In TradFi, ETF - is a type of pooled investment asset containing a basket of other undelying assets, that trades on an exchange just like a stock does.

In DeFi, we implement ETF as an index tracking a portfolio of assets which are contained in a DeFi pool.

An ETF's value is based on a weighed pool's value; weights of each asset are based on their respective indexes; when underlying assets' indexes fluctuate, the smart contract rebalances the weights and sets up new target shares for indexed assets.

Index is a mathematical model that determines the shares of an asset based on certain asset parameters such as market capitalization, revenue, TVL, etc.

TradFi vs DeFi ETFs

Why do investors and traders need ETFs?

In TradFi, there are ETFs that contain a single asset, and the ETF performs the function of splitting that asset so that it is easier to trade and has higher liquidity.

In DeFi, this doesn't make sense because all assets are already fractional and have 12 decimals.

With Arcanum's approach, ETFs should play the role of asset management vehicles.

In DeFi, there are already platforms that allow you to trade assets in bundles. However, the main problem with their work is that portfolio management is carried out using centralized methods. Because these services do not provide any other tools besides trading, they charge a commission for providing capital.

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