Set Labs
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Set Labs

How to TokenSets

In the midst of one of the most volatile markets in history, it’s important to highlight tools that help to hedge risk in an entirely permissionless fashion.

For those who are actively engaged in the crypto markets, volatility has more or less become second nature. Despite this, we all know the feeling of waking up one morning to seeing a double-digit price drop across the board.

Thankfully in the past few years, we’ve seen progressions in the form of stablecoins, options and savings accounts which help to mitigate the effects of unforeseen circumstances.

But what if you could leverage all the benefits of these new primitives without blinking an eye?

With TokenSets, we offer a suite of robust trading strategies in the form of unique ERC20 tokens.

These Sets rebalance automatically, meaning you no longer have to worry about hedging to a stablecoin as the market turns bearish.

However, we fully recognize that as TokenSets become more expansive, it can be difficult to know which one has your best interests at heart. In this article, we’ll dive into some of the key parameters you’ll want to examine before selecting your next Set.

General Indicators

When heading to the Explore dashboard, the first thing you’ll note is the different segments of Sets.

“Social Trading Sets” are those created by experienced traders and influencers. This is in comparison to “Robo Sets” which were created and backtested by our team here at Set Labs.

Clicking “Traders” shows a Social Set Leaderboard while “Legacy Sets” are those which have been changed, upgraded, or deprecated.

A quick look at the Social Trader Leaderboard

We’re going to dive into the different aspects to keep in mind with these in a second, but first, let’s examine the similarities they share.

Market Sentiment

In our latest feature update, we rolled out a scale that indicators the optimism or pessimism on the underlying assets in a Set. This scale ranges from Very Bullish to Very Bearish, with some of the sentiment tags containing the word “Ratio” to make for something like “Bullish Ratio”.

Ratio tags indicate that both assets in the pair are volatile while the sentiment (i.e. bearish or bullish) refers to how the target asset (LINK, WBTC, etc.) is weighed relative to the base asset (ETH).

Using a LINK/WETH Set as an example, when the Set is 100% WETH, it will show “very bearish ratio” seeing as there is no exposure to the target asset, LINK, relative to the base asset WETH.

TLDR: If you’re long crypto, choose a Set that is Bullish. If you’re short crypto, choose Set that is Bearish.

ETH 20 Day MA Yield listed as “Very Bullish”

Past Performance

The next thing you’ll want to examine is how the Set has performed in the past few months. By taking a look at its 1 week, 1 month and 3 month performance (against ETH or USD), it’s easier to see how a Set has done in the past, rather than simply choosing the Set which has performed best in the last 24 hours.

A look at how a Set has performed over different intervals of time.

Market Cap

The easiest way to see which Sets are most popular is by looking at their respective market cap. Those with the highest market cap have historically performed the best.

This also means that when the Set rebalances, there will be a lower chance of experiencing price slippage as we often see Sets with the highest market caps having the most participation from market makers during rebalancing auctions.

Robo Sets sorted by Market Cap.

Now that we’ve covered the basics, let’s do a deep dive.

Robo Sets

Robo Sets were the very first Sets we launched on the platform. A lot of time and thought went into these Sets, so here’s what you should keep in mind.

Underlying Tokens

The most important aspect of a Set is the assets which it is comprised of.

Pro Tip: Keep an eye out for “Yield Sets” which rebalance to interest-earning stablecoins thanks to Compound cTokens.

Rebalance Parameters

Every Robo Set follows the same equation.

Time Since Rebalance + Indicator Parameter = Rebalance

Every Set has a different window of time that it must pass before it can rebalance. For example, if you see “2 days required” this means a Set must remain in its new makeup for a minimum of 2 days after it rebalances.

Similarly, every Set has a different indicator that can trigger a rebalance. You can easily see the rebalance target at the bottom.

This can also be viewed under the Rebalancing Tolerance tab in the “Key Facts” section.

This means that this particular set will rebalance when the price of ETH drops below $150.07.

