Comprehensive analysis of CeFi dual currency wealth management: a risk hedging method combining wealth management and options

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Dual currency wealth management products show an annualized rate of return that is no less than that of some DeFi liquid mining projects. How do these products work? Can its income really be “without fear of currency prices”?

Author: Lou Yue

Structured financial products as an important part of traditional financial derivatives market in terms of market size and product range have gained considerable development, in order to meet different target customer groups, the traditional financial market financial products gradually from simple deposits Treasury rules to derive more complex funds, stocks, trusts, futures, options and other products, it has formed a “progressive approach” complete structural system.

As an emerging financial field, the cryptocurrency market is gradually in line with the traditional financial market in the process of continuous advancement and development. Lianwen has previously focused on the crypto industry in ” CeFi companies grab a single currency financial management, a multi-perspective interpretation of three camp financial products ” The most basic single currency financial products were discussed. This article as the second article in the series of dual-currency financial CeFi financial articles, from the development of dual-currency financial products, definitions, mode of operation, revenue, risk points, as well as providing a service for the crowd, and many other agencies to analyze and discuss .

The diversified evolution of financial products

Since the beginning of summer, the ” liquid mining boom ” in the DeFi field has ushered in a blowout development. Some project head mines have attracted funds with a return rate of hundreds of thousands or even tens of thousands. Project hotspots such as ” decentralization “, such as lending, exchanges, aggregation, and insurance, flood the market one after another. If some decentralized projects with a high degree of attention and good project endorsements further open the liquid mining function, the gold absorption effect will be very obvious.

In sharp contrast to this popular phenomenon, CeFi (Centralized Finance, the center of the financial sector) areas due to the development process similar to traditional banks, stock exchanges and various financial institutions, its financial product updates iteration process is relatively more conservative .

For wealth management products, the acceptance is relatively high in the field of encryption, the wider range of users belonging steady income, lower risk of type single currency gain basic products. However, with the expansion of the financial attributes of cryptocurrency derivatives, more institutions and investors have further demand for the allocation and benefits of financial solutions.

Some investors are willing to take some risks on the basis of the pursuit, a diversified high-yield financial products, such as dual-currency financing, Staking, lending, trading strategies gradually occupy a place in the market.

For example, Binance Mining Pool launched the ” Binance Mining Pool Dual Currency Wealth Management Product ” at the end of August, and slogan “No fear of currency price rises and falls, all gains”, some specific wealth management products even showed no Inferior to the annualized rate of return of some liquid mining projects, how do dual-currency wealth management products like this work? Can their income really be ” without fear of currency price rises and falls “? Lianwen will analyze and discuss this.

Dual currency wealth management draws on traditional financial models

Encryption major currency areas CeFi institutions are introducing dual-currency financial products actually draw on traditional financial markets combined with the encryption status of a financial market evolved form.

In the traditional financial sector, dual-currency financial products basically divided into two categories , the first category is based on the principal amount of RMB as an investment, the RMB deposit interest in the product investment period should be generated into dollars and then dollars this as an investment in this Gold operates in the operating mode of foreign currency wealth management products. The income and principal generated in USD are returned in the form of USD as the overall income of dual currency wealth management products.

The second type of investment principal amount of two currencies, including the yuan and the dollar, the first part of the funds to the dollar value date of the day into RMB, as the principal investment, after the expiration of the return in the form of RMB , then the capital of RMB deposit interest portion of the investment period the product should be produced into dollars, and then part with capital of $ operate in a mode of operation of foreign financial products as investment capital, the overall benefits of the product after the expiry Pay in U.S. dollars .

The second category of dual-currency financial products can be simply understood as the Renminbi as the principal invested money plus another currency (US dollar, Australian dollar, euro, etc.) to invest part of the principal currency in domestic investment, another part of investment currency to invest in foreign currency mode.

HSBC, Bank of China (Hong Kong), United Overseas Bank and other major commercial banks can be seen in the second basic products, while the dual-currency financial currency encryption mode that is closer to the field of financial products.

