N.B. : This index fund is created using a BitShares smartcoin. All the information about these smartcoins is explained in the "Bitshares Smartcoins" section.TWENTIX is available on the BitShares decentralized Exchange. If you want to operate a manual research, the asset name is : TWENTIX
Before digging into the structure of Twentix, let's begin by pointing that Twentix has been created as a Bit20 brother.
Bit20 has grown immensely in value. The smallest unit (0.00001 BTWTY) is now worth several dollars and it keeps growing. It is sometimes a barrier to operate small trades and to run bots.
Twentix has been designed to be worth 1/100,000th of 1 BTWTY (Bit20). It has been created to allow traders to play with a more flexible coin.
The index design is similar to Bit20. That's why the explanation below will be a simple copy of what you can already find in the "Bit20" section.
The only difference is at the price feed producer level. Bit20 price feed is produced by the actual Bitshares witnesses. Twentix price feed will be first provided by our team until it reaches a market level where witnesses agree to take this responsability. Al the price feed provided by our team are accessible on the blockchain (forever) and can be easily verified by simple maths.
An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P; 500)."Indexing" is a passive form of fund management that has been successful in outperforming most actively managed mutual funds.
In other words, an index doesn't actually exist in a sense. Rather, it is an academic concept; an idea. Basically, it amounts to a person or a committee of people sitting down and coming up with a list of rules as to how to construct a portfolio of individual holdings because, in the end, the only thing you can actually do is invest in individual common stocks or bonds, presuming we're limiting our discussion to equity and fixed income markets.
Choosing how many cryptocurrencies would be included in the index
Including ten cryptocurrencies was our first approach for the index, however we thought that we were overlooking some interesting projects currently ranked in the 11th - 20th range, so even if the market capitalization of these coins is lower than the top 10 cryptocurrencies we felt they deserved to be part of the index since they have a lot of growth potential, we incorporated these coins with less weight on the TWENTIX index and we left out coins below the top 20.
Exceptions
Ripple was intentionally excluded from the index since it constitutes a private and centralised institution, it is not considered a cryptocurrency and it is similar to a bank using the blockchain technology. Future bank cryptocurrencies won't be included either.
The derivatives of real assets based on a cryptocurrency won't be part of the index. The reason is simple, a derivative is a copy of the underlying asset price. This asset doesn't represent the value a cryptocurrency project, thus, it doesn't belong in the index. We won't includes Tether (copy of the dollar), DigixDAO (gold bullion), BitUSD, BitCNY, BitSilver, ...
Percentage by coin
If we added the total market cap of the top 20 cryptocurrencies, we would obtain the total market capitalization of all of them. If we were to use the respective percentage of each cryptocurrency in the top 20 to define which part of the index they should have, we would end up with an index moving in parallel with Bitcoin which represents around 80% of this total market cap of all these coins.
Therefore, we opted for using the same system applied by traditional indexes which consist in having a maximum percentage by asset inside the index. So we proceeded by topping the first one, Bitcoin, at 10%. It left us with 90% to share on the remaining total market capitalization of the last 19 cryptocurrencies. Litecoin (july 2015) was the second biggest one and it also represented more than 10% of the total, so we capped it too. The same process was done to all of the 18 remaining cryptocurrencies, only the few biggest coins reach 10% and the vast majority have percentages going from 9% to 1%.
Initial value
Having the distribution well balanced was a precise task to do. To give a value to the index, we just had to arbitrary chose one. It could have been one dollar, the price of a cereal box or the national debt of a country. To keep things simple and elegant, we chose to gave to our index the price of a 1/100,000th of an ounce of gold on his birthday date, the 21 of july 2015.
The average of several sources on the gold price created the initial value of TWENTIX at: 0.01103473 USD.
With this value in mind and the percentages of each cryptocurrencies in the index, we could determine how much of each cryptocurrency would constitute the index.
