“First, they will ignore you, then they will laugh at you, then they will fight you, then you will win.”
– Mahatma Gandhi
Cryptocurrencies are polarizing.
You’ve probably had varying sentiments in your own crypto journey, ranging from:
- “They’re just for drug dealers!” to
- “They’re the future of finance!”
As alternative investors, we have an open mind to new ideas. That said, it can be hard to know which way to turn when there are many smart, conflicting voices on crypto.
The late Charlie Munger infamously said “Bitcoin is rat poison,” and that trading cryptocurrencies is “just dementia.”
But you absolutely cannot ignore the marked institutional interest in Bitcoin.
On Jan 11, 2024, after a tortuous journey through SEC regulation, 11 Bitcoin ETFs launched simultaneously. Within just 11 months, the IBIT ETF grew to over $50b, making it the fastest-growing ETF debut ever.
Now, the temptation is to say the differing opinions are just a generational issue (i.e., old money versus new money)
But BlackRock CEO Larry Fink is 72 years young and continues to drive the BlackRock business; transitioning from traditional finance to Decentralized Finance (DeFi) and Real Word Assets (RWAs). Something deeper is going on.
So, imagine if there were a business that could successfully mimic BlackRock’s Bitcoin ETF success, but for a much wider basket of cryptocurrencies.
What if you could build and control your own equivalent of that crypto ETF and generate fees from your entrepreneurial exploits.
Welcome to the Reserve Index Protocol, which is creating an “Index Factory” anyone can use.
The team at Reserve has a mission to be the Decentralized BlackRock, and they have just sliced through their first major milestone with the recent release of a no-code platform for launching Decentralized Token Folios (DTFs).
How does it work?
Let’s find out 👇
Note: This issue is sponsored by our friends at Reserve, with research & due diligence performed by crypto expert Tim Lea. As always, we think you’ll find it informative and fair.
Tim Lea is OG in the blockchain and cypto space, and a 20-year veteran of corporate finance and funding with GE Capital, HSBC, and Lloyds Bank. Since 2015, he’s been active in Sydney’s startup scene as an advisor, co-founder, investor, and content creator, specializing in Fintech, Healthcare, Blockchain, and AI. An author of two books and a keynote speaker at 130+ events, he’s also an award-winning independent film director.
Table of Contents
Who is Reserve?
Founded in 2019, Reserve.org is almost an OG in the DeFi space.
Backed by Coinbase Ventures, Sam Altman, and Peter Thiel, Reserve’s core objective has been to combat inflation by developing asset-backed digital currencies and diversified crypto portfolios that bundle multiple crypto assets into a single token, providing diversified exposure to the crypto market.
Reserve has branded these bundles of tokens as DTFs: Decentralized Token Folios.
Reserve Index Protocol: ETFs for crypto
Think of Reserve as a toolkit that lets investors build custom crypto index portfolios.
Just like ETFs in traditional finance, these DTFs allow users to gain exposure to entire asset classes or thematic narratives through a single token.
Instead of needing a large financial institution like BlackRock to build and manage these baskets of tokens (or having to write extensive smart contracts yourself) anyone can now create an Index fund using the Reserve platform.
In an ecosystem overflowing with more than 6 million cryptocurrency tokens (mainly meme coins) and typically 10,000 new launches daily, DTFs offer the potential for enhanced clarity and efficiency.
Let’s check out a DTF in practice.
Live example: Bloomberg Galaxy Crypto index
Ahead of the permissionless Index Creation tools being available to everyone to use, some established names have already activated DTFs.
The Bloomberg Galaxy Crypto Index (BGCI) is owned and administered by Bloomberg and co-branded with Galaxy Digital Capital Management, a major US-based cryptocurrency fund.
The index comprises cryptocurrencies based on criteria established by BGCI, with cryptocurrencies considered for addition/removal/from the Index on a monthly basis.
The actual DTF itself is curated by Re7 Labs to whom Bloomberg has licensed the index.
To be included in the index, cryptocurrencies must meet certain criteria, such as being traded on approved exchanges and having enough daily trading activity.
- No single crypto can make up more than 35% of the index…
- …or less than 1%.
- The list of cryptocurrencies in the index is reviewed and updated monthly.
In the above example, the token $BGCI represents the tokenized fund and has a token price of $2.26. By connecting your cryptocurrency wallet to the Reserve platform, you can gain access to buy (and ultimately sell) the tokens at the current market price of $BGCI.
Revenues are generated :
- Through an annual BGCI fee of 2% of Total Value Locked (TVL)
- 0.3% minting fee each time a $BGCI token is minted (these two fees are shared 50/50 with the Reserve platform)
- 10% goes towards the governance structure of the platform
- 40% goes to the main wallet holder
You can see from the overall model above that if you have your own DTF and it performs well, others may choose to buy your DTF token.
So why are these Indices useful to you and potential external investors in the cryptocurrency space?
There’s a huge market opportunity for DTFs
Index investing is big business.
In a very recent report by PWC, where they interviewed 71 global executives within the industry, global ETF assets under management (AuM) grew by a record 27% to reach $14.6T in 2024.
They asked the interviewees for their expected AUM by 2030. The general trends look to support the thesis of continued growth.
