Once upon a time, when the world used to be a much darker, gloomier place where there were widespread diseases, violence, hunger and poverty, where wifi was weak, online deliveries slow, and algo-trading an exclusive luxury afforded only by the privileged few, the elites — hedge funds, individuals with significant portfolios or in some cases, vitamin D deficient, basement-dwelling programmers without social lives, it was a field enclosed with high financial and technical barriers.
That was until the arrival of trading bot platforms such as 3commas, Gunbot, Cryptohopper or Shrimpy, they dramatically lowered the barrier of entry and made algo-trading easy, inexpensive and accessible, the rise of these tools was a glaring beacon in a stormy sea full of despondence and hopelessness for small-time traders, and for a moment, there was a sense of relief, no longer were the sleepless nights and the constant monitoring of the volatile markets across countless exchanges, a significant change could be easily seen in the lifestyle of retail crypto traders, they were sleeping with both eyes closed, something never before seen, and on the rare occasions when they were actually at the office, they were sunken into the comfort of their chair with their feet on the desk and their hand dangling from the armrest with an ice-cold whiskey highball, thinking about dinner, all the while in the background, the machines were crunching away, backtesting their strategies, analyzing market sentiment and even making profits copying strategies from other successful traders, it was a brilliant time.
Without a doubt, for a long time, they were fulfilling a legitimate demand of the market and generating tangible value for their users, however, as more and more traders flocked to these fledging platforms, a common concern started to surface, more and more traders started to become wary and hesitant to enter their trade-only API keys as more and more horror stories about these services getting hacked and the stolen API keys were then exploited by the hackers to cash out through massive pump and dumps, the hackers would buy an illiquid asset, pump it to the moon with the stolen API keys then dump everything they bought immediately leaving the victims with worthless coins. For a long time, the idea of “safe” trading bot platforms simply didn’t exist, safety and trading bot platforms were mutually exclusive concepts, one either be safe or uses a trading bot platform, it wasn’t possible to have both, over time, traders have grown to accept these associated risks and consider them real and unwanted but unavoidable.
Recent developments in DeFi have opened up many new possibilities and made it a hotbed for innovations, everyday there are new ideas getting experimented on, what came out of one of those experiments is Tokensets, a product considered the decentralized successor to centralized trading bot platforms, it doesn’t take custody of your assets, it doesn’t ask you for you API keys, it can’t do arbitrary things to your portfolio since all it is allowed to do is defined exactly and rigidly in a smart contract down to the most minute details, Tokensets took that safe trading bot platform out of the mythology book and put it out into the real market.
On the Tokensets website, you can browse for, surprise, surprise, token sets, though, they are generally referred to on the platform only as “sets”, a set at the most basic level represents a collection of tokens, usually two, each allocated a percentage of the collection, like a pie chart, there two main ways of acquiring sets, minting them with the underlying tokens as collateral on the official platform, ETH can also be used in place of the underlying tokens when minting and Tokensets’ smart contract will take care of the rest, it will take that ETH to onchain DEXes such as Kyber or Uniswap and exchange it for the necessary tokens on your behalf, abstracting away the complexities of the process and saving you the trouble, another way to acquire sets is by purchasing them on secondary markets such as DreamX or DDEX, sometimes the price on these secondary markets might be more favorable so it’s best to check beforehand.
The soul of a set, what makes it unique from other sets, isn’t simply its collateral or the ratio by which its collateral is initially divided, but also in the way that collateral is managed over time, take the example of the BTCETH7525 set which gives its owner exposure to BTC and ETH at 75% and 25% respectively, this set rebalances its collateral whenever that ratio is broken, for example, BTC has gone up and ETH has gone down and the allocation ratio is now 85/15, it will trade BTC for ETH to bring the allocation back to its original ratio.
Another interesting set is the ETHMINVOL set, this set implements the Range Bound management strategy which essentially “buys the dips” and “sells the tops”, for example, if ETH price goes up by 30%, ETHMINVOL trades the ETH for USD, locking in the profits, the next day it goes down by 30%, it buys in again.
Trend trading sets offer a more sophisticated range of options, these sets use technical analysis to speculate on market trends, a popular choice at the moment is the ETH20SMACO set, this set uses a trading strategy based on the 20 day simple moving average of ETH (20SMA), it buys when ETH price crosses above its 20 day SMA and sells when it crosses below, these movements are also known as crossovers (CO), crossovers are indicative of trends or trend reversals, in following these signals, this set attempts to capture short-term gains.
BTCETH7525, ETHMINVOL or ETH20SMACO are significantly different from one another in the way they manage their underlying collateral, however, they are also similar in the way that they are all what’s called “Robo Sets” according to the platform’s jargon, Robo Sets’ trading strategies aren’t carried out by human but by strict rules written into smart contracts, giving them the advantage of being emotion-free, a crucial quality often seen demonstrated by the top players both on the poker table as well as the trading floor, Robo Sets can only trade when specific conditions are met, and when the trades occur, they can only occur under a specific, pre-defined price range.
There is another type of sets users can buy into on Tokensets, the Socal Trading Sets, unlike Robo Sets, Social Trading Sets are administered by actual people, seasoned traders with proven track records who spend their lives close to the charts. Social Trading Sets are the decentralized distant cousins of eToro, they let you evaluate, copy and potentially profit from other people’s trading strategies. Let’s examine the most popular social trading set at the moment, the ETH Moonshot X Set created by Aaron Kruger, Moonshot is a strategy that utilizes a technical analysis indicator called Relative Strength Index (RSI) to predict and capture bull runs, while the author has published the backtesting results for the strategy and they look relatively promising, it is important to note that Moonshot is still in its infantile stages, it lacks a reliable performance history and there are significant risks involved. Another interesting offering is the Fear & Greed Sentiment Set by CryptoCat, the set operates on the Crypto Fear & Greed Index which is an attempt to translate daily market emotions & sentiments into a number, using this number, the set simply buys when people are fearful and sells when people are greedy.
Social Trading Sets complements Robo Sets in the way that they bring style and personality into the product’s offerings, but more personality doesn’t have to mean less security, the magic sauce that makes Robo Sets great — trustlessness — also applies to social trading sets, custody is still fully decentralized, at no point in time do your tokens leave your wallets, you and only you have the ability to authorize actions that move your funds, when social traders trade on your behalf, there are constraints in place to prevent them from trading into an arbitrary token at an arbitrary price. That being said, even though Tokensets is a sound idea and the project has been extensively audited, there are 2 primary risks you must consider that may lead to the loss of your funds:
- Poorly performing strategies.
- A few overlooked security vulnerabilities inside Tokensets’ massive codebase.
Wrapping up
Tokensets’ roadmap is ridden with many ambitious milestones such as synthetic sets — sets made up of derivatives also known as synthetic assets, more interest-bearing sets — sets that park your profits into interest bearing stable coins such as Compound USDC (cUSDC) or Compound DAI (cDAI), multi-asset sets — sets made up of 2+ underlying assets, and many more, however, the most ambitious milestone of all is perhaps token-based decentralized governance, the project is currently undergoing a slow shift from centralized governance to decentralized governance, the end-game is to eventually introduce a way for the community to become financially vested in the project’s success and let the them take over the important aspects of the project such as extending the smart contract by adding new features, exchanges and assets, shutting it down in case of emergency (as always, withdrawals will be available), and most importantly, proposing and voting on future developments.