Composition of the index on the 21th of july 2015
| Cryptocurrency | Market capitalisation | Percentage | Quantity of coins | Value in USD |
| bitcoin | 4036218085 USD | 10.000000000000 % | 0.0000039385 coins | 0.0028017 USD |
| litecoin | 162061171 USD | 10.000000000000 % | 0.0002786548 coins | 0.0000396 USD |
| dash | 20577892 USD | 10.000000000000 % | 0.0002998568 coins | 0.0000368 USD |
| dogecoin | 17363437 USD | 8.8549963577266 % | 5.6481227442 coins | 0.00000000173 USD |
| stellar | 14575729 USD | 7.4333225159403 % | 0.2722360827 coins | 0.00000003013 USD |
| maidsafecoin | 13968800 USD | 7.1238011876227 % | 0.0254670834 coins | 0.00000030867 USD |
| bitshares | 13295265 USD | 6.7803121668832 % | 0.1413544996 coins | 0.00000005293 USD |
| banxshares | 12949699 USD | 6.6040806021674 % | 0.0003876290 coins | 0.0000188 USD |
| nxt | 12671363 USD | 6.4621349570613 % | 0.05627648647 coins | 0.00000012671 USD |
| peercoin | 11614538 USD | 5.9231759061687 % | 0.0012661103 coins | 0.00000516232 USD |
| bytecoin | 8634985 USD | 4.4036650534122 % | 9.9169937864 coins | 0.00000000049 USD |
| namecoin | 7469707 USD | 3.8093971993152 % | 0.0006759821 coins | 0.00000621846 USD |
| monero | 4806169 USD | 2.4510475080261 % | 0.0004835018 coins | 0.00000559391 USD |
| counterparty | 4129650 USD | 2.1060367085552 % | 0.0001489714 coins | 0.0000156 USD |
| monacoin | 3221749 USD | 1.6430258399019 % | 0.0012022142 coins | 0.00000150808 USD |
| ybcoin | 2787624 USD | 1.4216310035111 % | 0.0001688246 coins | 0.00000929208 USD |
| startcoin | 2725266 USD | 1.3898297038677 % | 0.0015741265 coins | 0.00000097428 USD |
| blackcoin | 2557895 USD | 1.3044739303887 % | 0.0042182985 coins | 0.00000034124 USD |
| ethercoin | 2294540 USD | 1.1701682876874 % | 0.0000563864 coins | 0.0000229 USD |
| bitcoindark | 2194012 USD | 1.1189010717641 % | 0.0000689763 coins | 0.0000179 USD |
Once a month, the scripts involved in the composition of the index run a calibrating algorithm to redefine the coins that constitute the index. Without running this revision we would still have the same coins as they were in the top twenty on the 21th of july 2015. If we run this revision too often, the index is not stable. We consider once a month was enough time to have stability and also allow the index to evolve with the new cryptocurrencies in the top 20.
The revision consist in calculating the percentages of the top cryptocurrencies by market cap, just as we did upon the creation of the index. Once we have the new percentages, we determine how much each cryptocurrency will constitute the index NOT with the value of an ounce of gold BUT with the last value of the index in $.
Once the correction is done, the new composition smoothly replaces the one from the month before and no variation in the price is caused by the revision. We will notice that on each revision, some coins disappear from the index and new ones appear.
N.B. : As indicated earlier, this section gives the explanation on how Bit20 has been designed. Twentix will follow the design as soon as its market reach a certain level. That's why the following explanation is similar from th eone found in Bit20 section. Right the price feed is provided by our team is accessible on the blockchain (forever) and can be easily verified by simple maths.
TWENTIX has been made in a way that even our team couldn't manipulate it after it has been launched. It is fully trustless and decentralized. It was necessary to reach that point of security. We want the index to be considered as a serious economic tool able to manipulate important funds.
There are two main key parts in the index structure.
As we've just seen, the algorithm creates the index itself. This algorithm calculates the weight ( % ) of each coin in the index.
The second key part is the mechanism producing the price and publishing it in the BitShares Blockchain. The witnesses represent the highest representation of trust and decentralisation in the BitShares ecosystem. They have the code to produce the index price using the composition created by the first algorithm. We had to provide the index composition for the witnesses but we couldn't risk to have it on a centralised server. This situation would have created a potential way to hack the index and change its composition and gaming the price. To solve that problem, we've used the BitShares Blockchain to store the index composition. Every month, we send the new composition in a standard transaction memo.
It looks like this :
COMPOSITION :: (2015/07/21) {"data":[["BTC",0.39385849067828],["LTC",27.865488215488],["DASH",29.985688405797],["DOGE",564812.27442284],["XLM",27223.608278813],["MAID",2546.7083430557],["BTS",14135.449967563],["BANX",38.762908700403],["NXT",5627.6486477139],["PPC",126.61103265779],["BCN",991699.3786474],["NMC",67.598219261987],["XMR",48.350180175225],["XCP",14.897149659691],["MONA",120.22142063481],["YBC",16.882462292774],["START",157.41265509839],["BLK",421.82985471003],["ETH",5.6386441090628],["BTCD",6.8976396387138]]}
( http://cryptofresh.com/tx/e519d98127451c5dfa4c4171003c60f65fcd8fd8 )
The witnesses read this memo and obtain the actual composition of the index. With that information, they can now build the index price using the price of each coins coming from several websites API.
(As we have seen earlier, this option is only available on the TWENTIX index. We will have the witnesses publishing the Twentix price feed as soon as this market has grown to a certain market cap and it is no longer wise to publish the feed by ourselves. We have followed the same process with TWENTIX even if we didn't wait for long, the witnesses were happy to help during the early days.)