Make returns by writing channel offers to the market in low volatility
Channel is our newest product on BracketX.fi designed for profiting in sideways markets and low volatility. Funders provide offers to the market and buyers purchase these offers. The following sections describe the process of funding channels.
- Selecting an asset
- Editing the available amount
- Making offers
Connect your wallet
Head on over to https://app.bracketx.fi to connect your wallet when prompted.
Add network
Connect to Arbitrum One mainnet by allowing the site to add the network.
Manually connect to Arbitrum One mainnet
If you need to manually connect, please use the following steps to add the network.
Click on the Networks dropdown at top and select “Add Network”
Enter the following into the settings fields:
- Network name: Arbitrum One
- New RPC URL: https://arb1.arbitrum.io/rpc
- Chain ID: 42161
- Currency symbol: ETH
- Block Explorer URL: https://arbiscan.io/
Allow funding
After connecting your wallet to BracketX.fi, click the green button labeled “FUND.”
Select “ALLOW” to access USDC and add in your wallet.
Make funding available per asset
To start funding, select an asset (BTC, ETH, etc). BracketX allows funders to make USDC funds available PER asset. For instance, any USDC made available for BTC will NOT be available for ETH channels. Within the dropdown, there are two numbers. In gray, you will see the estimated spot price of the asset. In white, you will see the amount of USDC you have available and the amount currently locked. If this is your first time using as a Channel funder, available and locked will be $0. As your Channel offers are purchased, some of your available amount will shift to being locked for the duration of the contracts.
To make funds available, type in the amount you want to add and click “ADD.” You will need to approve this change in your wallet.
Edit the available amount
To make funds available, or change the amount , enter the NEW amount you want to become available. The available amount is used to fund the max claim amount when your offer is purchased by a buyer and becomes a contract. Upon purchase, your funds become locked for the duration of the contract. If you already have funds available, entering a new amount will automatically amend the existing balance to meet that new amount. You will then be presented with a button to add or remove funding showing the amount of the difference.
You can always remove all of your funds by setting the amount to $0, but when adding or subtracting funds, a minimum difference is imposed, which is currently $100. To further segregate your funding, consider using multiple wallets.
Making offers
Making offers for Channel is different than for Bracket in that you are deciding the percentage WIDTH of the channel above and below the spot price at the time of purchase for the duration of the channel. Channels are percentage ranges that are set for a period of time. As a Funder, you want to minimize the amount of time a buyer’s position stays in the range while still being competitive with the market.
After selecting an asset and setting the amount available for that asset, you can set the width of the channel for which you’d like to have offers available for buyers to purchase.
There are currently three channel offers available, each with a different payoff multiple and term. A fixed payoff multiple is the max payoff achievable if the channel did not break out and go the full term. A channel will expire and automatically claim the first time the spot price breaks out of the channel or the full term is reached, whichever is first. Channel currently has a 1-minute resolution on claims.
When the funder sets the percentage width, Channel sets that percentage above and below the spot price at the time of purchase. In this way, pricing is floating and does not need to be updated minute by minute. The BEST price would be the WIDEST channel with the less favorable prices being narrower. Buyers will only see the best offer, i.e. the widest width with the most available funding for that offer.
Let’s take a look at a few examples for BTC:
Ex. 3x, 24 hour
The 24hr channel has a 3x potential payoff, which would result in an 8hr break even point for any buyer of the offer. That is, if the spot price of the asset remains IN the channel for 8hrs, the buyer earns their investment back (less fees). In the current example, the best-priced BTC channel is 0.7% wide and equates to a $22,798 — $23,119 range. A buyer would see the following pricing:
Ex. 6x, 3 day
The 3 day channel has a 6x potential payoff where a buyer would have to remain IN the channel for 12 hours to break even.
Ex. 10x, 10 day
Finally, a 10 day, 10x channel would require the buyer to be IN the channel a full day before they break even.
A Pricing Strategy to Consider
Because buyers have leverage up to 10x, and you want to make a profit as a funder, you want to price less than what you believe the break even volatility is. For example, the 10x, 10 day bracket has a one-day break even. If you think the fair price of 1 day volatility is 2%, it would not make sense to price at 2% as the maximum profit you have is the premium received (1X) but you could lose 10X. Therefore you want to price under the 2% volatility with the hope that the channel breaks out before 1 day in most cases. The discount is based on how much money you would like to make (on average) while still remaining competitive enough for buyers.
