Exchange-traded funds (ETFs) and index funds have long been the entry point for traditional investors seeking diversified exposure with minimal effort. By tracking baskets of assets, they offer lower risk than single securities while providing access to entire sectors or markets. In DeFi, replicating this model promises to unlock the same benefits-automated diversification, passive investing, and efficient exposure to multiple assets. Yet building on-chain ETFs and indexes introduces a critical challenge: real-time, trustworthy pricing for every component of the basket. This is where Pyth Network becomes indispensable.
Traditional ETFs rely on sophisticated pricing mechanisms, market makers, and custodians to ensure that the net asset value (NAV) of the fund stays aligned with the underlying assets. In DeFi, smart contracts must handle these functions autonomously. For an on-chain ETF tracking the top 10 cryptocurrencies, this means updating prices in real time, rebalancing automatically, and enabling seamless minting and redemption. Without accurate data feeds, the ETF drifts from its target, exposing investors to unnecessary tracking errors and risks.