HSBC in its product definitions will describe it as “a non-guaranteed structured deposit, linked to the exchange rate fluctuation in foreign currency by providing access to potential revenue, while foreign currency to meet the wealth management needs.” Bank of China, then it is described as “a An investment product linked to currency exchange rates. According to investment orientation and expectations of currency exchange rates, and depending on currency performance, there is a chance to obtain higher potential returns, or to buy the linked currency at a predetermined exchange rate.”

Thus, from the point of view of product definition, an investment when the two currencies, as well as different investment period, the investment horizon is both time deposits, but also the hidden option period. Investors need to agree on an agreed exchange rate with the bank when buying the product, which is the exercise price of the option. On the basis of the strike price of the option, there will also be a different rate, which is the price of the option.

Therefore, the dual-currency financial products is not an ordinary foreign currency “dual currency deposits”, more like a foreign exchange deposits and foreign currency options combined with the structure of investment products, but also has some risks.

Dual currency wealth management products in the crypto field: “Advanced Option Financial Derivatives”

Emergence of dual-currency financial products in the field of encryption was first used by financial services firms Matrixport Singapore in October 2019 launch , followed by a number of financial services, digital asset wallet and exchanges are also on the line of such products.

Encryption currency dual-currency financial products and basic second class traditional areas like finance similar dual-currency financial products, foreign exchange currency into the currency encryption thinking, like a combination of standard currency conversion mode method CAD Standard.

Dual currency wealth management product definition: “not guaranteed but with a fixed rate of return”

From the point of view of product definition, Matrixport be defined as “a non-guaranteed floating-income investment products. Yield products is clear and fixed at the time of purchase, and settlement currency is uncertain. When the product expires, clearing settlement price and price comparison results linked to the expiration of the time depends on the currency. dual currency investment is a short-term investment products, it can help to get higher returns possible provided here holds product cycle from days to months to Meet the different needs of different users for liquidity and risk.”

Encryption Services Charms its assets is defined as “a non-guaranteed floating-income type of currency + product yield at the time of purchase the product is clear and fixed, and the settlement currency is uncertain. At maturity, depending on the settlement currency The result of comparing the settlement price and the pegged price at maturity.”

It can be seen from the product definition that the rules for dual currency products are more complicated, especially the ” non-guaranteed but fixed rate of return ” may make it difficult for some investors to understand this type of product for the first time, or even feel a bit “conflict”. But in essence, this uncertain combination result is actually caused by several key variables such as ” pegged price, expiry date, investment currency, settlement currency, and yield “.

Several factors affect the key variables you want a more thorough understanding of the dual-currency financial products, the need to introduce some of the concepts in the field of traditional financial options.

Options (option) has said the right to choose a financial instruments based on futures on the finger can be a right to buy or sell a certain amount at a certain price of a particular commodity at a specific time in the future.

A similar definition can also be seen when returning to dual currency wealth management products in the encryption field. With “BTCUSDT dual-currency financial” products, for example, the analogy traditional financial sector, legal tender centered point of view, can be seen as a stable currency USDT is generally considered local currency (RMB), BTC is in foreign currency (US dollar, euro, pound sterling, etc.) . In terms of currency standard, BTC is the local currency and USDT is the foreign currency.

To do is to determine a due date linked to the price, if the price is higher than the due date BTC linked to the price, then return finally obtained is USDT; on the contrary, will receive BTC.

To put it simply, if the BTC price rises, you will eventually get more USDT, and if the price drops, you will get more BTC.

Dual-currency financing and therefore more of an “Advanced option pricing financial derivatives”, by hedging method, show the yield rate of return shall be final.

How do dual currency wealth management products work?

The operation mode of dual currency wealth management products is mainly determined by the five key variables of ” linked price, expiry date, investment currency, settlement currency, and rate of return “.

