Friday, December 20, 2019

Q4 2019 Cryptocurrency Allocations

The end of the year is upon us soon. This is the time when bloggers turn pensive and begin to pen their reflections. In order not to clog up my upcoming year-end review post, I will be detailing my crypto transactions for the quarter first.

In this quarter, I initiated a position in Synthetix Network Token.

Synthetix Network Token

For those who follow blogger Got Money Got Honey on his blog and twitter account, Synthetix Network Token would no doubt be a familiar name to you.

synthetix network token degenspartan

Look at the above screenshot. The number of times I muttered "simi sai" (what is this shit) under my breath when I view his twitter posts is uncountable. Where got 122% dividend yield per annum one? How come got free lunch in investing? Where is this supposed free lunch coming from?

It was not easy trying to wrap my head around the Synthetix Network Token. I had to read their whitepaper multiple times before I could get a basic understanding of how it works. Even then, I still think my understanding of it is at a superficial level. Well, at least I understand the risks inherent in the system now.

How do you get the juicy yields? First, you need to stake/lock-up Synthetix Network Tokens (SNX) in the mintr application to qualify for the rewards. However, in doing so, you create "debt" (awkward phrasing by their team, I know). The more SNX locked-up and debt you create, the more rewards you qualify for. Yes, you cannot lock SNX but choose not to create debt; it's not an either-or thing.

What is debt? Synthetic assets serve as the debt in their system. For example, people new to the system normally mint synthetic USD (sUSD), which is a proxy for the US Dollar, by locking up their SNX. Other synthetic assets include synthetic Bitcoin (sBTC) and synthetic Ether (sETH). Their exchange also accommodates fiat currencies and commodities. For example, synthetic Japanese Yen (sJPY), synthetic Australian Dollar (sAUD), synthetic Gold (sXAU), synthetic Silver (sXAG), etc.

There is a limit to how much debt/synthetic assets you can create. Currently, the collateralization ratio is set at 750% (e.g. for every $750 worth of SNX collateral, you can mint $100 worth of debt/synthetic assets). If the ratio is not maintained above 750% because the price of SNX falls, your rewards are forfeited until you top-up your wallet with enough SNX to bring that ratio above 750%.

Still with me? I did my best to simplify things, lol.

Let's introduce two characters to understand how the rewards work.

Xiao Ming buys $750 worth of SNX and uses it to mint $100 worth of sUSD.

Da Ming buys $750 worth of SNX and uses it to mint $100 worth of sBTC.

Assuming that there are only two participants in the system, the total "debt"/AUM of the system is now $200, with Xiao Ming contributing $100 or 50% of the AUM and Da Ming contributing $100 or the other 50% of the AUM.

Let's say Bitcoin doubles in price while USD remains flat. Following this change, the total "debt"/AUM of the system grows to $300.

To withdraw your SNX collateral from the system, you are required to pay back the debt/synthetic assets in proportion to your initial contribution to the pool. As stated above, each individual contributed to 50% of the AUM at the start. With the increase in the overall debt/synthetic asset pool to $300, each individual has to pay $150 worth of synthetic assets before they are able to withdraw their SNX from the system. Hence, Da Ming's profits come at the expense of Xiao Ming.

That's Synthetix in a nutshell. I have left out plenty of details as it is a complicated system with high risks and high rewards and I do not want to reveal how I am going to position myself such that I am closer to the hypothetical Da Ming's position than Xiao Ming's position.

In terms of risk management, I have capped my exposure to Synthetix Network Token to a lower-middle size position. I have also overcollateralized above and beyond the 750% collateralization ratio.

The interesting thing is that SNX is standing strong in this current crypto bear market. Maybe the ~1.xx % dividend yield per week/fortnight serves as a price floor? If the price increases a teeny weeny bit more and stays there, SNX will be the second double bagger in my portfolio (not including the accumulated ~10% dividend yield I have received over the past 2 months). =D =D =D

In this quarter, I initiated a position in RealT tokens.

RealT


RealT is an ethereum-based company that offers tokenized US Real Estate to investors. Each property is owned by a LLC, with token holders of that particular property owning that LLC. Rent is paid daily in the DAI stable coin (1 DAI = 1 USD) to token holders.

The properties are based in Detroit, so some caution is warranted. As a result, I have sized my position to the absolute minimum.

In this quarter, I bought a couple of Gods Unchained booster packs.

Gods Unchained

Gods Unchained is an online trading card game. However, its underlying assets (the cards) are traded on the ethereum blockchain as tokens. There are multiple benefits to tokenizing game assets on the blockchain. First, it creates transparency as to the supply of a given game asset; gamers could verify for themselves whether the game developers have inflated certain assets. Second, the assets remain your property even if the game company cease to exist. Third, the sprouting of new game companies that use existing assets belonging to you may earn royalty income or confer in-game advantages in new games.

Consider the following hypothetical scenario where you are the owner of the "Iron Man" token.


You have bought the rights to it in a Marvel game. Somewhere along the line, there is a collaboration between Marvel and Capcom, producing the game Marvel vs Capcom. Oh look! Your Iron Man token got used by them.


Oh? What's this? Lego is collaborating with Marvel for a Lego Marvel game? Hey, that's Iron Man again!


The results for my Gods Unchained "investment" so far are mixed. Some of my cards fetched more value than the booster packs that I bought them for while others turned out to be flops. Compared to my "investment" into Axie Infinity, Gods Unchained is definitely a much better option as it has an active and thriving community.

In this quarter, I bought an Ethereum Name Service (ENS) domain name.


The rationale is to flip them for capital gains. ;)

In this quarter, I added to my positions in Bitcoin, Ether, and DAI.

I have closed my DAI lending positions on Compound Finance and dYdX exchange as lending rates have cratered from 6 - 12% yield per annum to 1.5 - 2% yield per annum due to the inflow of liquidity into these decentralized lending/borrowing protocols.

I have shuffled my DAI into MakerDAO's DAI Savings Rate for a fixed 4% yield per annum.

Thanks for reading!