I think daily rebalancing might result in too much noise and costs associated with index turnover and withdrawing from vaults, but here is basically what my high level thinking is as of now. Design a methodology that:
- Design an set of eligibility criteria for the index to select assets that meet minimum criteria such as liquidity, size, availability, etc
- Select index constituents that are ERC-20 (including synthetic tokens (partner with an exchange like Synthetix on this) if they meet other eligibility)
- Weight the index at the start of every month based on their circulating supply
- Deposit the assets into yVaults at the start of every month (if a yVault for that asset exists), otherwise just hold the asset passively (note if an asset like MKR has enough weight in the index maybe this would incentivize a MKR strategy that lends MKR on Aave to withdraw stables and put in a stable vault?)
- Harvest the yield attributed to the index allocation in the yVault monthly and re-invest in the yIndex in proportion to a users holdings (or pay a dividend in yUSD)
- Rebalance index assets at the end of each month