What is Index Token?

Index tokens are designed to track the index of a specific group of cryptocurrencies or other assets. Index tokens operate in a similar manner to indexes that are used within the traditional stock market. Index tokens are often used to track the market cap of multiple decentralized finance (DeFi) projects (such as Compound, Aave, Uniswap, and MakerDAO) or to track several Layer-1 smart contract blockchain platforms (such as Ethereum, Cardano, Avalanche, Polkadot, and Cosmos). Further, a crypto-based synthetic index token can be used to track stock indexes like the S&P 500 or the NASDAQ.