Double Currency Product - A Magic & Stable Tool for Cashing Out in A Shaky Market

2021-05-14, 07:12

When the investor's expectations are in line with the future market, Dual Currency Product can be the icing on the cake for the investor, allowing the investor to earn a high yielding fixed income in addition to the currency appreciation income. Even when investors' returns are not in line with the future market, Dual Currency can be a blessing in disguise, allowing investors to still receive a high yielding fixed income to mitigate losses.

Dual Currency Product only requires the purchaser to deposit one currency and then return the principal and earnings to the investor during the settlement, at the end of the lock-up period. They are determined based on the currency maturity price and the contract's reference-linked price. The contract of Dual Currency Product involves two digital currencies. Investors can use both digital currencies to purchase Dual Currency Products.

Buying Dual Currency Products in different tokens represents a different investment strategy. This article will explain how you can use different strategies to gain returns:

Investment Strategy for Dual Coin Product(DCP)
Take the BTC/USDT contract as an example. When investors expect the price of BTC to rise and the settlement price at expiration will not exceed the reference peg price of the Dual Currency Product contract, they should purchase DCP with BTC. At this time, the prospect for DCP is also bullish.

When the investor expects the price of BTC to fall and the settlement price at expiration will not be lower than the reference price of the Dual Coin contract, he should purchase DCP with USDT. At this time, the prospect for DCP is also bearish.

Generally speaking, the yield of bullish DCP decreases as the contract peg price increases and the maximum gain for investors occurs when BTC rises, but the price does not exceed the contract reference price.

The bearish DCP yield decreases as the contract price decreases and the maximum gain for investors occurs when BTC decreases, but the price does not fall below the contract reference price.

Cases of Profitable DCP
Assuming the current Bitcoin price is 60,000 USDT, the following simulation case will be used to illustrate the above DCP investment strategy.

(A) Case of buying DCP with BTC

If an investor thinks that the settlement price of BTC/USDT will rise, but will not exceed 65,000 USDT, he should choose to buy DCP with BTC.

DCP contract is as follows.
Settlement price: 65,000
Lock-up time: 19 days
Annualized yield: 48.76%
Expiration date: May 28th

On May 28th, when DCP expires, the settlement price of BTC/USDT does not reach 65000USDT as expected by the user, and the settlement currency is BTC. If a user purchases 1BTC, the calculation process would be:

Settlement amount = (1 + yield) * number of purchases
(1+48.76%/365*19)*1 =1.024382(BTC)
Compared to holding the BTC spot, DCP investors get additional returns of
1.024382 - 1 = 0.024382(BTC)

As long as the price of BTC/USDT does not exceed 65,000 on the maturity date, DCP can be considered as a 19-day Bitcoin fixed savings program with a savings period of 19 days, and users can get an additional fixed return of 48.76% annualized while enjoying the BTC appreciation gain.

If the settlement price of BTC/USDT exceeds 65,000 USDT as expected by the user, and the settlement currency is USDT. If the user buys 1BTC, the user gains would be calculated as:

Settlement amount = (1 + yield) * number of purchases * pegged eference price
(1+48.76%/365*19)*1*65000 = 66584.861USDT
At the maturity date, the maximum return for DCP users is 66,584.861 - 60,000 = 6,584.86 USDT.

(II) Case of buying DCP with USDT

If an investor believes that the settlement price of BTC/USDT will fall and will not fall below 54,000 USDT, he/she should choose to use USDT to buy DCP.

The Dual Coin contract is as follows:
Settlement price: 54,000
Lock-up time: 5 days
Annualized yield: 17.44%
Expiration date: May 14th

When DCP expires on May 14th, if the settlement price of BTC/USDT is higher than 54000 USDT and the settlement currency is USDT, with a purchase volume of 60000 USDT, for example, the user's return would be:

Purchase volume*(1+yield rate)
60,000*(1+17.44%/365*5) = 60143.34
User gain is: 60143.34 - 60000 = 143.34 USDT
Compared to holding USDT cash, DCP allows investors to get an extra 143.33 USDT.

On May 14th, when DCP expires, if the settlement price of BTC/USDT is lower than 54000USDT and the settlement currency is BTC, with a purchase volume of 60000USDT, for example, the user’s calculation would be:

Purchase volume/pegged settlement price*(1+yield)
60000/54000*(1+17.44%/365*5) = 1.113766BTC
User gain is: 1.113766 - 1= 0.113766BTC

DCP can help investors lock-in risk and earn additional interest income when users have a more certain expectation of where the settlement price of both digital currencies will go.

Author: Gate.io Researcher: Charles F.

*This article represents the views only of the researcher and does not represent any investment advice.
*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.

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