may be included to enhance the robustness of the selection process.

Updates to Asset Universe

The asset universe is reviewed regularly to incorporate new assets meeting the criteria and to exclude those no longer eligible. This approach ensures that the index remains relevant and reflective of its intended market or theme.

Weighting Methodology

The iTokens indices employ a capped market capitalization method to achieve a balance between market representation and diversification. This approach ensures that dominant tokens do not disproportionately influence the index while providing adequate exposure to smaller but still relevant constituents.

Process

1. Initial Weights:

   • Constituents are first weighted based on their float-adjusted market capitalizations.

   • This step reflects the relative size of each asset in the market.

2. Capping Excess Weights:

   • A maximum weight cap (e.g., 20%) is applied to any constituent that exceeds the threshold.

   • Constituents exceeding the cap have their weights reduced to the cap.

   • Excess weight from capped constituents is redistributed proportionally among the uncapped constituents based on their initial market capitalization weights.

3. Rebalancing: Constituent weights may drift naturally with market price movements due to fluctuations in token values. These drifts are corrected during the next scheduled rebalancing.

Capping Rules

• The maximum weight a single constituent or group of constituents can hold is predefined (e.g., 20% for individual constituents).

• Additional constraints may apply to reflect the thematic focus or ecosystem alignment of the index.

Calculation Methodology

The iTokens indices use the divisor method to maintain continuity of the index value, ensuring that structural changes, such as additions or deletions of constituents, do not distort the index level.

Index Value Formula

The index level is calculated as:

$$\text{Index Value} = \frac{\text{Total Adjusted Market Value of Constituents}}{\text{Divisor}}$$

Where:

• Total Adjusted Market Value = $\sum (\text{Price}_i \times \text{Tokens}_i \times {Adjustment})$.

  • Adjustments can result from capping or from limiting the market capitalization to only the tradable portion of tokens.

• Divisor: A scaling factor that ensures continuity of the index level.

Divisor Adjustments

The divisor is recalculated during structural changes to the index, such as:

• Constituent Additions or Deletions: Adjusting for the addition or removal of assets while keeping the index level consistent.

• Token-Specific Events: Reflecting changes such as minting, burning, migrations and others.

The new divisor is calculated as:

$$\text{New Divisor} = \text{Old Divisor} \times \frac{\text{Index Value After Adjustment}}{\text{Index Value Before Adjustment}}$$

Rebalancing and Updates

1. Scheduled Rebalancing:

   • During each rebalancing period, capped weights are applied, and the divisor is adjusted accordingly.

   • Constituents are re-evaluated against asset universe criteria.

2. Unscheduled Adjustments:

   • The index may require recalculations in response to unexpected events, such as token forks or extreme market volatility, as determined by the oversight committee.

By employing the capped market capitalization method and divisor method, iTokens indices provide robust, diversified, and accurate benchmarks that reflect the performance of their respective markets or ecosystems.