According to Compounding Quality (@QCompounding), index funds operate by pooling investor money to purchase all or a representative sample of securities within a specific market index, such as the S&P 500. This approach offers diversification, reduces individual stock risk, and typically results in lower management fees compared to actively managed funds (Source: Compounding Quality, Twitter, May 25, 2025). For crypto traders, the growing popularity of index funds highlights increased demand for diversified portfolio strategies, which is mirrored in the rising adoption of crypto index products and tokenized index funds. These trends can impact sector flows and liquidity in the broader cryptocurrency market.