What is TokenSets?

What is TokenSets?

By D3F1 | DeFi Box | 28 Jul 2020


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TokenSets has been around for a while, however, just recently started to make headlines alongside the ongoing DeFi boom and is gaining serious traction. It was the first application built on the Set protocol by Set Labs Inc.

TokenSets is also the first interface that allows users to interact with the underlying Set Protocol. A platform that allows users to buy Strategy Enabled Tokens (SET) that are self-balancing according to an array of trading instructions for each particular SET.

Managing an investment portfolio of any type is a very difficult process and time-consuming. It requires knowledge of the markets, a predefined trading strategy, a portfolio strategy, and a hawk-eye to monitor prices. When an asset in the portfolio increases, the weighting of the portfolio is skewed and needs to be re-adjusted by conducting a trade that requires human interaction. This is what is known as portfolio rebalancing.

TokenSets circumvents these problems by allowing users to buy SET tokens that represent a basket of different cryptocurrencies that incorporates an automated algorithmic trading strategy. The portfolio automatically realigns the underlying value of the cryptocurrency token weights for each Set based on the predefined strategy that is all executed by smart contracts.

In other words, there are no managers that keep your portfolio in shape as smart contracts do the job for you. 

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You can think of TokenSets as a decentralized version of eToro. You enter with your funds and invest in other traders’ strategies that fit your criteria. However, instead of depositing your money into the centralized eToro accounts, you remain in complete control of your funds throughout the entire process as Set Protocol operates atop of the Ethereum Network.

Users have the option to either invest in Sets created by top-tier traders through the Set Explorer, or they can choose to invest in Robo sets which are completely automatic based on pre-defined trading parameters and are executed by a bot. 

A few examples of token sets:

  • ETH 50 Day MA Crossover Set - ETH50SMACO - A Robo Set that will create trades based on any moving average crossovers. This is great for investors that just want to accumulate ETH and are relatively low risk compared with the other Sets.
  • LINK/ETH RSI Trading Set - LINKETHRSI - Accumulates ETH through exposure to LINK. This is also great to accumulate ETH but LINK is slightly more risky as an exposure asset.
  • ETH Trending Alpha ST Set II - A traders Set that accumulates ETH through human identified uptrends via RSI and Moving Averages

How Does It Work?

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Once you head over to the TokenSets platform and sign in through email or your MetaMask your first task is to find a Token Set that you wish to invest in. This is entirely up to each individual user and is dependent on each individual financial circumstances.

Users can browse all the TokenSets through the “Explore Sets” page and purchase the Set directly on the profile;

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Once a Set has been purchased, it will show up in the “My Account” page;

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From here, users can easily access each Set that they own and manage their positions. Each time the weighting in the Set is skewed through price movements, a Rebalancing Process occurs to realign the portfolio.

Rebalancing process

This is the process in which the individual cryptocurrency weights within the portfolio are realigned by buying and selling the coins within the portfolio.
The entire process as three separate stages;

  • Rebalancing criteria trigger is met

Rebalancing too frequently could result in excess transaction costs and would also cause disruption as Sets cannot be bought or redeemed during rebalancing. For this reason, a rebalancing interval is in place in which a Set needs to wait for a period of time after the last rebalance before being able to rebalance again. 

  • The Rebalance Proposal

After the conditions are met the Set then enters into a proposal phase in which users are able to redeem their token if they wish to remove their funds from the Set before the rebalance occurs. This Proposal Phase is currently set to 8 hours.

  • Rebalancing is conducted

In the final stage, the Set enters into the rebalancing. This is the process of buying and selling the underlying assets in the Set to align with the pre-defined weightings for the Set.

How Does The Rebalancing System Work?

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Instead of sourcing Liquidity through a decentralized exchange such as Kyber, the rebalancing works through a process known as a Dutch auction which allows everyone to participate. 

A Dutch Auction is a method that achieves fairness as the market determines the price of the sale. The auction starts off at a fixed price that is determined by the manager of the Token Set and it continuously increases as time passes until the entire supply of the auction has been sold. 

The act of bidding in the Dutch auction is what executes the rebalance. Users will be injecting the token that needs to be purchased by the Token Set to receive the token that is being sold off by the Set to rebalance the weights.

As the price ratio increases, it becomes more favorable for users to place Bids and it will continue until the auction is concluded after all the tokens have rebalanced to the allocated weights.

The process of using a Dutch Auction is what allows anybody to come and provide liquidity to the protocol. It is open for anybody to come and take advantage of the arbitrage opportunities between the rebalancing ratio that occurs naturally during the auction.

The disadvantage of using a Dutch Auction is the Rebalancing Slippage involved. This is a scenario in which the ratio of under-collateralized tokens (the tokens that need to be bought by the Set) for over-collateralized tokens (the tokens that are sold by the Set) naturally changes the net value of the Set. This is what is known as the Rebalancing Slippage.

