Stable Tranche: Deep Dive!
For those investors looking to hedge against the downside risk on their crypto assets, Altius has a unique offering — The Stable Tranche.
The Stable Tranche will offer 20% downside protection for the holder , from the strike price , while also providing the holder full upside benefits, when the token price goes up.
Let’s take the example of ETH as a crypto asset and a strike price of $3000 per ETH. The chart below shows the pay-off of Stable ETH Tranche (STB-ETH) vs just HODLing ETH
As is evident from the graph the value of STB-ETH always remains higher than ETH, they move together when the price of ETH crosses $3000, however STB-ETH retains its value between an ETH price of $2400 and $3000, while HODLing ETH will incur a loss on the position.
Pricing of Stable Tranche
Continuing with our STB-ETH example , as we know that since the value of STB-ETH at all times is greater or equal to ETH, it naturally follows that STB-ETH should be priced at a premium to ETH. For example a premium of 5% implies that 1 ETH is equal to 0.95 STB-ETH
We can think of the STB-ETH price as consisting of two components
STB-ETH price = (Intrinsic stbETH value) + (Market risk component)
The Intrinsic Value of STB-ETH can be thought of as the value of the token based on the current price of ETH in USD , this is described in the price chart above.
The Market risk component can be thought of as a representation of the future expected price movement of ETH and its effect on the Intrinsic value of STB-ETH. For example if most market participants believe that ETH price will rise from current levels, it would follow that value placed on downside protection given by STB-ETH is low and hence the Market risk component will be small.
Advantage of Stable Tranche
For long term token holders the Stable Tranche offers a unique opportunity as it provides:
Unique payoff characteristics
-20% downside risk protection
-Capture full upside movement
No recurring fee
-No recurring payments
-Low transaction fee
-High liquidity
-Ability to enter / exit a position instantaneously
-Low operational overhead
-No need to change positions every week/month (as with options)
- Opportunity to earn additional yield through liquidity provisioning (on top of Staking + DeFi)
User segment
The Stable Tranche with its unique characteristics, will appeal to long term token holders who are looking for stability and protection against volatility .
Some examples of institutional users interested in Stable tranche could be
VC funds, protocol treasuries, family offices, RIAs and wealth managers. Individual retail investors taking a multi year view on the market will also be interested in locking in their gains and price.
That was a quick deep dive into our Stable Tranche. What are your thoughts on the it ? Do let us know your comments / suggestions on connect@altiusfinance.xyz
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