ETP #2 (Macro Hedge)

Hello WSB Community!

  • While the development team has been working on a daily basis with the Balancer Labs core devs, we thought of introducing the 2nd ETP concept and put it up for discussion.
  • The feedback to ETP 2 (Macro Hedge ETP) has been fantastic both on and off our gov.wsbdapp forum. People really see the need for a self-custody solution to park their wealth during turbulent times where even the USD purchasing power is now in question due to inflation.

Thank you all for providing feedback to the proposed Global Hedge ETP, all great points that we have taken on board.

Similar to the process we went through for ETP #1 - This post is a summary of what we have collected so far and a conclusion on how to take this forward.

When moon? - See bottom of this post.

USD Weighting

There were some concerns that the weight of the USD constituent was too high, due to the unique risk it’s under as it’s world reserve currency status is being put under stress. Although this is true, in order for the dollar to fall from its perch there must be a replacement. The Chinese Yuan would potentially be the next runner up. Once we can add a CNY pegged Stablecoin into the ETP, we can reduce this weighting even further. Recent estimates find that roughly 60% of central bank reserves are held in dollars, which is down from previous decades and will likely fall further in the coming years. The Dollar weakness is something to keep a close eye on as danger of losing its reserve currency status would be detrimental.

Further thoughts on the USD constituent was to diversify the allocation assigned to it and spread this across multiple Stablecoins pegged to a USD or FIAT in general, as this could also be for EUR. As pointed out in the community posts, this would be to hedge against the failure of a particular stablecoin losing it’s peg.

There shouldn’t be any technical constraints on this. However, it may be more efficient to hold the USD stables in a StablePool, then their Balancer Pool Token (BPT) would be in the Global Hedge ETP.

Eg. A USDC:DAI stable pool having an allocation in the Hedge ETP assigned to the USD weight.

Furthermore, this could essentially work for a range of StablePools as liquidity migrates across onto the Balancer V2 Protocol. Once there is 50k USD liquidity in a pool for Pax Gold (PAXG) this could also be considered as a StablePool with Wrapped DGLD (WDGLD) or as an alternative into the main Hedge ETP.

Another approach or way to look at this is to use a Balancer MetaStable pool that includes all the USD pegged tokens, which could be the USD allocation in the main Hedge ETP from its BPT.

80% fiat stablecoins - 20% wrapped native crypto assets & precious metals

The current allocation to the ETP of which 80% is in fiat currencies is potentially too high. However, reducing this gave too much exposure to the upside. We believe this ratio should be reduced when future assets are ready to be included from the Asset Universe.

Asset Universe

As with most Indices/Funds an Asset Universe is created to see what is eligible for inclusion on the next rebalancing date. This Eligibility Criteria could also be voted on similar to how the ETP 20 would work. An example below:

  • Coverage: Have active tradable markets and been trading for 60 days.
  • Liquidity: Listed on Balancer and has at least 1 public pool with $50,000 USD worth of liquidity.
  • Token Holder Count: > 500 Addresses

*This of course can be changed but helps structure the ETP with good starting guidelines providing a form of protection and resiliency.

Once voted on what the Eligibility Criteria looks like, the asset universe can be created. This will help filter down constituents that will be effective in the ETP.

How do we choose what initial Assets/Tokens can be scoped?

Publishing a running “wishlist” of assets that the community is considering would be a great way to drive adoption and liquidity before they get voted into the Asset Universe.

Conclusion

What we want to avoid in the design of the ETP is too much “curve fitting” i.e. designing the best outcome on paper. Although this has its pros, it also has risks as it has not been tested in a live environment, 20/20 hindsight etc.

Investment Objective

The WSB Macro Hedge ETP (Exchange Traded Portfolio) seeks to capture long-term capital growth and to outperform inflation, with the overall aim of retaining purchasing power.

The WSB Macro Hedge ETP represents the real-time market performance of a basket of crypto, fiat, precious metals and other tokenized derivative assets.

The WSB Macro Hedge ETP physically holds onto the underlying assets in a non-custodial way, powered by Balancer protocol.

The ETP is owned and administered by WSB Dapp under the principles:

Representative The ETP should closely follow the basket and represent it adequately.
Transparent The ETP should be transparent in its design and reproducible in its calculation.
Timely The ETP should be computed as frequently as necessary to reflect price changes in the constituent assets of the basket.
Robust The ETP should be robust to disruptions such as erroneous data or pricing source outages, and be resistant to manipulation.

Principal Investment Strategy

The ETP is a passively-managed exchange-traded portfolio that seeks to achieve its investment objective by investing primarily in fiat-linked crypto stable coins, tokenized commodities and crypto native assets that are expected to benefit, either directly or indirectly, from rising prices (inflation).

