Index framework - MEV Capital

Index objective

Purpose & audience

MEV Capital has developed a specialized index methodology for Reserve Protocol users, focusing initially on two core themes: Real-World Assets (RWA) and Decentralized Finance (DeFi). The primary objective of this index is to give Reserve’s community a curated basket of tokens that reflects both the growing tokenization of real-world value and the dynamic landscape of on-chain financial services. Below is an overview of the key elements guiding how MEV Capital structures and manages these thematic indices.

For Reserve Protocol users, the index aims to serve as a convenient, transparent way to track and gain exposure to these rapidly evolving sectors without needing deep technical knowledge or constant monitoring of individual projects.

Investment universe

RWA (Real-World Assets)

• Scope*: Focuses on governance tokens of projects that bring real-world assets (e.g., real estate, commodities such as gold, traditional financial instruments like T-bills or corporate bonds) onto the blockchain. Instead of directly holding yield-bearing securities, the index targets tokens associated with governance rights* in these RWA-centric protocols.
• Eligibility Factors*: Projects must demonstrate credible tokenization (well-documented linkage between on-chain tokens and off-chain assets), verifiable collateral, and regulatory clarity—backed by ongoing audits or attestations* that confirm the authenticity and legal standing of the underlying real-world assets.

DeFi (Decentralized Finance)

• Scope: Encompasses tokens tied to lending/borrowing platforms, decentralized exchanges, stablecoin issuers, yield aggregators, and other financial primitives built on smart contracts.
• Eligibility Factors: Sufficient liquidity on reputable DEXes/CEXes, active user base, proven smart contract security, and a transparent governance model.

Asset selection

Selection criteria

The MEV Capital framework is based on various criteria to whitelist and weight the assets in the index. We use both quantitative and qualitative filters to provide users with the best quality of investment and to follow the rapid evolution of the landscape.

This framework of criteria forms the backbone of our index construction and is organised into three quantitative and three qualitative criteria, as well as a curator's private benchmark.

Quantitatives filters

1. Market capitalization
   A minimum market cap threshold helps eliminate extremely small or illiquid projects, reducing the likelihood of high volatility or market manipulation.

2. On-chain liquidity
   Sufficient liquidity is vital for seamless entry and exit, ensuring that index constituents are actively traded.

3. Historical performance
   While past returns are not a guarantee of future performance, they can help identify stagnant or failing projects : i.e. exclude tokens whose price or on-chain activity has flatlined or declined significantly over a given period (e.g., 6 months), unless there is clear evidence of a planned turnaround.

Qualitative filters

1. Security & governance
   Preference for tokens with verified smart contract audits or recognized security assessments. Projects should demonstrate transparent decision-making processes, ideally with an active community and publicly documented proposals.

2. Team & documentation
   Well-defined project roadmaps, clear tokenomics, and open communication channels are essential. The team’s track record (or the sponsoring institution in the case of RWA) should indicate professionalism and credibility

3. Regulatory & operational clarity
   For RWA tokens, verifiable claims on real-world collateral and regulatory compliance are crucial (e.g., evidence of off-chain audits, legal frameworks). For DeFi tokens, clarity on the protocol’s operational jurisdiction and compliance status can mitigate legal or regulatory risk.

Curator's private benchmark

In addition to the above criteria, MEV Capital applies a private benchmark or curator score, reflecting internal research and due diligence. This score can:

• Override the initial filters if a token is deemed strategically significant despite not meeting certain thresholds.
• Exclude a token even if it meets basic metrics, if the curator identifies significant red flags (e.g., team controversies, governance exploits).

This approach integrates objective data with MEV Capital’s expert judgment, ensuring that the index remains aligned with evolving market conditions and emerging trends.

Asset weighting

Initial weighting

To weight the asset in the index, we first use a standard method which consists of using the market capitalization of the asset relative to the others. This allows us to reflect the "true" market weight of each project; higher liquidity is generally found in assets with larger market caps.

However, we'll be adjusting this initial weighting to limit over-concentration in a few assets and to better reflect the sector's growth potential.

Adjustment and additional factors

1. Trading volume
   High trading volume, relative to market capitalization, often signals better price discovery, lower slippage, and reduced vulnerability to market manipulation. Conversely, tokens with disproportionately low volume-to-market-cap ratios may be illiquid or riskier for index participants, especially during rapid price swings

2. Past performance
   Incorporating momentum signals (e.g., returns over 30, 60, or 90 days) can capture tokens experiencing sustained market interest and adoption. However, blindly chasing performance can lead to overweighting highly speculative assets, so MEV Capital applies this metric with caution and complementary risk checks. This can be done as Establish Peer Comparison: ranking all eligible tokens by their performance metric.

3. Curator’s private benchmark
   Beyond raw metrics, MEV Capital maintains a private benchmark or curator score to capture intangible factors such as governance quality, team track record, regulatory compliance, and community sentiment that may not be fully reflected in price or volume data.

Managing extreme weights

To limit the concentration of the index, we set a maximum weight (e.g. 20% or 25% of the total) so that the index is not dominated by a single stock. Any weight above the cap is reduced and the excess is redistributed proportionally among the other assets.

Formula

Baseline weight

Adjustment factors

Normalization

Rebalancing and maintaining the index

Rebalancing

Because market conditions evolve quickly, these factors are recalculated at rebalance intervals (monthly or quarterly). If a token experiences a sudden security breach or other critical event, MEV Capital may apply an emergency rebalancing to protect index integrity.

Entry and exit criteria

This section outlines the conditions under which a token may enter or exit MEV Capital’s curated indices for Reserve Protocol users. These criteria ensure that each index remains both representative of its thematic focus (e.g., RWA or DeFi) and aligned with risk management and quality standards.

Entry criteria:

1. Market Cap & liquidity thresholds
2. Security & audits.
3. Transparency & governance
4. Thematic relevance
5. Curator’s private benchmark

Exit criteria:

1. Breach of market or liquidity floors
2. Security or governance failure
3. Regulatory or legal complications
4. Prolonged underperformance
5. Special circumstances

Index monitoring

In order to maintain an index that accurately reflects evolving market conditions and maintains rigorous risk management, MEV Capital implements a continuous monitoring process that includes real-time data tracking, key metrics & thresholds review and alert mechanisms.

Backtesting and reporting

Reporting

Regular Index Reports

A public report is published after each rebalancing with :

• The new composition: All tokens included, their weights and any notable changes.
• Performance metrics: Historical returns, volatility and relevant benchmarks.
• Methodology updates: Clarification on any adjustments to selection criteria or weighting factors.