Legal currency standard (BTC purchase) case

Based on the specific case of legal currency (BTC purchase), Investor A purchased a 15-day “BTCUSDT dual currency wealth management product” through the service platform today (September 17, 2020). As of press time, Bitcoin temporarily reported 10868 USDT, and other relevant parameters are as follows:

  • Pegged price: $11,000
  • Expiry date: October 2, 2020
  • Investment currency: 1 BTC
  • Yield: 5%

So on October 2, 2020, the product will have two different settlement methods:

  • Settlement way: If the BTC / USD settlement price is less than $ 11,000, investors will get 5% BTC-denominated earnings, that is, 1 * (1 + 5%) of the BTC, that is, ultimately, 1.05 BTC.
  • Settlement way: if the BTC / USD higher than the settlement price equal to $ 11,000, investors will get 5% USDT denominated earnings, that is, 111 000 (1 + 5%) of the USDT, that is, ultimately, 11550 USDT.

Comprehensive analysis of CeFi dual currency wealth management: a risk hedging method combining wealth management and options

As the settlement price of BTC/USD will change on the expiry date, the investor will get a 5% definite return , but it is uncertain about the settlement currency.

Currency standard (USDT purchase) case

Based on the legal currency standard (USDT purchase) specific case, Investor B purchased a 15-day “BTCUSDT Dual Currency Wealth Management Product” through the service platform today (September 17, 2020). As of press time, Bitcoin temporarily reported 10868 USDT, and other relevant parameters are as follows:

  • Pegged price: $11,000
  • Expiry date: October 2, 2020
  • Investment currency: 10,000 USDT (The price is about 0.9201 BTC at the time of publication)
  • Yield: 5%

So on October 2, 2020, the product will have two different settlement methods:

  • Settlement way: If the BTC / USD settlement price is higher than $ 11,000, investors will get 5% USDT denominated earnings, that is, 10000 * (1 + 5%) of the USDT, that is, ultimately, 10500 USDT.
  • Settlement way: if the BTC / USD below the settlement price equal to $ 11,000, investors will get 5% BTC-denominated revenue, which is 10000/11000 * (1 + 5%) of the BTC, that is ultimately 0.9545 BTC.

Comprehensive analysis of CeFi dual currency wealth management: a risk hedging method combining wealth management and options

As the settlement price of BTC/USD will change on the expiry date, the investor will get a 5% definite return, but it is uncertain about the settlement currency.

Two kinds of cases the final product is the average settlement price is generally 30 minutes before the settlement index of the investment product expiration date 16:00 (UTC + 8). Settlement price index is typically selected several bits currency exchange head, for removing the highest and lowest average price calculated.

Product revenue has a “threshold”

Although the dual-currency financial products will have to buy a certain rate of return, but need to be clear that this is still a “non-guaranteed” financial products, if the final maturity date to predict price movements beyond the scope of investors, will The possibility of losing money.

Fiat currency standard (BTC purchase) income

Taking the above example of the legal currency standard, the ” upper threshold ” is calculated based on the agreed pegged price of 11000 * (1+5%) = 11550. Because the price at the time of the investment is in accordance with 10868 USDT purchase price, as long as the value of the currency rose more than $ 11,000 will be linked to the price of 5% of the settlement proceeds to investors at maturity, while also earning superposition currency price increases profits.

If the price of the currency continues to rise by more than 5%, that is, the “upper threshold” of 11550, only the 5% gain is added to the gain of the currency price increase, which is (11550-10868)/10868*100%= 6.27%.

“Lower threshold” to calculate the purchase price of 10868 / (1 + 5%) = 10350, expiration date if the price is lower than the price linked to $ 11,000, will be in BTC settlement, investors will earn a certain amount of BTC, but if it continues to fall If it exceeds 5% , it will start losing BTC.

Comprehensive analysis of CeFi dual currency wealth management: a risk hedging method combining wealth management and options

Currency-based (USDT purchase) income

Looking at the above currency standard example, the “upper threshold” is also calculated based on the agreed pegged price of 11000 * (1+5%) = 11550 .

