SET Protocol represents a powerful Ethereum-based tool that lets users create their portfolios of ERC-20 assets derivatives that can later be traded on exchanges as ERC-20 tokens themselves. These assets bear the name of Sets. SET Protocol comes with a user-friendly app, named TokenSets, which is meant to help you in creating, managing, and buying all the tokenized assets that you want.
Assets that are created on this project work in a way similar to that of ETFs, derivative assets that offer exposure to baskets of securities that trade like a stock. Users are allowed to create baskets of crypto tokens, get them all together in a SET, and, after that, they can buy, sell, or exchange the Sets on exchanges.
The project lets you use sophisticated asset management strategies by finding out exactly where tokens are localized, setting automated rebalancing parameters, and others. Each Set is turned into an ERC-20 token through its own smart contract, which means that every Set token has the potential of being customized to your liking.
By using asset management strategies as ERC-20 tokens, a strategy is then easier to copy and integrate to be used on other DeFi platforms such as decentralized exchanges, lending platforms, or automated market makers. For example, an ERC-20 token that is representative of a certain Set, in particular, can be later used as security on DeFi lending platforms or even be staked for yield farming.
Each individual Set is represented by an ERC-20 token, but it is worth mentioning that the SET Protocol itself doesn’t have a native utility token.
The CEO of the company is Felix Feng, investor at Turing Capital, while Inje Yeo accumulated experience by working at GoDaddy and Bcoin. Also notable are ALEX Soong, the CEO of the company, who worked for Square and Apple, among others, and Justin Chen, the lead engineer for Airbnb.
The release of the project was confirmed in 2017 and launched its TokenSets web application two years later. In the meantime, it has grown to have more than 180 million dollars of total locked value thanks to its ever-increasing user base.
How to Use SET Protocol
This project was created to make it simpler for people to have exposure to several tokenized assets by relying on just one vehicle, and paying just one Ethereum transaction fee, thus not having to deal with the costs that are associated with buying more tokens individually.
This is why SET has a pretty hands-off management experience for a user’s crypto portfolio. It was created for people who don’t care for always keeping an eye on crypto trends or concern themselves with manually rebalancing their portfolios. The basket approach of the SET Protocol also helps users relax, users who would have normally worried about some missed opportunities or changes of price when holding just individual tokens.
In order to use the protocol, you need to connect your Ethereum wallet to the protocol using the TokenSets web application and make a deposit using a supported currency, like Ether. The money with which you fund any Set will instantly execute the portfolio strategy of that Set.
When you later trade your Set, you will get the original deposit back, plus or minus any gains or losses recorded by the overall Set of ERC-20 tokens that you’ve used.
Sets make buying baskets of tokens very easy. Surprisingly, the process of creating a Set is really simple as well. Everybody has the ability to create a Set in only a couple of minutes by using TokenSets.
The Set creator can determine how much their Set token will cost and will set up a streaming fee. The streaming fee represents an annualized fee on the total market cap of the Set that the creator may collect. This is the incentive for the creator to actually make a Set.
Still, it is important to mention that SET Protocol, itself, doesn’t charge any fees. The Set creator is asked only to pay the Ethereum network fees for the creation of a smart contract and the publishing of the Set as an ERC-20 token.
DeFi Pulse Index
One of the best ways of understanding how exactly the SET Protocol works is to look at one of its flagship portfolios, the DeFi Pulse Index, or DPI.
DeFi Pulse is a website used to curate the most used DeFi resources. It created the DPI Set in September 2020 through Set Protocol.
The DPI Set represents a weighted index that follows a series of DeFi assets through the market. The most important tokens in this DPI Set are Uniswap, Aave, SushiSwap, Maker, and Synthetix, although you can also find several other smaller tokens there as well.
DeFi Pulse uses its own methodology in order to establish which DeFi assets are most used and continue to be developed. This means that, over time, the allocation of some tokens will increase or decrease, based on how those features change.
Thanks to the fact that each Set has its own associated smart contract, fee rules and how often Set changes its strategy are both coded directly into the smart contract. For example, the DPI Set experiences a reconstruction each month, which means that things like additions, deletions, or re-allocations of tokens will always take the needed place.
Just the tokens that meet all of the criteria of DeFi Pulse are allowed to join the DPI Set. Among the features that a token must have in order to be included, we can mention the fact that it needs to be available on the Ethereum blockchain, be associated with dApps or DeFi protocols, be at least half a year old, be used on a large scale, have sufficient liquidity, and 5% of the five-year supply must be in circulation.
By having these features outlined, the DPI Set is making sure that it will only track DeFi projects that actually have potential. Buying the DPI Set offers you exposure to well-researched and safe DeFi projects in a single index so you don’t have to worry about carrying out extensive research by yourself or buying several assets separately.
Other Sets have features that are pretty similar to the DPI but have their own attributes and criteria. Some of them are focused on baskets of DEX tokens, oracle tokens, or lending protocol tokens.
Some Sets are indexes similar to the DPI, although some Sets concentrate on only one asset and carry different strategies, like range-bound ones, buy and hold, and so on.
Information about all Sets is available for everybody, so you can check when it was created, what its performance was over time, the ownership, and so on.
The Index-Coop represents a cooperative that aims to create the best products and financial building blocks. It is responsible for creating, maintaining, and growing the DeFi Pulse Index.
The Benefits of Bundling Assets
SET Protocol has a completely original approach to offering widespread market exposure through its baskets of Ethereum-based tokens. As a creator, you can tokenize and then share your asset management strategies and earn streaming fees while doing so.
You can even use this project to bundle collections of items in games. The basket approach when it comes to tokenized assets also lets you, as a user, manage and transfer batches of assets and pay reduced fees for transactions as a result of fewer individual transactions taking place overall.
There are various uses and advantages to the basket model of tokenized asset management, and the project has managed to position itself as a leader in this sector.
Since the company is still pretty early in its stages of development, there are several features which the project wishes to incorporate, such as additional modules, like the flash lending module, and alternative asset support.
Conclusion
SET helps people gain exposure to a wide range of assets, thanks to the unique basket model of tokenized assets, which reduces the workload and lowers barriers to entry. In just a couple of seconds, any person can become an investor in the overall DeFi market by acquiring just a single SET token, without having to create an interaction with the underlying tokens.