Generate yields on your stable-coins with a low-risk options strategy.
TOTAL VALUE LOCKED
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The Droid-Fi products are algorithmic option trading strategies that are designed to generate yield on your assets. The strategies are offered for SOL, USDC, BTC and ETH deposits.
Sun Invest has operated the BTC, ETH and USDC strategies since January 2022. The strategies profit by buying and selling option positions as determined by a quantitative, machine learning model.
This model monitors an asset’s historic volatility and buys when this volatility is cheap and sells it when it is expensive. It does this while remaining within defined risk boundaries to ensure that drawdowns are limited.
This strategy utilizes options trading, a sophisticated derivative contract that can potentially enhance investment returns.
Our options trading strategy employs a data-driven approach based on historical patterns and quantitative analysis. By leveraging large datasets and statistical models, we aim to identify optimal entry and exit points for trades.
Our approach keeps us prepared for all market conditions. By constantly analyzing market trends and historical data, we design trades that succeed in both bullish and turbulent market conditions.
Our investment decisions are informed by rigorous data analysis, ensuring we make effective investments based on hard evidence.
Investments are safeguarded from risk with Copper's innovative MPC technology custody system - a cutting-edge solution for secure fund storage.
Our vaults provide a range of liquidity options to suit your specific needs. Users' funds can be withdrawn early (with a 3% fee), or scheduled in-advance for withdrawal at the end of the quarter.
The Crypto Options market represents a reserve of investment opportunities with significant inefficiencies and arbitrage options yet to be capitalized upon by TradFi funds.
While volatility can be unpredictable, historical data suggests that it tends to revert to its mean over time. This insight enables us to buy and sell volatility at the most opportune times, using a data-driven approach backed by decades of empirical studies and market theory, e.g. Summer, Poterba, et al., 1988.
In the Cryptocurrency market, those with a statistical edge and savvy risk management strategies have the potential to outperform. Our data-driven approach and rigorous risk management enable us to capitalize on opportunities and mitigate risk.
The model for the SOL, USDC, BTC and ETH strategy is essentially the same, however, performances will differ since each asset moves differently. For example SOL is more volatile than BTC and this will ultimately influence return dynamics. The USDC strategy generates its returns by trading ETH options and hedging out market exposure through futures contracts thus generating USDC yield.
‘Buying and selling volatility’ refers to a strategy that relies on a trader’s market view on volatility, which refers to the degree of variation in an asset's price over time. A trader ‘buys volatility’ when they think that the market will be more volatile - in either direction - than the options market is pricing in. A trader ‘sells volatility’ when they think the market will be less volatile than the options market is currently pricing it.
Drawdown refers to the decline in account value from a historical high point to a subsequent low point, before a new high is achieved. It is a measure of the largest single drop from peak to trough in the value of an investment, and is often used to assess the risk of a portfolio or trading strategy. If an algorithm starts with $100 and grows to a peak of $150 before dropping to $120, the drawdown is $30.
The Sharpe ratio is a measure of risk-adjusted return which is used to evaluate the performance of an investment by dividing the excess return over the risk-free rate by the standard deviation of the returns. In simpler terms, the Sharpe ratio helps to determine whether a higher return on an investment is due to smart investment decisions or simply a result of taking on higher risk. A higher Sharpe ratio indicates a better return for the amount of risk taken, making it a useful tool for comparing different investment opportunities.
After the LUNA/3AC collapse there was a sharp and sudden spike in market volatility. At this time the model identified an opportunity to short volatility by selling options.
The model correctly identified that high volatility in the market was resulting in very expensive option prices (at the time option prices were 200% above the historic mean) and alongside choppy price action. To monetize this high volatility the model signalled to put on a short 22k call and short 18k put BTC position for contracts one month forward and rolled these positions as they got close to expiry
If the BTC price left this 18-22k range, and quickly moved to 25k, the model might have either 1) closed some part of the short call position OR 2) rolled the call options from July to August, thus, increasing the strike price of the option and the market exposure to a rising market.
No, you don’t need to become an option trading expert! As a user you don’t need to know what a ‘strangle’ or ‘collar’ trade is. That’s the advantage of the Droid-Fi products, they do the hard work for you. If you would like to learn more about options however we recommend
The strategies can perform in any market environment however they tend to perform at their best in sideways (choppy) markets or during periods of sustained, high volatility. Note, this does not mean that they are always profitable.
The strategies are most prone to drawdowns when there is a long period of low (or high) volatility followed by sudden change in market structure. For example, a long period in a range-bound market followed by a quick transition to a volatile, trending market.
There are product brochures for each strategy, located in the ’Resources’ section on their respective pages. These have in-depth detail on past performance.
The strategy follows strict risk protocols that cover a number of key trade metrics. First, it ensures that set exposure limits are never exceeded. For example, the model is never allowed to have more than 50% directional exposure to the market through options.