If the currency prices continue to rise more than 5% of the increase, which is “on the threshold” of 11550, can not continue to enjoy the benefits of the actual value of the currency to rise, which has been a passive open at the time of 11550.

The “lower threshold” is calculated based on the purchase price of 10868/(1+5%) = 10350. If the price on the expiry date is lower than the pegged price of 11,000 US dollars, it will be settled in BTC. Although the price has fallen, investors have earned more BTC, and will get a fixed rate of return of 5%.

Comprehensive analysis of CeFi dual currency wealth management: a risk hedging method combining wealth management and options

Due to the high volatility of BTCUSD, the price of options is also very expensive. Dual currency wealth management allows investors to obtain better yields by “selling options”.

As can be seen by the works of these products, we make money when encryption standard legal tender currency investment price rise, the currency encryption standard currency prices to make money.

Product risk points

Because dual-currency financial products embedded in the rule options, so some products, though with a high income, but its currency settlement risk and market risk of market volatility can not be ignored.

When the price trend of cryptocurrency meets the investor’s pre-judgment, under normal circumstances, investors can not only obtain the ” coin hoarding income ” during the same period, but also an additional option income. Of course, there is a certain depreciation of the purchased currency at this time, but the rate of return and premium income can make up for part of the depreciation of the currency.

When encryption currency prices far beyond the anticipation of investors, or during the purchase of financial products, encryption currency market in the opposite expected unilateral market fluctuations and financial products beyond the “threshold”, the greater the volatility Investors may face more losses.

Therefore, dual-currency wealth management products are suitable for investment under the condition of little market price fluctuations. If the price is between the ” upper and lower thresholds ” at maturity, it can basically ensure the maximum return.

Investors can choose according to their risk preference and pre-judgment. The higher the linked price and the shorter the agreed expiry date, the lower the product risk, but the rate of return will decrease accordingly. The lower the linked price and the longer the agreed expiry date, the greater the risk of the product, and its yield will increase accordingly.

Suitable for the crowd

Investors in options based on a clear understanding of the mode of operation of the dual currency financing be in line with their risk appetite and anticipation for price quotes to try to do different configuration combinations and more room for maneuver.

Shocking market: users who hoard coins

For example, in the currency market as a whole in the encryption market volatility, investors can buy the right to earn money through the period of dual currency financial products, a relatively long trading range in price ‘upper and lower threshold “before the due date, regardless of the final settlement BTC Still USDT will get higher returns.

Especially for users who are hoarding coins in the crypto industry and users who do not participate in derivatives transactions such as contracts, the volatile market cannot obtain further benefits, so choosing dual currency wealth management products will be a better choice.

Falling market: bargaining users

For some rich investment experience of investors who might have a future market of its own pre-judgment, for example, if you expect the currency market will be encrypted in the next period of time we will be in a downward trend, but it is not accurate determine where the bottom of the price when it is expected that future prices will rise further, it can be a bargain-hunting behavior by dual-currency financing.

When the currency price drops, if you purchase a currency-based dual-currency wealth management product, because the BTC price on the expiry date is significantly lower than the pegged price, you will not only have a wealth management return rate at the time of settlement, but you will also get more bitcoins at the same currency price When the bottom rises, the currency in hand will continue to increase in value.

Rising market: take profit users

Similarly, if investors predict the encryption in the next period of time will be in the money market rally, can not accurately predict where the top price, it is expected that there will be further correction trend, it can also be a dual-currency earnings only by the behavior of financial .

When the currency price rises, if you purchase a legal currency-based dual currency wealth management product, because the BTC price on the expiry date is significantly higher than the pegged price, the settlement will be based on the “upper threshold” superimposed product yield to take profit.

Not only have financial rate of return, and it will get a bit more money, currency and other price rebounded bottom, when the hands of the currency will continue to add value.

Long-term investor

For long-term investors may not care about short-term price fluctuations, will wait until Bitcoin to a certain psychological level will be shot, then you can select some linked to the relatively high price of dual-currency financial products, short-term currency price is difficult to achieve, This method can be used to continuously increase the amount of currency held, earn money when the price drops, and make money when the price rises.

