Smart Contract-Native Index Protocol

Executive Summary

Crypto 50 (C50) is an autonomous index protocol tracking the top 50 digital assets, representing ~90% of total crypto market capitalization. Built as a smart contract system with DAO governance, C50 operates on-chain truth: DEX liquidity, transaction volumes, and verifiable metrics—not centralized gatekeepers.

1. Index Objective

1.1 Mission

Track the top 50 digital assets by market capitalization using on-chain verifiable metrics, providing:

1. Passive exposure to the crypto market through a single ERC-20 token
2. Algorithmic rebalancing via smart contracts (no trusted intermediaries)
3. DeFi composability (use C50 as collateral, LP, yield strategies)
4. Institutional-grade methodology with DAO oversight
5. Fee efficiency (0.25% vs 0.5-2.5% for traditional crypto indices)

1.2 Target Market Coverage

Comparison to Traditional Benchmarks:

Coverage by Rank (November 2025 data):

1.3 What Makes C50 Different

2. Eligibility Criteria

2.1 Design Philosophy

Traditional indices ask: "Is this listed on approved exchanges?"

C50 asks: "Does on-chain data prove this is real?"

2.2 Quantitative Criteria (Fully Algorithmic)

All criteria below are verifiable on-chain or via decentralized oracles:

2.2.1 Market Capitalization

Why Top 70? Creates a buffer zone (ranks 51-70) to minimize turnover. Assets ranked 51-70 that are current constituents are retained unless they fall below rank 70.

// Market Cap Calculation
marketCap = oraclePrice × circulatingSupply
circulatingSupply = totalSupply - (lockedTokens + vestingTokens + treasuryTokens)

2.2.2 Liquidity Requirements

DEX Liquidity (Primary Filter):

On-Chain Activity:

Why No CEX Requirement? CEXs are permissioned gatekeepers. DEX liquidity proves REAL, permissionless demand. If an asset has $50M in DEX liquidity, it doesn't need Coinbase's approval.

2.2.3 Economic Sustainability

Protocol Revenue (For DeFi/L2/Infrastructure assets):

Note: Base layer L1s (Bitcoin, Litecoin) with pure "store of value" use case are exempt from revenue requirement if they meet all other criteria.

Data Source: Token Terminal API via Chainlink Functions

2.2.4 Network Security

Audit Verification: DAO maintains an on-chain registry of audit completion (updated via governance vote after community verification).

2.2.5 Time Requirements

2.3 Qualitative Criteria (DAO Veto Zone)

The algorithm proposes inclusions based on quantitative criteria. The DAO can VETO (but not ADD) based on:

2.3.1 Automatic Disqualifications (DAO Vote Required)

2.3.2 Memecoin Definition

A token is considered a "memecoin without utility" if:

• ❌ No smart contract functionality beyond ERC-20 transfer
• ❌ No protocol fees or revenue
• ❌ No governance rights
• ❌ Branding is purely entertainment/culture

Exception: Memecoins that evolve utility (e.g., Dogecoin's actual payment usage) may be included if they meet all quantitative criteria AND DAO approves (66% vote).

2.4 Ineligible Asset Types

2.5 Data Sources & Oracle Hierarchy

Primary Data Sources:

3. Index Construction

3.1 Selection Algorithm

The C50 Index follows a three-tier selection process:

Tier 1: Automatic Inclusion (Ranks 1-45)

• Top 45 assets by market cap automatically included
• No DAO vote required
• Updated algorithmically each quarter

Tier 2: Buffer Zone (Ranks 46-60)

• Current constituents in this range are retained (minimize turnover)
• New candidates require 51% DAO approval
• Prevents excessive churn

Tier 3: Discretionary (Ranks 61-70)

• Assets ranked 61-70 may be considered if:
• They fill a critical sector gap
• They represent important infrastructure
• They have exceptional quality metrics
• Requires 66% DAO approval

Visual Representation:

Rank 1  ├─┐
        │ │ AUTO-INCLUDE
Rank 45 ├─┘ (100% algorithmic)

Rank 46 ├─┐
        │ │ BUFFER ZONE
        │ │ Current constituents: Retained
        │ │ New candidates: 51% DAO vote
Rank 60 ├─┘

Rank 61 ├─┐
        │ │ DISCRETIONARY
        │ │ Requires 66% DAO approval
Rank 70 ├─┘

Rank 71+    INELIGIBLE (unless exceptional)

