One of the defining characteristics of DeFi is the interoperability, composability, and open collaboration that it enables. Some of the most exciting combinations lie in the intersection of Set, a protocol for tokenized asset management strategies, and bZx, a margin and lending protocol with tokenized positions. When combined, powerful financial products are possible. Here are some of our favorites:
Interest Bearing ETFs and Strategies
Set currently offers Buy and Hold and Range-bound Strategies for both ETH and BTC. Currently these strategies preclude traders from capitalizing on the time value of their holdings. By replacing the current assets underlying these strategy tokens with Fulcrum iTokens and Compound cTokens, it’s possible to no longer have to choose. Traders can capitalize on the time value of their money while executing trading strategies. This gives traders the best of both worlds with minimal downsides.
The Yield Seeker Basket: A DeFi Rebalancer
There are now numerous attempts in the industry to create a product that can automate the process of rebalancing funds to the DeFi lending opportunities with the highest yields. A Set Yield Seeker Basket can automatically allocate and rebalance among the available tokenized interest bearing assets. These are currently Fulcrum’s iTokens and Compounds cTokens. Here’s how it would work:
- A Dai Yield Seeking Set, for instance, reads on-chain interest lending rates of Dai iTokens and Compound cDai.
- If the interest rate of Dai iToken is greater than cDai, the Set rebalances from cDai into the Dai iToken. If the interest rate of cDai is greater than Dai iToken, the Set rebalances from Dai iToken back to cDai.
- The Set can contain any additional logic such as minimum rebalance interval or minimum % threshold to reduce false positive signals. Users now get the best interest rate on their Dai automatically!
Inverse ETFs & Leveraged ETFs
In the traditional financial system ETFs are popular among actors seeking diversified exposure through a single instrument. By placing a variety of popular existing ERC20s together in a basket, a variety of ETFs could be constructed with Set Protocol. However, up until now, those baskets could only provide long exposure without leverage. Fulcrum’s tokenized short and leveraged tokens allows the construction of Inverse ETFs composed of short tokens or Leveraged ETFs composed of leverage long tokens. These sorts of token baskets could be useful for individuals as a simple directional trading strategy or to hedge existing exposure for tax purposes.
A structured product is a combination of two or more instruments that comprise a single asset. Structured products allow the creation of highly customized assets for any type of risk-return objectives, traditionally with the use of derivatives — and can range from simple to highly complex.
For example, an Ethereum enthusiast may want a structured product with long exposure to Ether and short exposure to Bitcoin. With wrapped Bitcoin, Fulcrum’s short tokens, and Set Protocol, the Ethereum enthusiast Set can be created which is made up of Ether and short Bitcoin. With Ethereum-base structured products, it becomes significantly easier for someone to get exposure to products that meet their specific needs.
Thanks to Felix Feng, and Richard Liang for helping to put together this post.