January 2024

Applied solutions | Case study

Digital asset indicesdeveloped incollaboration withHashKey Capital“We are excited to have collaborated with HashKey Group in the development ofthese new custom indices. The indices start with our rigorous vetting andmonitoring process, setting standards for asset and exchange inclusion to meet
institutional demand for investability and regulatory integrity in this new asset
class.”
Chris Williamson, Head of Asia-Pacific, Index Investments Group, FTSE Russell

About the client
ProfileObjectiveSolution

Based in Singapore, HashKey Capital isa global leader in digital assets andblockchain technologies, helping
institutions, founders and talents
advance the blockchain industries across
17 countries.

HashKey wished to offer innovativeand diversified index solutions toAsian digital asset investors, whilenavigating regional standards andaccess requirements.

FTSE Russell developed three newcustom digital asset indices to meet
HashKey’s client needs, providing abespoke methodology tailored to
HashKey’s tradeability parameters.

Applied solutions | Case study

Client profile

FTSE Custom Digital Asset Top
20 Index

HashKey Capital, the investment arm of the HashKey Group, is a digital asset andblockchain leader helping institutions, founders and talents advance the blockchainindustries.

FTSE Custom Digital AssetInfrastructure Index

As one of the largest managers of crypto funds and the earliest institutional investor
in Ethereum, HashKey Capital has managed over US$1 billion in client assets since
its establishment, with over 500 investments in infrastructure, tools, andapplications.
With its deep knowledge across the blockchain ecosystem, HashKey Capital has
built a robust network connecting founders, investors, developers, and regulators.

Screening digital assets for index
inclusion
Digital assets are new. With the potential opportunities in this market come investorrisks and challenges. FTSE Russell’s involvement in this area relies on rigorous
governance and oversight, including a defined process for the vetting of assets andexchanges.

Index governance and oversight

FTSE Custom Digital Asset
Application Index
These three new FTSE Custom digitalasset indices cover: the top 20 digitalassets by market capitalisation; digitalassets involved in crypto infrastructure(Layer 1 networks, along withprotocols that offer storage, scaling
and data services); and digital asset
applications (DeFi, Games, Metaverse
and other DApps).
The indices are subject to exclusion
lists compiled by HashKey: forexample, constituents of the FTSE
Custom Digital Asset Top 20 index
must be tradeable on an eligible
cryptocurrency exchange in HongKong.

While regulated equity exchanges have long-tested controls in place to ensure thequality of listings, in digital assets there are no equivalent barriers to entry. We asindex providers look to align index development to the needs of the investment
market.
While we continue to apply our rigorous governance framework, we have also had
to develop new processes tailored to the specifics of this emerging asset class. Toaddress the regulatory gap, FTSE Russell started from the most basic need for
quality, aggregated pricing, setting a standard for asset and exchange
consideration.

Asset and exchange vetting
FTSE Russell’s digital asset indices are constructed in association with Digital
Asset Research (DAR), a specialised provider of crypto data.
Constituents for the FTSE digital asset indices are derived from a starting universe
where assets have been screened by FTSE Russell using a set of vetting criteria
developed by FTSE Russell and DAR. This provides a better starting investment
universe – a digital asset dataset that filters out questionable platforms, assets andtrade information to meet demand for market liquidity and regulatory integrity.
The FTSE/DAR asset and exchange vetting process aims to identify those digitalassets we consider investable for the purpose of index development for institutionaluse cases.

FTSE Russell

2Applied solutions | Case study

Designing digital asset indices for
Asian investorsFTSE Russell worked with Digital Asset Research and HashKey to develop three
new custom digital asset indices for Asian investors. The three firms have thefollowing management responsibilities:•••

FTSE Russell is responsible for the daily calculation, production and operationof the index series, maintaining records of the index weightings of allconstituents, making changes to the constituents and their weightings inaccordance with the index ground rules, carrying out periodic reviews of theindex series, implementing any resulting changes and disseminating theindices;
Digital Asset Research (DAR) assesses the quality of pricing data, qualifies
pricing sources, calculates the FTSE DAR Digital Asset Prices, supplies FTSE
Russell with price feeds, advises on the eligibility of assets in the FTSE Custom
Digital Asset Indices, vets digital assets and the broker dealers/exchanges ofdigital assets, and collects and validates the data it obtains, ensuring both
digital assets and broker dealers/exchanges of digital assets pass a strict set ofrules.
HashKey is responsible for the submission of exclusion lists, as set out in theground rules. For example, constituents of the FTSE Custom Digital Asset Top
20 index must be tradeable on an eligible cryptocurrency exchange in HongKong. And digital assets in sector indices that do not align with the overall
sector objective are screened out.

The European Benchmark Regulation and the UK Benchmark Regulation do not
apply to the index series. The indices are not intended to be used by supervised
entities in the European Union or United Kingdom.

Three new custom digital asset
indices
FTSE Custom Digital Asset Top 20 Index
The FTSE Custom Digital Asset Top 20 Index consists of the largest 20 digitalassets by market capitalisation in the eligible universe. An asset will be excluded if itcannot be traded on eligible cryptocurrency exchange in Hong Kong. Monthly
capping is applied so that any single asset does not exceed 40% of the index byweight.

FTSE Custom Digital Asset Infrastructure Index
The FTSE Custom Digital Asset Infrastructure Index consists of assets primarily
comprised of crypto infrastructure chains such as Layer 1 networks, along with
protocols that offer storage, scaling and data services for these infrastructures. Theindex is equal-weighted on a monthly frequency. Sectors included (from the DAR
Digital Asset Taxonomy) are:−−−−

Smart Contract Platforms (702020)
Protocol Interoperability (702030)
Notarisation and Supply Chain Management (702040)
Distributed Computation and Storage (702050)

FTSE Russell

3Applied solutions | Case study

FTSE Custom Digital Asset Application Index
The FTSE Custom Digital Asset Application Index consists of assets thatencompasses DeFi, Games, Metaverse, and other Decentralised Apps that are
directly accessible to web3 users and allow them to interact with the applications
directly. The index is equal-weighted on a monthly frequency. Sectors included(from the DAR Digital Asset Taxonomy) are:−−Application Tokens (702010)
Staking Instruments and Decentralised Autonomous Organisations(703010)

Index customisation process

Source: FTSE Russell, January 2024

Meeting regional investors’ digitalasset index needs
In this fast-developing area of the financial markets, the FTSE Custom digital asset
indices meet Asian clients’ needs for a bespoke methodology, tailored to local
tradeability parameters.

FTSE Russell

4

ABOUT FTSE RUSSELL
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