If the market moves against the model, and a position gets close to a defined risk limit, the algorithm will automatically:
1) Hedge the position with another option or futures position in order to limit potential losses.
2) Close the position and buy/sell a different options contract to reduce risk.
3) Close all, or part of, a position.
Additionally, the algorithm is closely monitored every hour of the day by the Sun Invest trading desk which has 24/7 coverage.
Yes, there is always the risk of losing money with any investment, including the Droid-Fi products. Sun Invest’s strategies, however, have a strong track record of generating outsized returns with low drawdown since they began in January 2022.
User assets are transferred via the Droid-Fi vaults to an account at Copper Custody (https://copper.co). Copper Custody is one of the leading custodians in the crypto market. A custodian helps protect assets from external events, such as exchange hacks and technical failures.
Users’ assets only move from the vault to the custodian address and vice versa. By using this approach, and storing user assets in the custodian account, the Droid-Fi strategies are able to deploy user assets on any centralized exchanges (such as Deribit and Bybit) without the user’s assets ever being exposed to exchange counterparty risk. Even if one of these exchanges were hacked, or collapsed, your assets are kept 100% safe. The exchanges never take custody of the funds.
Users have two options when requesting a withdrawal:
You may schedule a standard, quarterly withdrawal where your tokens will be airdropped to your wallet at the end of the quarter.
You may request an expedited withdrawal where your tokens will be airdropped to your wallet within 10 days. This option carries a 3% fee atop the standard performance fees.
Performance fees for the Droid-Fi products are charged only on profits when you remove them from a vault. Fees are charged at 15% of profits. Expediting a withdrawal charges an additional 3% fee.
A 15% performance fee is charged in two equal 7.5% components. The first component can be discounted according to DROID Capital NFT holdings, while the second component can be reduced by burning $DROID tokens.
Component 1 - NFT Holding Based
Krakens (50+ NFTs): Will pay ZERO % of this component (7.5% discount)
Dinos (30+ NFTs): Will pay 1.5% of this component (6.0% discount)
Whales (10+ NFTs): Will pay 5.0% of this component (2.5% discount)
Droids (1-10 NFTs): Will pay 6.5% of this component (1.0% discount)
Component 2 - BURNT $DROID Tokens
All users will be able to reduce these performance fees by burning $DROID tokens. This $DROID can be received from staking or traded on the market.
A curve equation is used to determine 'how much $DROID token' is required to offset a user's fees.
For more information on Sun Invest go here: https://suninvest.com. For more information on past performance of the Sun Invest strategies: please see the product brochures available in the ’Resources’ on each product page.
Once an investor deposits into one of the Droid-Fi vaults, assets can only be transferred from the Raydium liquidity pool into whitelabeled Copper or Fireblocks multi-sig custody accounts. From there, assets get traded on Deribit and Bybit. Thanks to Copper's & Fireblocks' off-exchange trading functionality, the strategy can trade on these exchanges without being subject to counter-party risk. During quarterly redemption periods, funds are then moved from the custodial accounts, back into the Raydium liquidity pool, to be made available for withdrawal.
Technical Failure: Blockchain is a technology still in its infancy. The codebases of most blockchains are not older than 3 years and thus, don’t have a long track record. With blockchain protocols that haven’t existed for a long time, there’s a heightened risk of technical failures such as outages, hacks, and other technical failures.
51% Attacks: A 51% attack is a hostile takeover of a blockchain network. This happens through acquiring a majority stake in the network - either by amassing enough computing power (proof of work) or underlying tokens (proof of stake) of the network. This majority stake in the network is then being used to manipulate transactions, e.g. doing a double-spend attack. The motive for a 51% attack can be money (hacker) or a non-monetary motive (e.g. state actor undermining the network for other reasons). Recent examples: Bitcoin SV, Ethereum Classic.
Hacks: Hacks are a result of buggy code which is then exploited by a hacker leading to blockchain outages, data loss, or stolen funds.
Smart contract exploits/failure: Smart contract code that runs on a public blockchain is subject to exploits and other technical failures. These can lead to stolen funds or funds becoming unavailable. Due to the open-source nature of code that runs on the blockchain, everyone in the world can read a protocol’s source code. This means that hackers from around the world can review a protocol’s source code and hunt for exploits. Furthermore, with billions of dollars deposited into these protocols, the incentives to find an exploit and steal funds from the protocol are extremely high.
Freezing of assets: Centralized stablecoins (USDC, USDT), assets held with custodians (WBTC), and some protocols can be frozen by authorities.
Shutdown of protocol: Custody risk is the risk of losing money if something happens to the people or company you have your money with. This can be if they go bankrupt, are not careful with your money, or do not keep good records.
You can check out the performance data for all strategies here: https://www.dropbox.com/sh/jz3tmcc45wuqs1s/AADon2zrfoKdf-IKHwwxAFkQa?dl=0