Mature investor

Some sophisticated investors or institutional investors often have their own assets to diversify configuration, not only the basis of selection of fixed-income financial products, may also be a variety of ways through futures contracts, hoard currency, finance, etc. Combinations, and at the same time, you can choose different combinations to adapt to different expectations of market trends, thereby reducing overall risks and maximizing your own benefits.

Institutions that provide dual currency wealth management services

Because the option is part of a high complexity of financial products, plus encryption options trading volume of the market itself and the products are all stages of development, generally do not recommend users to operate, so the dual-currency financial products currently not in the field of large-scale encryption universal. Currently offers dual-currency financial services have money safe mine pool, perplexity, Matrixport and other institutions.

Matrixport

Matrixport was established in February 2019 and is headquartered in Singapore. Currently, it has launched digital currency trading, digital currency custody, pledged loans and other products, and more innovative products will be launched one after another.

As the encryption industry launched the first dual-currency financial services company, its dual-currency financial products including Bitcoin and Ethernet encryption Square two main assets to September 21 data, the product can choose to purchase the period from 1 day to 95 Days vary, the highest annualized rate of return for the four major products is 113.15%, and the total average annualized rate of return is 24.67%

Comprehensive analysis of CeFi dual currency wealth management: a risk hedging method combining wealth management and options

It should be noted that the purchase of dual-currency financial Matrixport user once purchased can not be redeemed in advance, transfer and can not be withdrawn. Therefore, when purchasing this dual-currency wealth management product, users need to consider whether there is an urgent need for funds during the financial management period.

Tiger Symbol

Hoo.com is a public chain asset cloud platform that supports multiple digital encrypted currency transactions. According to the official introduction, Hufu’s business covers exchanges, wallets, Hufu Mining, and Hoo Custody. Product functions include digital asset spot, futures contract trading, equity trading, digital asset deposit and interest generation, dual-currency wealth management, pledge lending, digital asset custody, and Hufu co-management. Dual currency wealth management products were launched for the first time in December 2019.

Hufu Dual Currency Wealth Management Products are currently in progress, “Dual Currency Wealth Management-BTCUSDT-092101” and “Dual Currency Wealth Management-BTCUSDT-092102”. The annualized return rates are 30% and 93% , and the initial investment is 0.1 BTC. , The product quota is 50 BTC.

Comprehensive analysis of CeFi dual currency wealth management: a risk hedging method combining wealth management and options

Hufu’s dual-currency wealth management products also carry invitation-assisted preferential activities. You can bid to invite friends to help before the end of the subscription. Friends help can increase the annualized interest rate, and you can receive up to 10 help. It is also worth noting that Hufu’s dual currency wealth management products cannot be redeemed in advance.

Binance mining pool

According to the official introduction , Binance Mining Pool is a comprehensive service platform dedicated to improving the income of miners. It provides users with mining services around PoW and PoS. As an important part of the Binance ecosystem, Binance Mining Pool gives full play to its advantages in technology, capital, transaction business, and industry resources to provide users with the ultimate mining experience and one-stop service of “mining-transaction”.

Comprehensive analysis of CeFi dual currency wealth management: a risk hedging method combining wealth management and options

An ore coin treasure pool dual currency financial products officially on August 20 on the line , divided into BTC area, USDT area and BUSD area three large product content, but its dual-currency financial products due to quota restrictions, have been sold out at present, The official annualized rate of return is up to 100%.

summary

The crypto industry continues to derive new things in the development process, and investors also need to follow up and update relevant knowledge and concepts to follow up the development of the market. From the asset allocation level, may establish different trading strategies and plans to seek the best balance of risks and benefits of the chase, it can also be achieved to get as much profit at the same time bear lower risk through a package of finance and investment varieties.

Use a combination of dual-currency banking and other wealth management can significantly improve the effectiveness and efficiency of the use of funds, which appears good profit opportunity in the market to capture more market opportunities when.