12% annual interest! Bincentive combines quant trading and DeFi to bring you BinFi.
The term DeFi has become the cusp of blockchain application in 2019, thanks in large part to the recovery of the market this year. According to CoinMarketCap’s data, Bitcoin began to rise in price since February this year. It was also during this time that MakerDAO and its DeFi platform gradually gained attention.
Bitcoin currently has an inventory of 17.5 million coins and an annual supply of 700,000. Its inventory-flow ratio is 25 years, similar to that of gold and silver, which allows Bitcoin to be classified as a currency; currency has time value given interest is generated through time or investment. Most of the assets originally in the cryptocurrency market can only be traded directly, with its time value unexchangeable.
In ETH based lending platforms, such as Compound, dYdX, etc., they allow users to lock and lend assets to obtain interest. Marking the importance of realizing the lending market on crypto assets, the stable interest rate on Compound’s DAI has once reached an annual interest rate of 14%.
According to MakerDAO’s official data, the annualized interest rate (or stable fee) required to borrow DAI on MakerDAO has risen all the way from February this year, with a highest increase by 41 times in August this year. The surge in stable fees shows that demand in the lending market is greater than the supply, and the core uses of these lending platforms are as follows: deposits, loans, asset management, and payments.
In the case of a lending platform, the interest that the lender can obtain is not determined by the borrower and the lender, but rather by the demand. This is why at the beginning of the year, with the rise in crypto prices, the interest rate of Compound was as high as 14%. After Q2 however, as price trends gradually slowed down and began to consolidate in July, liquidity and opportunity to arbitrage dropped.
When borrowers gain less profit with the assets they borrow, the interest rates on lending platforms naturally decline. At the moment, DAI’s stable rate is 5% on MakerDAO; DAI on Compound is down to 4.01%; and DAI on dYdX is 5.14%.
Taiwanese startup Bincentive has just launched BinFi, a new product that extends the concept of DeFi lending, which combines high and low risk cryptocurrency investments with the core needs of lenders and borrowers: “interest rates” and “asset investment management”.
Bincentive plays the role of an intermediate matching lenders and borrowers. When there is a successful match between two parties, the borrower’s investment profit is maximized through a professional quantitative trading strategy.
Individual portfolios are also positively related to their risk tolerances. When conservative investors allocate assets, a steady and positive return is favorable; while risk-oriented investors pursue higher than average returns by leveraging greater risks. By distributing risks, BinFi offers a new investment option that has both a fixed income product (The Rock) and a risk investment product (The Flame), so that any user on the risk spectrum can be satisfied through mixing and matching.
In addition to satisfying different risk preferences, BinFI also allows users to distribute and invest crypto assets in the most suitable ratios. Bincentive provides a clear tool that advises users on investment allocations based on Monte Carlo’s simulation results. Users will get to see expected returns under different risk-weight ratios, corresponding to the fixed income model, the risk investment model, or a ratio of both.
Participants in BinFi can be classified into “fixed income type — The Rock” and “risk investment type — The Flame” based on their risk preferences.
The Rock obtains interest by lending crypto assets. With its annual return rate at 12%, it is superior to current decentralized lending platforms. The Flame no longer needs to over-collateralize in current decentralized lending platforms, but rather pays a small amount of funds to own the investment profit of the crypto assets borrowed from the Rock. All profit after performance fee will be given to The Flame.
Under BinFi, the user categories and benefits are:
• Fixed income product (The Rock)
The Rock provides crypto assets to The Flame. In return, The Flame pays stable interest every month to The Rock while The Flame invests in a Bincentive-selected premium strategy. At the end of the contract period, The Rock recovers 100% of its lending assets without the risk of loss.
1 unit of The Rock is priced at 1,000 USDT. When a member subscribes for 1 unit of The Rock, the 1,000 USDT invested will directly enter the pool of funds for the premium strategy. A member who subscribes for 1 unit of The Rock will receive 60 USDT in interest over the 6-month contract period.1% platform fee will be charged for 1 unit subscription of The Rock. In this case, 10 USDT will be charged.
• Risk investment product (The Flame)
The Flame initially inputs a small amount of funds to gain access to a greater amount provided by The Rock. The Flame then invests in a Bincentive-selected premium strategy. Through high multi-leverages, investment profits magnify.
1 unit of The Flame is priced at 100 USDT. When a member subscribes for 1 unit of The Flame, he will receive access to 1 unit of The Rock, or 1,000 USDT. The 100 USDT invested will be divided into the following 3 uses:
- 60% is interest payable and is paid as fixed interest to The Rock.
- 30% is buffer for the premium strategy’s P/L. If the premium strategy nets negative, this buffer will be used to compensate The Rock’s principal assets. If the premium strategy nets positive, the buffer will be returned to The Flame.
- 10% is platform management fee.
The premium strategy begins trading on the contract start date. Based on real-time performance, the annualized return is expected to be at 30%. As a result, the strategy will earn 150 USDT during the contract period. The trading team will receive 30 USDT given the 20% performance fee. The Flame will receive a total of 150 USDT, with 120 USDT after the performance fee has been deducted and another 30 USDT when the buffer has been returned. This means the annualized return rate can be as high as 100%.
Note that if the performance of the premium strategy is negative, no performance fee will be collected by the trading party. In the same scenario, the borrower will lose all of his assets, much like forced liquidation given insufficient collateral. However, the smart contract system will always guarantee that the asset lender receives his interests during settlement periods.
Bincentive hopes to extend the concept of DeFi to bring in more conservative and risk-oriented investors alike. Combining “low risk” allocation with “high risk” investments, BinFi satisfy the two extremes.
When investors find the right investment products, they also increase liquidity in the market; by working with professional quantitative trading teams, investors reduce the risk that comes with volatility in this space.
Chaoming Cho, founder and CEO of Bincentive, said: “BinFi’s asset management and its risk distribution architecture was designed based on meticulous calculations, as well as historical data backtesting and real-world testing. In addition to verifying the credibility of strategic performance, BinFi also significantly increases the stability of the ecosystem. Introducing The Rock for fixed income investors and The Flame for risk investment investors provides a competitively unique investment option in the crypto market.”
This article expresses an independent view of Bincentive. Bincentive is not responsible for investment profits and losses, and investors should carefully consider various investment risks.
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