Concept

Token basket trading (also, crypto basket trading) is the process of buying and selling a collection of digital assets bundled up into a single token (in a crypto basket). The component assets operate under a common theme or features, and therefore token portfolio allocation would be easily implemented and straightforward. The theme, in other words, dictates the composition of the basket. Examples of common themes include utility, type of project, or market capitalization. Accordingly, digital assets can be classified according to a factor or set of factors depending on the intended market exposure. For instance, a token basket may be designed to give investors exposure to largest tokens in terms of capitalization or the best-performing ones over a certain time span.

Crypto basket

A crypto basket refers to a bundle of crypto assets (cryptos and tokens) designed to provide diversification, manage risk and simplify crypto/ token investing. Token baskets allow crypto investors to purchase and hold a basket consisting of multiple coins and tokens that operates as a single token. Baskets are traded as such for the purpose of diversifying token portfolios and managing their various risks (particularly, the risk of concentration or exposure to one token class).

Basket trading takes place utilizing techniques such as decentralized finance (DeFi), ERC-20 tokens, non-fungible tokens (NFTs), or metaverse. Crypto baskets bear similarity to portfolio trading that aims to track a market sector typically consisting of diversified holdings of assets (financial assets such as stocks/ bonds/ fund shares). Collectively, the components follow the performance of individual assets but at certain level of inter-correlation amongst components. In reality, most crypto baskets pose as a single crypto for trading, the composition, deployment and performance expectation for each token basket are different across platforms.

Objective

Crypto basket trading allows token holdings diversification in the sense that investors can track a collection of individual tokens in a single basket. With that mechanism, investors can ensure that their portfolios are well tracked and diversified, with the possibility of gaining higher returns and spreading out the accompanying risks. For retail investors and new entrants, crypto baskets represent an easy way to construct and track their token/ crypto portfolio. In a nutshell, using a crypto basket serves two main objectives:1) risk reduction/ mitigation by investing in multiple cryptos and 2) with tracking and automatic rebalancing, an investor can benefit from the increase in asset value- growth attained by one component or more.