Rebalance Phases

Lastly, you’ll want to keep an eye on the rebalancing phase.

Every Set has three main statuses: Normal, Proposal, and Rebalancing. For Trend Trading Sets, there is another status between Normal and Proposal called Initial Crossover which you can read about here. For this article, let’s touch on the main three:

  • Normal is the dormant phase between rebalances that the Set will be for the majority of the time.
  • Proposal is the phase following Normal when rebalancing conditions are satisfied. This period of time confirms the next allocations and gives you a heads up that Rebalancing is about to start.
  • Rebalancing is the phase following Proposal when the actual execution occurs. During Rebalancing, the underlying components in the old allocation and new allocation are swapped via the open dutch auction process in the smart contract.

If you can catch Sets during their Proposal stage, you may be able to capitalize on shifting market trends.

Next, let’s take a look at where Social Trading differs.

Social Trading Sets

Beyond all the parameters above, Social Trading Sets have a couple of differences. The biggest to keep in mind is the associated fees.

Fees

  • Buy Fee — The cost to enter the Set
  • Streaming Fee — The amount of the total market cap allocated to the trader over a predefined amount of time
  • Performance Fee — The amount of fees taken on a Set’s profits above the market benchmark.

An easy way to see all these metrics is towards the bottom of a Social Set.

Screenshot taken from the ETH Trending Alpha ST Set II

Please note that Social Sets do not follow the same automated rebalances as Robo Sets. They rebalance whenever the Social Trader sees fit relative to their underlying strategy.

Trader Dashboards

Another key aspect of Social Trader is the Trader Dashboards. This is where you can see where a Social Trader made a change in their Set and why.

If you’re looking to try your hand at Social Trader, we largely recommend visiting the Trader Leaderboard to see which Social Sets have the most market cap and individual holders.

Reading Between The Lines

If you’ve made it this far in the article, we can tell you’re pretty serious about TokenSets. Let’s examine how you can tie all these notions together to make the most of your Set trading experience.

Forecasting Rebalances

When choosing a new Set to enter, perhaps the best thing you can do is think ahead to the next rebalance. The easiest example of this is a Set which is currently 100% ETH and 0% stablecoin.

By entering into this Set while entirely in ETH, you’re effectively going long with an underlying hedge against downturns as the Set meets its underlying rebalancing criteria.

Key Tips

  • When examining the Rebalancing Window, be cautious of the likelihood for it to rebalance in choppy markets. Sets with smaller windows are likely to rebalance more often in rapidly changing markets.
  • Monitoring indicators that are likely to be triggered faster is a great way to know which Sets are more likely to capture reversing market trends.
  • When possible, look for Yield Sets. Earning interest while in a stable phase is a great way to earn passive income while knowing the Set will automatically rebalance upon the triggers being met.

Lastly, please keep in mind the differences between Social Trader and Robo Sets. If you’re looking for a Set that will always rebalance relative to pre-defined indicators, Robo Sets are likely for you.

If you’re hoping that a given trader can outperform the market and technical indicators, Social Sets are definitely more in line.

Overall, the vast nature of Sets is something we’re very proud of. We always recommend proceeding with caution and never investing more than you’re willing to lose.

Looking Forward

In the coming months, we’ll be looking to expand Set’s underlying capabilities in a number of exciting ways.

From new assets to new traders, indicators and incentive programs, we highly expect Set trading to become as competitive as ever.

If you’re interested in spinning up your own Social Set, please fill out this application.

In the meantime, be sure to keep a close eye on the TokenSets Twitter account which is the first to let you know when new rebalance parameters have been triggered.

See you on the digital trading floor!

Learn more about Set and join our community

Newsletter | TokenSets | Website | Medium | Twitter | Discord

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Set Protocol is an open-source protocol that leverages DeFi enabling everyone to build market-leading, innovative structured products. TokenSets is a seamless portal into Set Protocol, allowing users, through Web3, to build and get exposure to structured products.

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Chance favors the connected mind. Focused on building communities by making crypto cool again.

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