Cruise Control
Strategic Use Cases
You hold USDC and want to earn safer, real yield in stablecoins at 20.5%.
You are bullish on the price of BTC & ETH and believe their prices will not decrease by 90.00% over the next 27 days.
You are comfortable with lending assets to earn interest income.
Product Details
| Deposit Asset | Underlying Assets | APY | Downside Protection | Knock-In Probability |
|---|---|---|---|---|
USDC, USDT | BTC, ETH | 20% | 90% | 0.01% |
This vault trades an exotic options structured product that delivers a Pure Options strategy. Investors accrue high, daily yield payments on their deposited capital which is paid when the vault expires/matures. At expiry, the initial deposit is returned to investors in full if the price of an underlying asset (BTC, ETH) has not fallen below the Knock-In level during the 27 day trade. Pure Options vaults are valuable investments for investors who seek superior yields, do not want exposure to bonds/lending, and have positively or moderately bullish views on the price of the underlying crypto assets.
Payoff Scenarios
Scenario 1: Normal Expiry - Closing spot above 100%
What were the price movements of the underlying crypto assets?
What happens to the investor in this example scenario?
None of the asset prices fell below the Knock-in (KI) barrier during the 27 days
No knock-in (KI) event occurs therefore the FCN reaches its full 27 day duration and expires as normal. Because of no KI, the full principal that was deposited by the user is returned to them.
What is the payoff for the investor?
To calculate the final payoff (using an illustrative example):
Principal invested = $1,000.00
APR = 150%
Trade tenor = 27 days
Total yield = daily yield * trade tenor = $4.60 * 27 = $124.20
Principal returned = initial deposit - principal loss = $1,000.00
Total payoff = principal returned + total yield = $1,124.20
ROI = total payoff / principal invested = 12% return
Scenario 2: Knock-In event
What were the price movements of the underlying crypto assets?
On Day 25, a knock-in event occurs. BTC/USD prices are down -91% and have exceeded the 90% knock-in barrier level
The knock-in event marks the vault as having been knocked-in and causes the principal returned upon expiry to use the knock-in formula which means there may be loss to principal
What happens to the investor in this example scenario?
Because the vault has knocked-in, the principal returned at expiry will depend on the worst-performing asset at time of expiry:
BTC/USD is down -93.83% (worst performing asset)
ETH/USD is down -27.82%
What is the payoff for the investor?
To calculate the final payoff (using an illustrative example):
Principal invested = $1,000.00
APR = 150%
Trade tenor = 27 days
Total yield = daily yield * trade tenor = $4.60 * 27 = $124.20
Principal loss = initial deposit * min(100%, 94%) = $1,000.00 * 94% = $940
Principal returned = initial deposit - principal loss = $60.00
Total payoff = principal returned + total yield = $184.20
ROI = total payoff / principal invested = -82% return
Note: even in this worst case scenario, the investor's losses are better than if they invested in BTC/USD directly compared to the ROI from trading (-82% ROI vs. -94%). This is because losses are offset by the high daily yield which is paid regardless of market conditions -- and this safety feature also makes FCNs attractive for investors.
Scenario 3: Knock-In event - Spot at expiry recovers above barrier
What were the price movements of the underlying crypto assets?
On Day 8, a knock-in event occurs. BTC/USD prices are down -91% and have exceeded the 90% knock-in barrier level
The knock-in event marks the vault as having been knocked-in and causes the principal returned upon expiry to use the knock-in formula which means there may be loss to principal
What happens to the investor in this example scenario?
Because the vault has knocked-in, the principal returned at expiry will depend on the worst-performing asset at time of expiry:
BTC/USD is down -36.08%
ETH/USD is down -56.82% (worst performing asset)
What is the payoff for the investor?
To calculate the final payoff (using an illustrative example):
Principal invested = $1,000.00
APR = 150%
Trade tenor = 27 days
Total yield = daily yield * trade tenor = $4.60 * 27 = $124.20
Principal loss = initial deposit * min(100%, 57%) = $1,000.00 * 57% = $570
Principal returned = initial deposit - principal loss = $430.00
Total payoff = principal returned + total yield = $554.20
ROI = total payoff / principal invested = -45% return
Note: even in this worst case scenario, the investor's losses are better than if they invested in ETH/USD directly compared to the ROI from trading (-45% ROI vs. -57%). This is because losses are offset by the high daily yield which is paid regardless of market conditions -- and this safety feature also makes FCNs attractive for investors.
Deposit here: https://app.cega.fi/products/cruise-control
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