The On-Chain ETF

Imagine creating an "S&P 500 of Crypto." It needs to hold 500 tokens.

• Balancing: Weights change every second as prices move.
• Rebalancing: Needs to sell winners and buy losers periodically.
• Composition: Needs to add new "blue chips" and remove delisted ones.

The Scalability Problem

Coding this logic entirely on-chain (like Set Protocol V2) is gas intensive.

• Storing an array of 500 token addresses and weights in storage is expensive.
• Looping through 500 swaps in one transaction runs out of gas.

The Matador Solution: Optimistic Indexing

Instead of storing the index state on-chain, we store the index rules in a Matador Policy.

The Policy Rules:

1. Universe: Can only hold tokens from the Top_500_Registry (an external oracle or curated list).
2. Weight Cap: No single asset > 5% of portfolio.
3. Turnover Cap: Cannot trade more than 10% of TVL per day (prevents churning for fees).
4. Slippage: Trades must execute within 0.5% of Chainlink Oracle price.

The Execution:

• Off-Chain: The manager runs the complex index logic (calculating 500 weights).
• On-Chain: The manager submits batch transactions to rebalance ~10 assets at a time.
• Matador: Verifies that these specific 10 trades obey the rules (Universe, Slippage, Weight Cap).

Outcome

• Cheaper: No massive storage arrays. Logic is computed off-chain.
• Safer: The manager cannot "drift" the style. They can't buy a micro-cap coin that isn't in the Universe.
• Flexible: The manager can change the rebalancing algorithm (e.g., from market-cap weighted to equal-weighted) without upgrading the smart contract, as long as it still respects the safety constraints.