At the same time, Coin Gecko, shows the continued growth of the cryptocurrency markets to the current level of $2.8T market, reaching $4T earlier in 2025.
Given the newness of the space within the crypto industry, investing in indexing is relatively limited. Defi Llama is the largest source of open-source data for the DeFi industry. Their data is fully open-source and maintained by a team of passionate individuals and contributors from hundreds of protocols.
They confirm Reserve has the largest Total Value Locked in their Indexes to date.
DTFs pros and cons
Crypto indexing brings together multiple tokens into a single vehicle, offering a powerful range of benefits — especially for investors who may have limited experience with the crypto markets and want to manage risk.
It’s an easy on-ramp for mainstream investors who want the upside of crypto without the stress of picking winners.
It is now possible to invest like a VC with the simplicity of buying a single token rather than having multiple holdings on multiple exchanges.
Pros
- Diversification: Reduce risk by holding multiple assets
- Passive management: Remove the need for daily trading decisions
- Cost efficient: Lower fees than managing multiple assets manually
- Trend exposure: Access emerging sectors like DeFi, GameFi, AI, etc.
- Risk reduction: In volatile markets (like right now) smoother performance is more likely
- Simplified taxes: One token is way easier for record-keeping
- DeFi composability: You can ultimately use your index token for lending, staking, and governance
- Creator incentives: You can build and monetize your own indexes using the “no-code” Reserve platform.
But the most interesting element is that, an investor, you could create your own DTF that creates a cluster of tokens around a core narrative.
Cons
While the DTFs from Reserve offer simplicity, diversification, and reduced risk, they also come with a number of drawbacks that investors should be aware of.
- Diluted upside. Limits potential gains from breakout tokens
- Lack of control. You can’t choose what’s in the basket (unless you create your own DTF or participate in the DTFs governance token – which gives you the opportunity to vote on basket changes)
- Management fees: Rebalancing and fund operation costs reduce returns
- Inflexibility: Can’t react quickly to fast-moving market trends
- Tax complications: Rebalances may trigger taxable events even without selling
- Poor asset exposure: Inclusion of underperforming or risky tokens can lower Index performance
While Indices do present a strong argument, there are also wider risks that we need to consider.
Key risks
Market risk
DTFs are based entirely around cryptocurrencies, meaning there are core systemic market risks that supporters need to consider.
With the global economy sustaining significant challenges geopolitically and economically at the moment, the cryptocurrency market is currently navigating a complex landscape shaped by both macro tailwinds and headwinds.
Cryptocurrencies are fundamentally higher-risk assets, which will tend to suffer in downturns.
But there are also some medium-term tailwinds.
The current U.S. administration has a very supportive stance toward cryptocurrencies, aiming to position the United States as a leader in the digital asset space.
Clear regulations for stablecoins and market structures are firmly in their crosshairs. This supportive environment is expected to help grow and support the expansion of the cryptocurrency markets.
This is especially true if the much-lauded establishment of a Strategic Bitcoin Reserve generates traction. This initiative underscores the administration’s commitment to integrating cryptocurrencies into the national financial infrastructure, and we are likely to see more favorable regulatory considerations.
Smart contract risks
The creation of the DTFs has been a substantial undertaking, especially given the ability for investors to create their own DTFs without having to touch any code. With complexity comes risk, and smart contract exploits can lead to investor losses.
The Reserve team has addressed security very seriously and has spent $2.3m on audits to date, including high-profile names, and out of complete transparency, they have made the audit reports available on their website for all to see and review.
In addition, the Reserve team has established $10m whitehat bug bounty programs since 2023 with a contracted external third party and has had zero exploits since the Reserve protocol first went live in 2022.
Closing thoughts
On balance, the Reserve Index Protocol looks to be an easy way to get into the growing crypto space for those who do not want the complications of managing an entire portfolio manually.
Equally, they give the opportunity to invest in core market segments that can be bundled together to address core themes. They are quick and easy to set up and can be an opportunity for investors to set up their own indices and to potentially generate additional income from them.
The wider growth of ETFs globally shows no sign of abating, so the concept of indexing undoubtedly appeals to a wider investor mindset.
Whether this transfers across to the cryptocurrency markets is hard to tell given the limited volume of data currently available definitively, but it is an area for consideration if you believe in the continued growth of the cryptocurrency markets.
In these circumstances, so often no one wants to be first and no one wants to be last, but fortune favors the brave. Indeed, there are plenty of arguments in favor of supporting the concept of DTFs, and given the strong commitment to security, multiple risks are mitigated. If you are interested in getting in ahead of the main market, explore further at Reserve.org.
That’s it for today
See you next time,
Tim
Disclosures from Alts
- This issue was written by Tim Lea and edited by Stefan von Imhof
- Reserve was able to review an early draft of this article. Tim and Stefan made final editorial decisions.
- Neither the authors nor Alts currently holds shares or interest in Reserve.
This issue is a sponsored deep dive, meaning Alts has been paid to write an independent analysis of Reserve. Reserve has agreed to offer a deep look at its business, offerings, and operations. Reserve is also a sponsor of Alts, but our research is neutral and unbiased. This should not be considered financial, legal, tax, or investment advice, but rather an independent analysis to help readers make their own investment decisions. All opinions expressed here are ours, and ours alone. We hope you find it informative and fair.
