The Power of Dollar-Cost Averaging with Ricochet Exchange
What is Dollar-Cost Averaging (DCA)?
DCA is the process of automatically investing or selling fixed amounts at fixed intervals. For example: Using a Ricochet rexMarket to buy $1 of Bitcoin every 20 minutes.
By employing this strategy, you’re buying less of an asset as its price rises and more as it falls. Think of it like this: $100 will buy more Bitcoin when the price falls and less as it rises. Check out this visualization 👇
DCA Visualized
Why should you DCA?
1. Save on risk
Notice the “number of shares owned” blue shading on the DCA Viz. As you continue to buy BTC, the dollar amount you’ve invested rises linearly due to the periodic investments over a regular interval. This mitigates the price risk of buys by spreading out the purchase over time, insulating your position from short-term spikes by reducing the chance of your investment being subject to price volatility or artificially inflated market sentiment.
Instead of trying to time the top or bottom of the market, dollar-cost averaging lets an individual take on exposure to a certain asset, while minimizing how much of the exposure is subject to the short-term volatility of the asset.
2. Save on stress
Risk parameters aside, the act of trying to time the market is nerve-wracking in itself. Even if someone believes a token will rise in value, they need to make sure they enter the market at a good price point. Mistiming the markets can leave investors second-guessing and FOMO’ing into losing bets, which no one enjoys.
As an alternative to investing all at once, incrementally investing in a mechanical way over a period of time, allows you to secure an average entry price (see the “average price” line on the DCA Viz). This helps to reduce the guesswork and eliminate the emotional volatility you subject yourself to under more traditional investing techniques.
Using DCA can ensure that you won’t bail on an investment in a large downswing since you’re automating the investment, not actively pulling the trigger, and means you don’t need to worry about finding the time to buy and sell.
3. Save on time
Lastly, trying to time the markets is a time-consuming process. In the busy and fast-paced world of crypto, your time and attention are your most valuable assets. By reducing the time you spend trying to find the tops and bottoms, and pulling the trigger, you can spend less time on one particular asset, and more time doing other cool things.
Dollar-cost averaging is a simple way to automate your investment strategies and free up your calendar to focus on other things that require attention.
Ricochet DCA Use Cases
🚰 Section created by ChaaS, with support from Satvik. Builds off the initial work from Anthony
For investors
One of the core use cases is for investors looking to flexibly craft and deploy automatic trading strategies in a way that optimizes their risk + reward exposure.
As mentioned above, executing trading positions in a single moment in time comes with serious drawbacks. Mistimed tops or bottoms, price slippage, execution stress and a myriad of other factors compound the already difficult task of selecting which assets to back. But even if you wanted to start spreading your exposure over smaller, periodic buys, alleviating many of these concerns in principle, the tools to do so are either: Rudimentary, siloed in centralized exchanges, or rendered less profitable due to exorbitant gas fees.
Enter Ricochet’s rexMarket tool. rexMarket allows users to automatically stream a portion of their salary or income to crypto investments overtime, executing a DCA strategy with the simple click of a few buttons.
These strategies are composable in a variety of various forms. Users can mix and match different asset types and buying schedules to create whatever custom strategy they want to employ.
Simply put — rexMarket lets you optimize return on your investments by simplifying the creation and execution of weighted DCA investments strategies for investors of all levels of sophistication.
For traders
Traders can also benefit greatly from Ricochet. Price slippage often hampers the execution of complex trades in a trader’s portfolio and reduces the profitability of otherwise well-crafted strategies.
Ricochet helps solve this issue by allowing complex trades to be executed over a long period of time through a rexMarket. This greatly reduces the sudden impact on liquidity pools and minimizes alpha-loss associated with trades, by giving the pool’s rebalancing mechanism time to restabilize the pool. Price diversification mechanisms can be a key wedge in a sophisticated traders toolkit.
For the culinarily inclined, think of executing large trades in liquidity pools like whisking butter into a rich sauce — done in small, frequent doses overtime, the sauce absorbs the butter readily and the result can be excellent. Done all at once, the results can be… suboptimal.
For DAOs and Businesses
Streaming DCA strategies can also be valuable for DAOs and businesses looking to automate away the complexity of investing a portion of their treasury assets in a stability-focused, risk optimized manner.
It’s no secret that task execution within DAOs can be complex (an unfortunate side-effect of decentralized organizational design). Even for DAOs that do vote to diversify or invest their treasury, executing these investments in an optimal, transparent way that aligns with community desires is quite difficult.
That’s why Ricochet is an impactful solution for DAOs of every stripe. Having the ability to stream treasury diversification investments over time reduces the impact of price swings on these investments, puts the execution of these investments into the hands of a transparent automated mechanism, and can be easily redesigned and redeployed according to shifting DAO desires.
Ultimately, using Ricochet can give DAOs a safe, time-efficient tool to maximize the value of their treasuries and support the growth and scaling of their platforms.
