What is Cryptex Finance (CTX)?

Index investing is one of the most popular methods of passive investing for retail customers. Instead of picking individual stocks, an index fund holds a basket of them matching a specific index, like the S&P 500 or FTSE 100. This approach offers built-in diversification and removes the guesswork of trying to pick individual stock winners.

Cryptex Finance, who aims to “make crypto-native markets tradable,” is a DeFi project that aims to bring the same opportunities to the cryptocurrency markets. Its product suit offers exposure to the entire crypto markets, as well as other trading options.

History of Cryptex Finance

Cryptex was established by co-founders Joe Sticco, Preston Van Loon, and Thomas Matzner. Trader and asset manager Sticco conceived of the initial idea of a product that would allow trading of the entire crypto market cap and engaged collaborators Van Loon, an Ethereum developer, and Matzner, a business development professional, to kickstart Cryptex Finance.

The project launched in 2021 as a fully bootstrapped project with a fair token launch. Fair launches are a concept pioneered by projects such as Uniswap, where token distribution is carried out through a participation-based rewards program that allocates tokens to early supporters such as users or liquidity miners.

Since its inception, Cryptex Finance has been through three iterations, V1, V2, and Cryptex π, each introducing new features and functionality designed to move Cryptex further to its goal of making crypto-native markets tradable.

Cryptex V1

The first version of Cryptex, launched in 2021, introduced the TCAP token, representing the total market capitalization of all cryptocurrencies. To mint TCAP, users had to deposit crypto such as ETH or DAI into a collateralized debt position (CDP) contract, which would return TCAP tokens. The project used price oracles from Chainlink to determine the total market cap, with each TCAP token valued at one billionth of the reference price. (So a $2 trillion market cap would result in a TCAP token valuation of $200.)

Although the V1 proved a successful concept, Cryptex experienced challenges with maintaining the peg between TCAP and the market cap oracle reference value.

Cryptex V2

Following a governance vote, the project upgraded to Cryptex V2 in mid-2023, significantly expanding its technology stack in a move to resolve the peg challenge. Built on the Arbitrum Layer 2 network, Cryptex V2 incorporates data feeds from both Chainlink and Pyth, as well as derivatives vaults on the DeFi platform Perennial and smart contracts on Ethereum.

It changed the operation of the TCAP token from a CDP model to a perpetual-based trading approach using automated market maker (AMM) smart contracts or vaults. In this model, liquidity providers contribute liquidity at the oracle reference price, while traders can deposit collateral in return for exposure to the total market cap price feed. Liquidity providers can either be passive, in which case their liquidity is managed via the vault contract for optimal hedging, or active, in which case they provide liquidity on either the long or short side of the market.

Similarly to perpetual contracts, trades are settled continuously among shorts and longs using a funding rate, which is calculated by the protocol according to the utilization of the liquidity pool.

Cryptex π

Cryptex π is the latest iteration, released at the end of 2023. It introduces improvements over V2, including the incorporation of low-latency on-demand oracles, leveraged trading, and multiple order types such as stop loss and limit orders.

Cryptex π improves capital efficiency by matching long takers with short takers and only using liquidity providers to fill any gaps. It also enables bidirectional markets where a liquidity provider can take out a long and short position in the same pool rather than having two separate pools for each as in the V2 protocol.

The improvements resulting from the Cryptex π upgrade have also enabled the project to launch new perpetuals markets, including BTC-USD, ETH-USD, SOL-USD, and LINK-USD.

Cryptex DAO and CTX Token

CTX is the governance token of the Cryptex DAO, which manages the Cryptex Finance protocol. Cryptex has designed its governance program to optimize participation via its single-sided staking program. Single-sided staking effectively involves delegating tokens and their associated voting rights to a “Crypt Keeper” who maintains regular engagement in DAO matters. CTX holders earn staking rewards on their staked funds, which is currently the only way to release new CTX tokens.

Crypt Keeper addresses must have more than 100,000 CTX tokens delegated to propose governance actions to the DAO, which must be in the form of fully written, executable code. Other Crypt Keepers then have three days to vote on the proposal, which must receive a majority vote and a minimum of 400,000 CTX pledged in support.

Proposals that receive an affirmative governance vote then enter into a Timelock contract for two days, which acts as a last failsafe before the proposal is executed automatically.

There is a maximum total supply of 10 million CTX tokens, with around two-thirds in circulation as of August 2024.

Cryptex Finance essentials

Cryptex Finance is a DeFi protocol enabling traders to gain exposure to the entire market capitalization of the crypto markets, similar to an index fund in traditional finance.

The project was founded in 2021 by three co-founders, including an Ethereum core developer, and has survived without relying on VC funding or token sales.

Cryptex Finance is governed by the Cryptex DAO, which offers rewards to stakers who delegate their CTX tokens to DAO decision-makers.