This investment strategy deploys techniques designed to mitigate or eliminate downside systemic risk by referencing a portfolio of assets based on the interpretation and prediction of large-scale events related to macro factors such as economic models, market conditions, historical trends, and international relations (e.g., geo-political, regulatory and cross-border trade).

Asset Constituents & Weights

We took on board that Gold should have a higher weighting, so we reduced this from the FIAT stablecoins. We are still currently having a 80/20 split but this will reduce overtime when further assets are added to the mix. So, at inception, the WSB Macro Hedge ETP will hold the following assets and weightings:

Name Ticker Type Weight
USD Coin (Centre) USDC Currency 30.00%
Synthetic EUR SEUR Currency 23.60%
New Zealand Dollar Stablecoin NZDS Currency 21.40%
Wrapped Bitcoin WBTC Crypto 5%
Wrapped Ethereum WETH Crypto 5%
CoinShares Wrapped Digital Gold WDGLD Commodity 15%

Rebalancing

This SDR esque like product would not be rebalancing on the same timeframes (5 years). A proposed 2 month rebalancing would be in place. This allows us to see how well the ETP is performing and enough time on seeing what other constituents are ready from the Asset Universe.

Voting on Wishlist Assets

As recommended , we want to publish a list of Assets that would likely be included in the near term future. This can also be a running list that could be voted on a periodic timeframe.

  • USDT
  • DAI
  • sUSD
  • BUSD
  • PAXG
  • sAUD
  • GBP Stablecoin
  • JPY Stablecoin
  • CNY Stablecoin
  • CAD Stablecoin
  • XAG
  • Further Tokensied products

Portfolio Management & Expense Structure

The following table describes the fees and expenses that the Pool will apply to create or redeem units in the ETP. In addition, unit holders may pay other transaction fees, such as network gas fees on deposit and withdrawals of the ETP.

Type Amount
Performance Fee n/a
Swap Fee* +0.025%
  • Unit holders may vote to vary the swap fee rate from time to time.

Next Steps for ETP #2:

Thank you everyone for contributing feedback to refine ETP #2.

  • From here the process is just like with ETP #1 - it will go to a $WSB Token vote for yes/no to proceed with this product. This vote will go live in the next day or 2 and based on previous feedback - this vote will likely be a shorter voting period than last time.
  • If the vote is approved via majority ‘yes’ vote, then the product concept is approved and will be scheduled for construction.

When are these ETP’s actually going live?

  • The WSB website front-end and web3 integrations are already done!
  • This week we are finishing the last remaining code (including new parameters to avoid flash loan attacks and features we deemed essential to bring a highly scalable product like this to market).
  • As soon as coding finishes this week the 3rd party code-audit begins. We expect that to be 7-10 days.
  • We can launch 1 or both (if 2nd is approved by the vote) ETP’s from there (mid july).

Meanwhile we have a completely different product coming which will probably launch before the ETP’s. A full write up on this is being written - so is an updated WSB DApp product roadmap and a summary of how the various fees will be used to benefit WSB holders!

It’s going to be a HUGE July folks!

~ Apes together strong ~

18 Likes

i still don’t fully understand the ETP world , but after reading this makes it way easier and understandable , thank you for taking the time and putting the effort to make a simple read :v:

Great option for the second ETP. …
This sounds interesting too…full steam ahead devs! Meanwhile we have a completely different product coming which will probably launch before the ETP’s.

1 Like

Amazing work, this has clearly been discussed thoroughly with the team and seems ideal for the “safe” investor who seeks better than average passive income on their investments. The aim is to gain the average joe investor’s attention who are also interested in crypto as well as stocks, and this is the perfect stepping stone for it!

2 Likes

We are looking to have a balance between “safe” type ETPS that are a little bit boring but original and then some complete crazy shit – personally I would like to still see the “Your Wife’s BF’s Crypto ETP” but I need to come up with a way to convince enough people to vote for it lol

9 Likes

you’ll have my vote :wink:

2 Likes

Love it :yellow_heart:

I’ll be putting some $ into this ETP, really think it should do well as it’s v novel.

Also like the structure for how to decide how the basket develops over time. Deffo need some CNY, JPY and GBP in there, I think.

Any way we could get carbon credits made into a token synthetic and include those?!

Actually - in addition to this ETP, how about something on the ESG theme, seeing as it’s the No.1 growth market in TradFi asset management at the moment?

Could start with a green energy production ETP to start. And then maybe a social improvement ETP next? Good alignment with Millennial / Gen Z mindset and goals….

3 Likes

the Singapore Dollar stablecoin could be a future option

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Indeed, as stable coins get more attraction, we’ll have more options to diversify.

1 Like

Carbon credits synth assets would be epic

1 Like