Introduction
The Trend Token portfolio consists of a basket of cryptocurrencies. For example, the TREND5 portfolio currently consists of a portfolio of USDT, BTCB, BNB, ETH, and ADA. The TREND5 token reflects the price changes of the tokens in its portfolio based on its allocations.
The goal is to adjust the allocations of the Trend Token portfolio based on a dual-momentum trading system that is time tested and proven to work both in the cryptocurrency market as well as in traditional finance.
In order to accomplish this goal, the system described in this article was developed which achieves the desired privacy, security, decentralization, and upgradeability to make Trend Tokens an attractive option.
The Rebalance System is broken down into two distinct processes
- Dual Momentum Bot - updates the desired allocations based on the trading bot
- Rebalance Incentive Model - provides rewards to traders for making desired trades with the Trend Token portfolio
Dual Momentum Bot (off-chain)
The same dual-momentum trading bot used by Trendbot at Tradeium is used here to update desired allocations for Trend Tokens.
This bot doesn’t actually make trades, but simply updates the Trend Token portfolio on what percentage of each coin is desired based on the strategy. Then the rebalance mechanism below takes care of the rest
This bot is off-chain, meaning the software does not run on a blockchain. The primary motivation for this is to reduce gas costs as the strategy is complex and each computation on-chain would have required gas costs. Furthermore, this allows for the bot to be updated upon further research and as markets change. Another major advantage is the strategy can remain private, as everything on-chain is public for everyone to see.
There are special tradingBot keys that have restrictive permission to update the desired allocations of each token in the portfolio, similar to the restrictive access API keys have on Binance accounts. These tradingBot keys also have the ability to add tokens to the portfolio, remove tokens from the portfolio, and pause the Trend Token.
Rebalance Incentive Model (on-chain)
The Rebalance Incentive Model incentivizes users to make the desired trades to bring the current “allocations” closer to the “desired” allocations. It does this by offering a reward to users for selling assets to the Trend Token portfolio that it wants more of and also removing assets it does not want. There is an added fee for doing the opposite operations.
This fee or reward is in addition to the base trade fee. For more information on the fees please visit: https://blog.trendtokens.com/fees/. Holders of XTT can save up to 80% off the base trade fee meaning the reward provided by the Rebalance Incentive Model can be significantly larger.
This mechanism also helps make Trend Tokens more decentralized because the public plays an active and necessary role in the outcomes of the Trend Token performance, rather than relying on a third party to adjust the allocations of the Trend Token portfolio.
Example 1)
Let's assume the market was in a downtrend and TREND3 (for simplicity) was holding USDT. Now the market is trending up so the Dual Momentum Bot now desires 50% in BNB and 50% in BTC.
Table 1.0
|
Token |
Current Position |
Desired Position |
Desired Action |
Deposit Fee/Reward |
Redeem Fee/Reward |
|---|---|---|---|---|---|
|
BNB |
0% |
50% |
Buy |
0.15% reward |
0.15% fee |
|
BTC |
0% |
50% |
Buy |
0.15% reward |
0.15% fee |
|
USDT |
100% |
0% |
Sell |
0.10% fee |
0.10 reward |
As you can see in the table above, there is now a reward for selling (depositing) BNB and BTC to the Trend Token portfolio and a reward for buying (redeeming) USDT. There is a fee for the opposite transactions.
This incentivizes traders to make the USDT → BNB or USDT → BTC trades which gives them a fee but also brings the Trend Token portfolio to its desired allocations so the Trend Token price can reflect the performance of the dual-momentum trading bot.
Example 2)
Let’s look at a live example
The red arrows indicate the Trend Portfolio wishes to reduce its exposure to that asset, while the green arrows indicate it wishes to increase exposure to that asset (strong uptrend)
For a trader to reduce the Trend Token portfolio's exposure to an asset the trader needs to buy it. To increase Trend Token's exposure to an asset the trader needs to sell it to the portfolio.
So let’s sell ETH (increase portfolio exposure) and buy BNB (decrease portfolio exposure) with the Trend Token portfolio and compare it to the opposite transaction.
Base swap fee: -0.15% (0.03% while holding XTT)
Reward for selling ETH: +0.15%
Reward for buying BNB: +0.10%
Without XTT
Total Reward = -0.15% + 0.15% + 0.10%
= 0.10%
With XTT
Total Reward = -0.03% + 0.15% + 0.10%
= 0.22%
Conclusion
Rather than a trading bot making and paying for trades internally. The control and responsibility is in the hands of traders. Traders are rewarded for behaving in a manner that is consistent with the off-chain dual momentum trading system. This way the actual balances in the Trend Token portfolio can reflect the desired allocations as set by the dual-momentum trading strategy. This, in return, allows users to gain exposure to an advanced dual-momentum strategy while simply holding a token in their Metamask wallet, on their phone, or even in cold storage.