Set is launching a new category of automated portfolio management strategies

Anthony Sassano
Jul 15 · 7 min read

We’re excited to announce the launch of our new ‘Trend Trading Strategy’ category on the TokenSets platform!

In this article, we’ll be covering our first new Set in this category, the ETH20SMACO, along with the pros, cons and performance of this new Set.

Key Points:

  • Set is launching a new category of portfolio management strategies that automatically rebalances utilizing technical indicators (e.g. moving averages).
  • The first Set in this category, the ETH 20 Day Simple Moving Average Crossover Set (ETH20SMACO), rebalances based on crossovers between the current ETH price and the 20 Day Simple Moving Average.
  • Two new oracles, the ETH Daily Price and Moving Average oracle, have been deployed to support the Moving Average strategies.
  • Many more technical trading Sets are coming.
  • Get started by purchasing an ETH20SMACO Set on TokenSets today!

Trend Trading Strategies trade based on technical indicators which is commonly referred to as Technical Analysis (TA) and is used in traditional and crypto markets. Many traders share their ideas and insights on websites such as TradingView and online community forums like /r/EthTrader and Twitter.

The ETH20SMACO Set

The first Set in the Trend Trading Strategy category is the ETH 20 Day Simple Moving Average Crossover Set (ETH20SMACO). The ETH20SMACO Set is structured to automatically rebalance based on a crossover between the current price of ETH and the 20 Day Simple Moving Average (20 SMA) technical indicator.

An ETH20SMACO Set is comprised of either 100% of the target asset (ETH) or 100% of the stable asset (USDC). If the price of the target asset crosses and stays below the 20 SMA indicator, the ETH20SMACO Set will automatically sell all of the target asset into a stable asset to reduce further losses in the downtrend. Conversely, if the price of the target asset crosses and stays above the 20 SMA, the ETH20SMACO Set will buy the target asset to capture upside in the uptrend.

The strategy is configured to have a minimum rebalance interval of 4 days along with a 6–12 hour delay period for confirmation of a price trend. If the signal has not been confirmed after 12 hours then the rebalance proposal must be called again.

The ETH20SMACO Set is powered by existing Open Finance protocols and uses USDC as a stable asset, Kyber Networks on-chain reserves to source liquidity for the underlying tokens and Set’s new moving average and daily price feed oracles.

Pros and Cons of holding the ETH20SMACO Set

Efficient Taxation

In many countries, traders incur taxable events every time they make a trade on an exchange. In certain jurisdictions, such as the U.S, these are often taxed at short term capital gains rates (up to 40% tax on gains in some cases) vs long term rates, which can be more favorable. In some countries, users may potentially be able to take advantage of long term capital gains tax discounts by holding the Set for a year, rather than making trades themselves and incurring a taxable event on each trade. Additionally, in some jurisdictions, directly depositing USDC or ETH into the Set that do not require an exchange of underlying components may not result in a taxable transaction.

None of the above should be interpreted as tax or investment advice, as we are not qualified or licensed to provide financial, tax, or legal advice. Taxes vary greatly by jurisdiction. There is no guarantee that a tax authority in your jurisdiction will adopt the views of any other jurisdiction, and there is no guarantee that usage of Set’s will provide beneficial or equivalent tax treatment relative to other trading transactions For any financial, tax, or legal matters, we recommend consulting your own professional. For more information, head to our FAQ.

Automatic Upgradeability

Over time, Set’s offerings will improve and evolve. For example, once we integrate interest bearing tokens like Compounds cTokens or bZx/Fulcrums iTokens, we can create new Sets that use interest bearing tokens such as cUSDC in all of our Sets that have traditionally used USDC. Due to certain laws and regulations, interest bearing tokens may not be released immediately in all jurisdictions.

Pros

  • Gives users tokenized exposure to the 20 Day Simple Moving Average technical indicator
  • The ETH20SMACO strategy is effective with assets that have no clear valuation model and lots of volatility
  • Set and Forget: Simply buy an ETH20SMACO Set and store the issued tokens in the same place as your other Ethereum-based assets

Cons

  • Models of the ETH20SMACO Set traditionally perform poorly during choppy markets
  • As this strategy is best positioned to capture momentum movements, it may underperform in pure bull or bear markets
  • Sometime in the future, when crypto-assets have more effective valuation models, this trading strategy may become ineffective during all market conditions

How the ETH20SMACO Set Performs

Disclaimer: The content below is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. The content below is provided for educational purposes only, and not indicative of future performance. None of the following should be interpreted as investment advice. The tools used below follow a predefined set of parameters and aren’t actively managed by Set Labs Inc.

Edited: July 23, 2019. We’ve made an update to the model to more accurately determine daily simple moving average. The numbers have been updated to reflect this new calculation.

In the below chart we’ve compared the hypothetical performance of holding the ETH20SMACO Set against just holding ETH over the last 2 years, assuming a slippage rate of 1% during each rebalance. You’ll notice that if you were holding the ETH20SMACO Set, you would have outperformed ETH over the given historical time period. We can also see from this chart that during choppy trading conditions and bull markets (late 2017 — early 2018), the ETH20SMACO Set doesn’t perform as well as during bear markets.

It’s important to keep in mind the the charts below are based on a number of assumptions and are only meant for illustrative purposes. As always, past performance is not indicative of future performance.

The ETH20SMACO Set can be considered an ‘ETH Accumulation Strategy’. The chart below illustrates the ETH accumulated if you were to hold an ETH20SMACO Set (blue line) instead of just ETH (red line) over the last 2 years.

These charts were generated by data that was sourced from Gemini’s ETH hourly rate. In production, the ETH20SMACO Set rebalances based on MakerDAO’s ETH price feed, which may output different results. If you’d like to play around with the data yourself (and tweak the parameters), feel free to fork our spreadsheet here.

The First Moving Average and Daily Price Feed Oracles

The ETH20SMACO Set is powered by two brand new oracles:

  • DailyPriceFeed: An oracle that tracks the 24 hour price of ETH/USD which is sourced from the MakerDAO medianizer contract.This oracle can be updated by anyone by calling a function on the respective smart contracts.
  • MovingAverageOracle: An oracle that tracks the moving average of ETH/USD. The moving average oracle allows for the calculation of any moving average calculation that is equal to or less than 200 days of ETH price data (sourced from the DailyPriceFeed oracle).

The smart contracts that power the ETH20SMACO Set and our new oracles have been audited by ABDK and are open-sourced on our Github repo.

The Future of Trend Trading on TokenSets

There are an infinite number of technical and fundamental indicators that can be used to construct Trend Trading Sets and we have many more Sets that we’ll be deploying to this category over the coming weeks and months.

Some of the upcoming Trend Trading Sets will give users exposure to:

  • Exponential MACO (EMACO)
  • Golden / Death Cross Crossover
  • Moving Average Convergence Divergence (MACD)
  • Relative Strength Index (RSI)

Developers can also dive into our documentation to start building their own trading strategies on top of our existing smart contracts and utilize our new daily ETH price and moving average oracles.

If you have an idea for a trend trading strategy that you’d like to see on TokenSets, please don’t hesitate to reach out to us.

Learn more about Set and join our community

TokenSets | Website | Medium | Twitter | Telegram | Slack |

Set Labs

Grow your crypto using automated asset management strategies

Thanks to Inje Yeo

Anthony Sassano

Written by

Marketing at https://www.setprotocol.com/ | Co-founder of https://ethhub.io and Co-host of the Into the Ether podcast

Set Labs

Set Labs

Grow your crypto using automated asset management strategies

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