This is because the more collateral there is to rebalance, the more time it takes to rebalance. As time progresses in the auction, there are less under-collateralized tokens that are needed for over-collateralized tokens to rebalance the Set to the target weight. 

Team Behind Uniswap

TokenSets is created by Set Labs Inc, the team that created the Set protocol itself. Set Protocol was announced in November 2017 and TokeSets went on to launch in April 2019.

Felix Feng - Founder & CEO

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Previous Experience;

  • Radius Intelligence (Software Engineer)
  • 21, Inc (Finance & Operations)
  • Harris Williams & Co (Investment Banking Analyst)

Felix Feng is the co-founder and CEO at Set Protocol. Feng studied Business Administration with a concentration in Technology and Entrepreneurship at the University of California in 2010. Upon graduating in 2014, he went on to become an investment banking analyst for Harris Williams & Co.

He stayed there for a year before moving to 21 Inc in which he headed the Finance and Operations. He would stay here for a short period of time before moving to Radius Intelligence as a Software engineer. He would leave Radius Intelligence to co-found the Set Protocol.

Inje Yeo - Co-Founder & CPO

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Previous Experience;

  • Radius Intelligence (Software Engineer)
  • 21, Inc (Finance & Operations)
  • Harris Williams & Co (Investment Banking Analyst)

Inje Yo is a Designer and Artist from Rhode Island. He studied Fine Arts at Rhode Island School of Design in 2009 and became a Designer for FreshPlanet upon graduating in 2013. After leaving FreshPlanet in 2014, Yeo would co-found Waddle, a mobile discovery app to find places to go with friends.

He would work on Waddle for 2 years before moving to GoDaddy as a Senior Front-End Engineer. He would take the same role at Purse in December 2017 before leaving in March 2018 after co-founding Set Labs a few months before.

Features & Use Cases

The main feature that the platform offers is to be able to invest into a Set that represents a portfolio of self-balancing cryptocurrency.

There are two types of sets offered by the platform;

  • Robo Sets 
  • Social Trading Sets.

Robo Sets

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Robo Sets are strategies that auto-execute based on pre-defined trading rules without any human interaction required. It is literally a robot managed Token Set that executes trades based on the pre-defined trading strategy coded into the Robo Set.

There are three types of Robo trading strategies offered that are based on popular trading strategies used by traders today;

  • Trend Trading
  • Buy and Hold Trading
  • Range-Bound Trading

Trend Trading

The Robo Sets that are based on Trend Trading strategies use different trading tools such as the RSI, MACD, and Moving Averages to enter and exit positions when a market is trending. The trading requires no human interaction and is executed by smart contracts. 

The problem with trend trading strategies is that they do not work when the market is rangebound or choppy.

Buy and Hold trading

The Buy and Hold trading strategy Robo Set is a simple trading strategy as it just buys and holds a set of cryptocurrency. The difference here is that traders can easily split the weightings of each cryptocurrency in the portfolio and each coin is adjusted to match the pre-defined weightings.

Range-Bound Trading

The Range-Bound Robo Set is to be used when the markets move sideways. It automatically rebalances volatile assets with stable assets such as stablecoins during sideways price movements.

Top Robo Sets

The type of Robo Set used is entirely up to the individual’s financial circumstances and investment goals. Following are some of the top Top Robo Sets available on TokenSets;

ETH 50 Day MA Crossover Set - ETH50SMACO

This set Robot Set capitalizes on medium-term price trends to accumulate ETH. When the price of ETH crosses above the 50 Day SMA, the Robo Set will automatically buy ETH. If ETH was to reverse and break back beneath the 50 Day SMA, the Robo Set would then sell the ETH for USDC.

Since the inception of this Robo Set, it has generated a total of 36% profit.

LINK/ETH RSI Trading Set - LINKETHRSI

This Robo Set attempts to accumulate ETH by trading through the more volatile LINK coin. This Robo Set is based on the RSI trading indicator. When the RSI crosses beneath 45 the Robo Set will automatically rebalance LINK into ETH. When the RSI crosses above 55, the Robot Set will rebalance ETH back into LINK.

This Robo Bot has turned a 66% profit over the past 3-months of trading.

Social Trading Sets

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Social Trading Sets are created by successful traders who have applied and been approved by the TokenSets team. It can be considered as a marketplace that enables traders to create their own Set and allow the public to invest in it.  

Whilst creating the Set, the trader has to provide some detailed information about his trading strategy and, occasionally, provide some historical data as proof. The trader can also create an entry fee for their Set which will be paid to the trader for managing that particular portfolio.