Volatility is generally believed to vary logarithmically over time. So 1/2 day volatility as compared to 1 day only reduces volatility to 78%, and 1/3 the time down to 65%. Mathematically it’s reduced as log(12)/log(24) and log(8)/log(24).
For example, if you want your 1 day volatility contracts to have an average break even of 18hrs and not 24hrs, then you should set your volatility to log(18)/log(24) which is about 91% of 1 day volatility. This small 9% reduction should give you a significant reduction in your break even time, which should give you 1 — (18/24) as an expected return, which is 25%.
A reasonable pricing strategy would be to first determine what the fair 1 day volatility should be, and then reduce it slightly (e.g by 5–10%). Then use that as the price for the 10d, 10x channel %, and take 78% of that as your 3d, 6x, and 65% of that as your 1d, 3x channel % respectively .
Please keep in mind that this is on average and sometimes the market will be much less volatile than you had expected and some of your payouts will exceed your premium received. The longer you fund, the more the average should become your experience.
The column labels on the channel fund screen indicate the following:
OFFER %: Percentage width of the channel above and below spot price at time of purchase
BEAT: Your offer will BEAT the best offer available by 0.1%. Note, the minimum adjustments on offers are 0.1%
MEET: Make your offer equal to the lowest offer in the market
CLEAR: Remove offer for the channel
Once your offers have been entered, please be sure to hit “UPDATE OFFERS” and confirm the transaction in your wallet. You will receive a confirmation when your offers have been updated. Also, the light grey cells showing your edits will now be back to a black background.
Order management for Channel
As a Funder on the platform, you’ll want to pay attention to a few details in this section to get your offers filled. The protocol manages orders on-chain and determines which of the minimum priced offers will get executions based on the following rules:
Filter orders by size: minimum size must be greater than or equal to the max claim amount required to fill the buy order
Sort by time: FIFO (“First In First Out”) based on time of last order (pricing) update
- Order data is on-chain
- The order to show is based on our GraphQL server and the Channel front-end, which will lag a few seconds behind the smart contract in terms of showing updates to offers
- The smart contract has no order management logic and needs to be told the specific Funder that should be used for the match. This determination is done by our front-end UI
Ex. Order matching
Buyer A is purchasing a 3x 24 hour channel. Buyer A is investing $1,000 with a max claim payoff potential of $3,000 (3x the $1,000), and the best channel range is currently 1%.
Assume ETH is $1,650 at time of purchase and three 1% offers were received in the following time order for the same channel price range, equating to $1,633.50- $1,666.50.
Available Offer 1 (timestamp: 9:00 UTC): claimable range $1,633.50- $1,666.50, $2,000 max funding available
Available Offer 2 (timestamp: 9:05 UTC): claimable range $1,633.50- $1,666.50, $8,000 max funding available
Available Offer 3 (timestamp: 9:08 UTC): claimable range $16,33.50- $1,666.50, $10,000 max funding available
In the above example, Bracket will prioritize Available Offer 2 as it is sufficient to fill the buy order and was updated prior to offer 3.
Order depth
On the Funder page, you will see a button that reads “DEPTH.” Clicking on the button will take you to the “Order Depth” screen.
Reading funder depth
The “Order Depth” screen shows the market’s offer depth. The top 3 prices are shown vertically, with the best offer at the top. The total cumulative available amount per bar is shown on the horizontal axis. The best price is the highest, which offers the widest channel to the buyer.
Gray bars: The other market participants’ offers
Colored bars: Your offer
My Trades (SOLD)
Within the “MY TRADES” section, funders can see their channels under the “SOLD” button. Channel funders will be able to see their “Active,” “Claimed,” or “Expired” brackets.
Payout
The total value of all your Channels that you have paid on the Expired page.
Revenue
This is the total amount of investment you have received for all your Channels on your Expired and Active pages.
Return
The return is calculated as (revenue — payout) / revenue on all your Channels
Yield in sideways markets and low volatility
Oftentimes, blue-chip assets like BTC and ETH experience moments of intense volatility followed by longer periods of sideways price movement. Until Channel, there was no user-friendly way to make money in these conditions. Channel delivers a simple, intuitive product that allows funders to generate premiums while buyers attempt to get sustainable yields. Further, Channel serves as a base protocol for other hedging use-cases as well as periodic buying products such as Bracket Labs’ Epoch. We look forward to you trying out funding channels on BracketX.
If you have any questions, comments, or suggestions, please feel free to ask them on our Discord.
Check out our docs here to learn more about the protocol.
— The Bracket Labs Team
