As the name would suggest, these sets are designed to provide opposite exposure to the currently available set strategies.
The first instrument in the category – which was launched today – is the Inverse ETH 20 Day MA Crossover Set, or “iETH20SMACO”. The set is designed to track the inverse price movement of the regular ETH20SMACO set, which is the protocol’s most popular tool.
What is TokenSets?
TokenSets is a project by Set Protocol, which enables users to enhance their portfolio holdings with automated strategies – in a decentralized way.
Each “Set” is an ERC20 token backed by your coins, which automatically rebalances your portfolio according to rules of your choice.
This means that rather than having to manually make trades through exchanges according to a strategy, Set Protocol can do this for you, DeFi-style. This is all facilitated without giving up custody of your funds to a third party.
There are no lock-up periods on TokenSets, so you can freely enter or exit a set at any time.
How does an inverse set work?
iETH20SMACO purchases ETH when price crosses below the 20-day moving average, and moves back into USDC when price rises back above it. These are the exact opposite actions to those seen in the non-inverted instrument.
This inverse strategy tends to be a more profitable method in sideways markets, allowing speculators to capitalize upon short-term fluctuations in price, rather than chasing larger trends.
What can it be used for?
The instrument can be used on its own for speculation, or can be implemented in various ways for hedging other positions.
It would be most simply used as a hedge against a standard ETH20SMACO position, in times of uncertainty or market turning-points.
Inverse sets may also be useful for reducing or simplifying taxable events. By countering ETH20SMACO movements temporarily, rather than exiting and re-entering the market, you may reduce tax obligations in some jurisdictions.