💸Dual Investment
Dual Investment is an innovative financial product offered by vDEX that makes it possible for traders to give up some return in exchange for significantly reduced risk. It is a flexible tool that functions similarly to covered call and put options in traditional finance, allowing traders to collect the premiums while selling high or buying low.
The product is available in two forms: Buy Low (Selling Put Option) and Sell High (Selling Call Option)
For Liquidity Providers:
Liquidity providers are the counterparty that is buying the options. They are essentially buying the volatility of the underlying crypto asset. This can be seen as a hedge to offset a certain amount of the directional risks exposed by the bets wagered in perpetual future market. If there is a big movement in underlying price, Liquidity providers will be compensated by the difference between the settlement price and the target price (strike price). Concrete scenarios are as follows:
If the market price at the time of the settlement is higher (Buy Low) or lower (Sell High) than the target price, the liquidity provider pays the premium and return the underlying asset to the counterparty. This is because the liquidity provider will choose not to exercise the Dual Investment.
If the market price at the time of the settlement is lower (Buy Low) or higher (Sell High) than the target price, the liquidity provider still pays the premium but get compensated by exercising the options. The bigger the difference between settlement price and target price (strike price), the higher the profit.
changes
For Traders (Buyers of Dual Investment):
Traders can subscribe to Dual Investment products to gain limited return for limited risk.
If the market price at the time of the settlement is higher (Buy Low) or lower (Sell High) than the target price, the trader will not only get an option premium, but also get the pledged asset back in its original form. This results in a profit (getting premium) in a low volatility market.
If the market price at the time of the settlement is lower (Buy Low) or higher (Sell High) than the target price, the liquidity provider will exercise the Dual Investment. This allows the trader to collect the premium and get back the asset at the target price (Buy Low) or sell the pledged crypto asset at the target price (Sell High). This results in a limited loss for the trader in a high volatility market.
In summary, Dual Investment can be a win-win for both liquidity providers and traders. Traders can earn premiums and potentially benefit from favorable price movements, while liquidity providers can hedge their risks and potentially profit from favorable price movements.
Examples
Sell high: An ETH sell high Dual Investment with a target price of $2,000 with a settlement date 5 days later
Here's how it works:
You subscribe to the Dual Investment product by committing a certain amount of ETH. In this case, you're considering committing 1 ETH.
If, on the settlement date, the price of ETH is equal to or greater than the target price of $2,000, you will receive a predetermined amount of USDC. In this case, that's 2,011.00 USDC. This is equivalent to selling your 1 ETH at $2,000 each, plus the premium.
The liquidity provider would exercise the option. This means that you, as the holder of the Dual Investment, would sell your 1 ETH for the agreed-upon target price of $2,000 (you receive $2,000 in USDC). You also keep the premium you received at the time of selling the option, contributing to your return.
If, on the settlement date, the price of ETH is less than the target price of $2,000, you will receive a predetermined amount of ETH. In this case, that's 1.0055 ETH. This is equivalent to keeping your 1 ETH, plus the premium.
This product is similar to a covered call option in traditional finance. A covered call involves selling a call option (the right to buy an asset at a certain price) while also holding the same asset. If the price of the asset rises, the trader profits from the premium received from selling the call option. If the price of the asset falls, the trader still holds the asset, which may recover in value.
In the case of this Dual Investment product, if the price of ETH rises above $2,000, you effectively "profit" by selling ETH at a higher price. If the price of ETH falls below $2,000, you profit from the additional return (the "premium") provided by the product.
However, it's important to note that while this product can guarantee a return in terms of the amount of USDC or ETH you end up with, it does not necessarily guarantee a profit in terms of overall value. If the price of ETH skyrockets well beyond $2,000, the extra USDC you earn might not make up for the potential ETH gains you missed out on. Similarly, if the price of ETH drops significantly, the extra ETH you receive might not make up for the drop in value. As with all investments, there are risks involved, and it's important to fully understand these risks before committing your funds.
Buy Low Example: A USDC Buy Low Dual Investment with a target price of $1,850 for ETH and a settlement date is 5 days later
You subscribe to the Dual Investment product by committing a certain amount of USDC. In this case, you're considering committing 1,000 USDC.
If, on the settlement date, the price of ETH is equal to or greater than the target price of $1,850, you will receive a predetermined amount of USDC. In this case, that's 1,004.50 USDC. This is equivalent to keeping your original 1,000 USDC, plus the premium in USDC.
The liquidity provider does not exercise the option. As a result, you keep your 1,000 USDC plus the premium from the Dual Investment. This scenario is essentially equivalent to keeping your original USDC position while earning an additional return from the premium
If, on the settlement date, the price of ETH is less than the target price of $1,850, you will receive a predetermined amount of ETH. In this case, that's 0.5429 ETH. This is equivalent to buying ETH at a price of $1,850 each with your 1,000 USDC, plus the premium in ETH.
The liquidity provider would exercise the option. This means that you, as the holder of the Dual Investment, would sell your 1,000 USDC for ETH the agreed-upon target price of $1,850 per ETH (you receive 0.5429 ETH). You also keep the premium you received in ETH at the time of selling the option, contributing to your return
This product is similar to a covered put option in traditional finance. A covered put involves selling a put option (the right to sell an asset at a certain price) while also shorting the same asset. If the price of the asset falls, the trader profits from the short position. If the price of the asset rises, the trader profits from the premium received from selling the put option.
If the price of ETH falls below $1,850, you effectively "profit" by buying ETH at a lower price. If the price of ETH rises above $1,850, you profit from the additional return (premium) provided by the product.
However, it's important to note that while this product can guarantee a return in terms of the amount of USDC or ETH you end up with, it does not necessarily guarantee a profit in terms of overall value. If the price of ETH skyrockets well beyond $1,850, the extra USDC (premium) you earn might not make up for the potential ETH gains you missed out on. Similarly, if the price of ETH drops significantly, the extra ETH (premium) you receive might not make up for the drop in value.
To access Dual Investment on vDEX, you would follow these steps:
Select the desired asset (e.g., BTC or ETH).
Choose a settlement option (Sell High or Buy Low).
Set your target price and observe the Annual Percentage Rate (APR).
Select the settlement date for the transaction.
Once you are satisfied with your selection, click 'Subscribe'.
You will then be directed to a subscription page where you need to input the subscription amount, and the system will show an estimated return based on the current price of the selected crypto. The return will be in the form of the chosen cryptocurrency if the settlement price is less than the target price, or in USDC if the settlement price is equal to or higher than the target price. The final settlement will occur on the selected settlement date.
The flexibility and potential for high returns make Dual Investment a powerful tool for savvy investors looking to maximise their returns, regardless of market conditions.
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