From Animal Crossing to Crypto Structured Fund (CSF)
In the world of Decentralized Finance (DeFi), convoluted financial products are giving the beginner a hard time to understand. If you ever wanted to start investing in DeFi, consider reading this article, which takes you to the world of DeFi and Crypto Structured Fund (CSF) with a vivid example from Animal Crossing.
Buying and selling turnips makes you rich?
Recently, everyone is suddenly crazy about this game: Animal Crossing. While others are trying hard to make some Bells (money in the game). Some have found a shortcut to becoming rich — Buying turnips.
What is turnips investment in Animal Crossing?
In short, turnips are allowed to buy on Sunday morning at a certain price via the NPC “Daisy Mae”, and you can expect a price change from the next Monday to Saturday. There are chances that you will get a huge profit from selling turnips at higher prices or lose some of your principal. The worst case is that you didn’t sell it during the week and all turnips will be worth nothing on the next Sunday.
Buying turnips in Animal Crossing is somehow like buying stocks in real life. You don’t know how the price will change in the future, but it worths taking a bet.
CSF’s concept in Animal Crossing
There is always a risk when it comes to investment, but there is a certain way to reduce your exposure to risk. In this case, investing in Crypto Structured Funds is like lending money to the people who have the skills and ability to invest.
Let’s imagine a situation
(Please pardon us if it differs from the gaming experience of Animal Crossing)
In the world of Animal Crossing, Alice and Bob, who each possess 10,000 Bells, wanted to invest in turnips to make some profits.
On Sunday morning, the NPC Daisy Mae arrived, giving a price of the turnips, which in this example, 100 Bells.
Bob hesitates to buy at this price because he is afraid of losing. At that time, Alice made an offer to Bob, if he lends his 10,000 Bells to her, she will return 11,000 Bells at the end of next week which gives him a 10% profit. “However, if the market price is too bad, I might be unable to return you with 10,000 Bells.”
Bob thinks it’s a good proposal that can relive him from the risk of the market and get a steady 10% profit, so he reaches an agreement with Alice.
Then, Alice bought a total of 200 turnips with her 10,000 Bells and another 10,000 Bells from Bob.
In the following week, there might be four scenarios.
A) Alice sold the turnips at 150 Bells.
Alice sold 200 turnips for 30,000 Bells.
gave Bob 11,000 Bells, (10% profit)
and earned 9,000 Bells herself (90% profit)
B) Alice sold the turnips at 100 Bells.
Alice sold 200 turnips for 20,000 Bells.
gave Bob 11,000 Bells, (10% profit)
and lost 1,000 Bells herself (10% loss)
C) Alice sold the turnips at 70 Bells.
Alice sold 200 turnips for 14,000 Bells
gave Bob 11,000 Bells, (10% profit)
and lost 7,000 Bells herself (70% loss)
D) Alice sold the turnips at 30 Bells.
Alice sold 200 turnips for 6,000 Bells
gave Bob the remaining 6,000 Bells, caused Bob to lose 4,000 (40% loss)
and lost all her 10,000 Bells (100% loss)
From Bob’s point of view
Consider the contract between Bob and Alice, even if the turnips price ends up being lower than the buy-in price. Bob can be sure that he can profit 10% as long as the selling price is above 55 Bells (less than 45% fall).
Only if the price ends up lower than 50 Bells (more than 50% fall), Bob will, therefore, suffer some loss because there’s no enough Bells for Alice to pay Bob.
In the worst-case scenario, if Alice sold her turnips at a higher price, Bob will not be able to claim more than 10% of the profit that Alice made.
From Alice’s point of view
Alice will suffer losses if she sold her turnips at a price lower than 105 Bells. She might even lose all of her Bells if she sold at under 55 Bells.
However, higher risk gives Alice the chance of earning a higher profit. If she manages to sell at above 110 Bells, she can amplify her profit because no matter how much the profit is, she is only liable to Bob at a fixed price of 11,000 Bells.
What if the price of turnips comes to 250 Bells?
If Alice can sell at 250 Bells, she will make 50,000 Bells, minus the 11,000 shares she is obligated to pay Bob, which makes her profit up to 39,000 Bells (290% profit).
In contrast, if she did not conclude this agreement with Tommy, she will only get 25,000 Bells (150% profit).
Are you Bob? or you rather be Alice?
There is no right or wrong in this question, we are rather asking which risk-profile is the best match of you?
If you choose Bob, you are likely to be a risk-averse investor, who prefers to get secure lower profit.
If you choose Alice, you are likely to be a risk-seeking investor, who is willing to profit more under higher risk.
The good news is that whether you choose Alice or Bob, you can find the ideal investment target in Crypto Structured Funds.
So, what is the Crypto Structured Fund (CSF)?
CSF is a DeFi product which having flexibility on “Target”, “Duration” and “Profit Rate”, mainly consists of two investment targets with different risk profile: “Preferred Share” and “Excess Return”.
The investment strategy of Bob is the concept of “Preferred Share”, which enables risk-averse investors to profit with lower risk.
And the investment strategy of Alice is the concept of “Excess Return”, which provides risk-seeking investors with higher leverage determined by market forces.
Please refer to our White Paper if you want to learn more about CSF.
Crypto Structured Funds will be released shortly.
