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Inverse ETH 50 Day MA Crossover Details
Inverse ETH 50 Day MA Crossover Details

Learn about details under the hood for the iETH50SMACO Set

Richard avatar
Written by Richard
Updated over a week ago

How does the Inverse ETH 50 Day MA Crossover Set work?
The Inverse ETH 50 Day MA Crossover Set implements an inverse strategy on the ETH 50 Day MA Crossover Set. Learn more about how inverse strategies work here.

On a high level, iETH50SMACO attempts to capitalize on short term price swings in sideways and choppy trading markets when the ETH50SMACO strategy typically underperforms. The Set triggers rebalances between ETH and USDC based on the same 50 Day Simple Moving Average (50 SMA) indicator. 

What is the difference between iETH50SMACO and ETH50SMACO?
Both the iETH50SMACO and the ETH50SMACO are configured to have the same rebalance criteria (i.e. 6-12 hour confirmation period, 96 hour minimum rebalance interval, 50 SMA indicator crossovers) which mean rebalances trigger at approximately the same time.

However, if iETH50SMACO rebalances into ETH, ETH50SMACO will rebalance into USDC. Conversely, if iETH50SMACO rebalances into USDC, ETH50SMACO will rebalance into ETH. Therefore, the value of the Set will move inversely from each other.

Why use the Inverse ETH 50 Day MA Crossover Set?

  1. Portfolio hedging: If traders believe the 50 SMA crossover signals are "selling the bottom" or "buying the top", the iETH50SMACO can be used to "short" the ETH50SMACO.

  2. Potential tax efficiencies: Traders simply need to mint the iETH50SMACO Set without the need to exit their ETH50SMACO position and potentially incur taxes in certain jurisdictions.

  3. Compose Custom Allocations: Individuals can compose customized allocations by using both Sets to further reduce volatility.

How does the Set perform?
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.

View a model of the backtest here. The charts below compare the hypothetical performance of holding the iETH50SMACO Set against holding ETH and ETH50SMACO over the last month, 3 months and year, assuming a slippage rate of 1% during each rebalance.

Over the choppy, sideways market of last month, historical data shows iETH50SMACO would have outperformed both ETH and ETH50SMACO. Note: holding a proportion of both Sets would have given a return profile somewhere between the BLUE and RED lines.

Over the last 3 months, historical data shows iETH50SMACO has outperformed both ETH and ETH50SMACO.

Over the last year, iETH50SMACO slightly underperforms the ETH50SMACO and ETH.

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

These charts use generated ETH hourly data sourced from Gemini. In production, the iETH50SMACO 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 the spreadsheet here.

What are the additional criteria needed to trigger a rebalance?
The rebalance criteria includes a minimum interval of 96 hours between rebalances and a confirmation period after the initial price-indicator crossover to reduce false positive signals. If the signal at the time of the initial crossover (e.g. price > moving average) matches the signal after 6 hours, then the Set will kickoff a rebalance. If the signal fails to match the signal after 12 hours, then the rebalance expires and another price-indicator crossover must occur.

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