3.2 Constituent Count Management

Target: 50 assets

Allowed Range: 48-52 assets

If monthly rebalancing results in <48 or >52 assets:

• Algorithm pulls from next-highest ranked eligible assets
• Or removes lowest-ranked current constituents
• Until target range is achieved

3.3 Sector Balance (Soft Constraint)

Unlike traditional indices with hard sector requirements, C50 uses soft guidance:

Target Distribution:

Enforcement:

• If any sector exceeds its range by >10 percentage points for 2 consecutive quarters, DAO can vote to force rebalancing
• Otherwise, natural market-cap weighting prevails

4. Weighting Methodology

4.1 Core Formula

C50 uses liquidity-adjusted market capitalization weighting:

weight_i = (marketCap_i × liquidityFactor_i × IWF_i) / sumOfAllWeights

Where:
marketCap_i = price_i × circulatingSupply_i
liquidityFactor_i = min(1.0, sqrt(dexLiquidity_i / 25M))
IWF_i = circulatingSupply_i / maxSupply_i

4.2 Liquidity Factor (NEW)

Traditional indices ignore liquidity. C50 downweights illiquid assets:

Formula:

LF = min(1.0, sqrt(DEX_Liquidity / $25M))

Examples:
- $100M DEX liquidity → LF = min(1.0, sqrt(4)) = 1.0 (no penalty)
- $25M DEX liquidity → LF = min(1.0, sqrt(1)) = 1.0 (threshold)
- $6.25M DEX liquidity → LF = min(1.0, sqrt(0.25)) = 0.5 (50% downweight)
- $1M DEX liquidity → LF = min(1.0, sqrt(0.04)) = 0.2 (80% downweight)

Rationale: sqrt function provides smooth degradation rather than harsh cutoffs.

4.3 Investable Weight Factor (IWF)

Adjusts for tokens not in public circulation:

IWF = circulatingSupply / maxSupply

Minimum IWF: 0.30 (30% must be circulating)

What Counts as "Circulating":

4.4 Concentration Caps

To prevent Bitcoin/Ethereum dominance (60-70% in other indices):

Capping Process (Iterative):

1. Calculate natural weights using formula above
2. Check single asset cap (20%)
   • If breached: cap offender(s), redistribute proportionally to others
3. Check top-2 cap (40%)
   • If breached: cap BTC+ETH combined, redistribute
4. Check top-5 cap (55%)
   • If breached: cap top 5 combined, redistribute
5. Repeat steps 2-4 until no caps are breached

Example:

4.5 Rebalancing Reference Date

Timeline:

Months:

• January 15
• February 15
• March 15
• ...
• December 15

(Adjusted if date falls on weekend/holiday)

5. Sector Framework

C50 uses a 6-sector classification adapted from Grayscale's framework. For more details see Token Terminal Markets.

5.1 Sector Definitions

Sector 1: Layer 1 Blockchains

Base-layer protocols with native consensus.

Examples: Bitcoin (BTC), Ethereum (ETH), Solana (SOL), Cardano (ADA), Avalanche (AVAX), Polkadot (DOT), Cosmos (ATOM)

Key Characteristics:

• Native token for gas/fees
• Independent validator set
• Settlement layer for other applications

Sector 2: DeFi Protocols

Decentralized financial services.

Examples: Uniswap (UNI), Aave (AAVE), MakerDAO (MKR), Curve (CRV), Lido (LDO), Compound (COMP)

Key Characteristics:

• Governance token with fee capture
• Smart contract-based financial services
• Operates on Layer 1 or Layer 2

Sector 3: Infrastructure & Services

Middleware and critical infrastructure.

Examples: Chainlink (LINK), The Graph (GRT), Filecoin (FIL), Polygon (POL - if classified as middleware), Render (RNDR)

Key Characteristics:

• Enables other protocols to function
• Oracle, storage, compute, or data services
• Not a standalone financial application

Sector 4: Layer 2 Solutions

Scaling solutions inheriting L1 security.

Examples: Arbitrum (ARB), Optimism (OP), Polygon (POL - if classified as L2), zkSync (ZK), Starknet (STRK)

Key Characteristics:

• Built on top of Ethereum (primarily)
• Batches transactions to L1
• Native token for governance/gas

Sector 5: Consumer & Culture

User-facing applications.