For the trader to rebalance, they must submit and ETH transaction and also publish a discussion regarding their trading decision on their trading profile. This is what is known as the Rebalancing Proposal and it gives owners of the Set some time to decide if they would like to remove any funds before the trade occurs.

Choosing which trader to invest could be quite tricky. However, there is a trader top list that shows the traders which have the most capital in their Token Sets;

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Here, you can see that ByteTree is far ahead of everybody else and own more than double the market cap of the second position.

Following is a quick overview of the top 3 traders on TokenSets;

ByteTree

Total Market Cap - $1.2 million
Running Sets; BTC Network Demand Set 2
Inception Date - March 28th, 2020

This Token Set executes trades based off of Network Demand. When the Network Demand is strong, according to their on-chain metrics, the Token Set will enter Bitcoin. When the Network Demand is strong the Token Set will exit Bitcoin to protect against drawdowns.

ByteTree itself is a leading provider of institutional-grade crypto data that tracks over 80 Bitcoin metrics. It was founded in 2013 by a fund manager with over 20 years of experience.

AdamHaeems

Total Market Cap - $522K
Running Sets;  
ETH Trending Alpha ST Set II
Inception Date - March 27, 2020
Market Cap - $405,600
ETH Trending Alpha LT Set II
Inception Date - March 27, 2020
Market Cap - $22,600
LINK/ETH Growth Alpha Set
Inception Date: April 23, 2020
Market Cap - $92,300

Adam Haeems is the founder and CEO of an investment fund, Alphachain Capital, created in 2017. Haeems has a masters in Finance from Cambridge University and also traded at the Bank of America Merill Lynch 

His ETH Trending Alpha ST Set II is his highest valued Set by market cap. It has a 15% performance fee and uses EMAs and RSI to identify uptrends with volatility as it rebalances into ETH when an uptrend is formed and into USDC when the market is sideways or bearish.

Moonshot Capital

Total Market Cap $508K
Running Sets;
ETH Moonshot X Set
Inception Date - Jan 16, 2020
Market Cap - $12,500
ETH Price Action Candlestick Set
Inception Date - March 28, 2020
Market Cap - $122,600
LINK/ETH Price Action Candlestick Set
Inception Date - March 27, 2020
Market Cap - $291,000
ETH Moonshot X Yield Set
Inception Date - March 28, 2020
Market Cap - $16,600
ETH Moonshot X Discretionary Yield Set
Inception Date - March 28, 2020
Market Cap - $59,300

Moonshot Capital is run by Aaron Kruger who has extensive experience in trading FX, futures, and options since 2013. Kruger has a range of different token sets, however, his largest is the LINK/ETH Price Action Candlestick Set. This Set attempts to accumulate ETH by longing LINK when LINK/ETH looks bullish. 

Milestones

Since launching in April 2019, Token Sets has managed to lock up $19.4 million USD in its Set Protocol; c47fc854e985cc9202a5743536848eebcba15e68d12e9f8cc1b21479285197d5.png

This puts it in the 16th ranking in the top DeFi platforms according to the total value of USD locked in smart contracts;

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The team announced that they would be launching the Social Trader side of its platform in January 2020. This was the start of a new era for TokenSets as it moved closer to a complete decentralized version of eToro as it allowed users to easily follow other traders and invest in their reading strategies

Initially, they started with some prominent traders on Twitter who they had onboarded as the premier traders. Over time, their trader base started to grow as they accepted additional traders to open their own Token Sets. 

One of their most prominent traders was the Russian Georgii Verbitskii, a former eToro Managing Director, who they had onboarded in early June 2020. Verbitskii has been managing assets for over 13 years and has even acted as the Business Development Director for Tradingview.

As TokenSets continues to on-board prominent traders to create Sets on its platform, the entire size of the project has continuously grown. At the start of the 2020, there was under $2 million in assets that were locked in the Set Protocol Smart Contracts. The majority of this was held in wETH and wBTC.

By February, the total locked value inside the Set Protocol increased to $56 million with wETH taking the majority of the market share locked up. 

In March, the Token Sets platform started to increase its pace of growth as it climbed well above the $6 million level to reach as high as $17.3 million locked up in May. You can easily see the growth by analyzing the following chart;

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Interestingly, over the past 3 months, cUSD has started to become the largest individual crypto asset that was locked up in Sets.

Conclusion

TokenSets is a very hot DeFi product that allows users to easily take advantage of other traders’ strategies and insights without having to do any of the work themselves. The platform allows users to come and invest in Sets that are created by professional traders and almost act as miniature hedge funds. Users invest in these Sets and as the trader turns a profit, the value of the Set increases.

TokenSets is still in its infancy stage of growth right now which is a great time for users to start to make some early investments. As the project continues to introduce consistently profitable traders to its platform, it will inevitably end up attracting more users.


D3F1
D3F1

Yet another defi fan


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