Examples: ENS (ENS), ApeCoin (APE), Flow (FLOW), Immutable (IMX), Decentraland (MANA)

Key Characteristics:

• Direct consumer interaction
• NFTs, gaming, metaverse, social
• Brand/community-driven value

Sector 6: AI & Compute

Decentralized AI and compute networks.

Examples: Bittensor (TAO), Fetch.ai (FET), Ocean Protocol (OCEAN), Akash (AKT), Render (RNDR - if classified as AI)

Key Characteristics:

• AI/ML infrastructure
• Decentralized GPU/compute
• Data marketplaces for AI

5.2 Sector Assignment

Process:

1. Initial Classification: Algorithm assigns sector based on token metadata + on-chain activity patterns
2. DAO Review: Community can propose reclassification (requires 51% vote)
3. Monthly Update: Sectors reviewed each rebalancing
4. Edge Cases: Multi-category assets assigned to primary economic activity

On-Chain Implementation:

mapping(address => Sector) public tokenSector;

enum Sector {
    LAYER1,
    DEFI,
    INFRASTRUCTURE,
    LAYER2,
    CONSUMER,
    AI_COMPUTE
}

6. Oracle Integration

6.1 Data Requirements

6.2 Oracle Sources

• Chainlink Price Feeds: Real-time asset pricing with block-level updates
• Pyth Network: Fallback price oracle for redundancy
• Uniswap V3 TWAP: DEX liquidity verification using time-weighted average pricing
• Chainlink Functions: Off-chain data aggregation for market caps and protocol revenue
• The Graph: On-chain activity metrics via decentralized indexing

6.3 Oracle Failure Handling

7. Rebalancing Mechanism

7.1 Monthly Rebalancing Timeline

• T-10 days: Oracle snapshot begins
• T-7 days: Data aggregation complete (market caps, DEX liquidity, on-chain activity)
• T-5 days: Proposal published on-chain with new constituent list, target weights, and expected trades
• T-3 days: DAO voting opens (72-hour veto window, requires 51% quorum + 66% approval to veto)
• T-0 days: Execution via DEX aggregator, new weights take effect, fees collected

7.2 Rebalancing Execution

7.2.1 Trade Execution Strategy

• DEX Aggregators: Use 1inch, CoW Swap, or Paraswap for best execution pricing
• Order Splitting: Large orders split into chunks (max 5% of pool liquidity per trade)
• TWAP: Time-Weighted Average Price execution over 24 hours for large rebalances
• Slippage Protection: Maximum 0.5% slippage tolerance per trade

7.2.2 Gas Cost Management

Estimated Gas Costs (Ethereum Mainnet):

Optimization:

• Deploy on Layer 2 (Arbitrum/Optimism) for 10-100× lower costs
• Or use batched transactions on mainnet
• Rebalancing cost covered by management fees

7.3 Emergency Rebalancing

Triggers:

8. Fee Structure

8.1 Management Fee

Annual Rate: 0.25% (25 basis points)

Comparison:

Why 0.25%?

1. Lower than competitors: 10× cheaper than Bitwise/Grayscale
2. Higher than passive ETFs: Justified by on-chain infrastructure costs, oracle fees, rebalancing gas fees, and DAO operations
3. Sustainable: Covers operational costs while remaining competitive

8.2 Fee Collection Mechanism

Collection Frequency:

• Streaming fee continuously accrues based on time held
• Automatically collected during each monthly rebalancing
• Can be called manually by anyone (no lock-in period)

Fee Distribution:

8.3 No Additional Fees

Explicitly No:

• ❌ Mint/Redeem fees
• ❌ Performance fees
• ❌ Exit fees
• ❌ Rebalancing fees passed to users

Only Cost: 0.25% annual streaming fee.

8.4 Fee Transparency

All fees are:

• ✅ On-chain: Visible in smart contract state
• ✅ Real-time: Current accrued fees visible to anyone
• ✅ Auditable: Every fee collection emits event
• ✅ Dashboard: Public UI showing fee history

9. DAO Governance

9.1 Governance Structure

Hybrid Model: Algorithm Proposes, DAO Disposes

• Step 1: Algorithm generates monthly rebalancing proposals (constituent selection, weight calculation)
• Step 2: 72-hour DAO veto window opens (requires 51% quorum + 66% yes vote to reject)
• Step 3: If not vetoed, rebalancing proceeds automatically

9.2 Governance Token (C50G)

Token Model:

Acquisition Methods:

1. Airdrop: To early C50 index token holders
2. Liquidity Mining: Provide liquidity to C50/ETH pool
3. Governance Participation: Vote on proposals (small rewards)
4. Secondary Market: Buy on DEXs

9.3 Voting Mechanics

9.3.1 Proposal Types

9.4 DAO Powers

9.5 Multisig Powers (5-of-9)

Emergency Situations Only:

• Pause trading if exploit detected
• Remove compromised oracles
• Upgrade critical security components (with 7-day timelock)
• Execute emergency DAO-approved actions

Multisig Members:

• 3 core protocol developers
• 2 security experts
• 2 institutional investors
• 2 community-elected members

10. Risk Management

10.1 Protocol Security

Audit Schedule:

• ✅ Pre-launch: 3 independent audits (Trail of Bits, OpenZeppelin, Consensys)
• ✅ Quarterly: Code review by security firm
• ✅ Post-upgrade: Re-audit of changed components
• ✅ Bug Bounty: $500K max payout (Immunefi)

Security Measures:

• OpenZeppelin security libraries for core functionality
• Role-based access control for administrative functions
• TWAP + multi-source oracle verification to prevent manipulation
• CoW Swap integration for MEV protection
• Emergency pause functionality

10.2 Market Risks

10.3 Regulatory Risks

Legal Structure:

• DAO as primary governance (no central entity)
• Non-profit foundation (Switzerland) holds IP
• Multisig members in different jurisdictions
• Open-source code (no proprietary control)

11.4 Custody Risks

Self-Custodying Model:

• Index treasury holds all 50 constituent tokens
• No reliance on centralized custodians (unlike BITW/GDLC)
• Users own index tokens, which represent pro-rata ownership
• Redemption always possible (permissionless exit)

Security Measures:

• ✅ Multi-sig treasury (5-of-9)
• ✅ Hardware wallet for signers
• ✅ Time-locked withdrawals (non-emergency)
• ✅ Insurance (Nexus Mutual coverage for smart contract risk)

11. Index Token (C50)

11.1 Token Mechanics

C50 Token Properties:

11.2 Net Asset Value (NAV)

NAV Formula: Sum of all constituent holdings in USD / Total C50 supply

Example:

• Treasury holds: $50M in 50 different tokens
• C50 supply: 500,000 tokens
• NAV = $50M / 500,000 = $100 per C50 token

Update Frequency: Every block (real-time via Chainlink price feeds)

11.3 Mint/Redeem Mechanism

11.3.1 Minting (Creation)

Process:

1. User deposits constituent tokens (all 50) in correct proportions
2. Protocol calculates total value deposited
3. User receives C50 tokens equal to (deposit value / NAV)
4. Treasury balance increases

Minimum Mint: $1,000 (prevents dust attacks)

11.3.2 Redemption (Burning)

Process:

1. User burns C50 tokens
2. Protocol calculates proportional withdrawal
3. User receives all 50 constituent tokens
4. Treasury balance decreases

Redemption Fee: 0% (no lock-in)

11.4 Secondary Market Trading

C50 tokens are standard ERC-20, tradeable on:

• Uniswap V3 (C50/ETH, C50/USDC pools)
• Curve (stableswap with similar indices)
• Balancer (weighted pools)

12. Appendices

Appendix A: Glossary

Appendix B: Comparison Matrix

Appendix C: Historical Market Cap Thresholds

Appendix D: Smart Contract Addresses

Mainnet Deployment (TBD):

Appendix E: Rebalancing Calendar (2026)

Appendix F: Worked Example (Q1 2026 Rebalancing)

Scenario: Asset X ranked #52, currently a constituent. Asset Y ranked #48, not a constituent.

Result: Asset Y added, Asset X retained. No DAO vote required (both within policy).

Appendix G: Fee Comparison (Annual Cost on $100K Investment)

C50 is 10× cheaper than traditional crypto indices, 8× more expensive than passive stock ETFs (justified by oracle costs, smart contract infrastructure, rebalancing gas).

Appendix H: Technical Resources

Documentation:

• GitHub: github.com/c50-protocol
• Docs: docs.c50.finance
• Dashboard: app.c50.finance

Audits:

• Trail of Bits: [Report Link]
• OpenZeppelin: [Report Link]
• Consensys Diligence: [Report Link]

Community:

• Discord: discord.gg/c50
• Forum: forum.c50.finance
• Twitter: @C50Protocol

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