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xTokens launches tokenized SNX hedge fund, allowing retail investors to easily earn passive income

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xTokens launches tokenized SNX hedge fund, allowing retail investors to easily earn passive income

The collateral and liquidity strategy platform xTokens has introduced a more efficient and lower-cost SNX tokenized hedge fund for retail investors. The platform packages complex collateral and hedging strategies into an ERC20 token (xSNX), allowing users to participate in the Synthetix ecosystem and earn mining rewards simply by buying, selling, or exchanging.

Lowering Synthetix Participation Costs with Hedging Fund

Synthetix is a decentralized platform for synthetic asset trading, and its token model and protocol design give it better trading depth than other decentralized exchanges. It even allows users to trade index synthetic assets of off-chain assets like US stocks, precious metals, oil, etc. SNX token holders can provide liquidity to the platform by staking tokens, in return for mining rewards and trading fee dividends.

Specifically, users must stake SNX tokens and mint sUSD (the platform's USD stablecoin) to provide trading depth to the platform. Participants can earn mining rewards (SNX) and trading fee dividends in return. However, in recent weeks, those who have been withdrawing rewards on the Synthetix platform may have noticed that due to the surge in Ethereum Gas Prices, it costs around $50-100 in gas fees for each withdrawal. This, coupled with the fact that the rewards withdrawal period is one year, puts significant pressure on small retail holders. For some token stakers, the rewards for providing liquidity may not even cover the costs of withdrawing rewards.

To address this issue, the staking and liquidity strategy platform xTokens has introduced a new solution, creating a fund product that packages complex staking and liquidity strategies into an ERC20 token (xSNX), with staking rewards and trading fee dividends directly reflected in the token's net value.

xSNX is now live, and for users, buying xSNX with SNX is akin to staking, while selling xSNX is like withdrawing rewards, significantly reducing the costs for SNX retail holders to stake and interact with smart contracts. On the other hand, xTokens has deployed the xSNXa/ETH/SNX 50/25/25 liquidity pool on Balancer to increase the pool's trading depth, allowing holders to easily convert between xSNXa, ETH, and SNX.

Hedging Fund Subsidizes Losses in SNX Debt Pool

Under the mechanism of the Synthetix platform, users staking SNX act as counterparties to platform traders. The trading market is a "zero-sum game," assuming the price of ETH continues to rise, all traders purchasing sETH on Synthetix will profit, ultimately leading to losses borne by the "debt pool" composed of SNX stakers. Therefore, xTokens has added hedging strategies to the current xSNX token (called xSNXa) to make it a more stable hedge fund.

In essence, xSNXa allocates 75% of minted sUSD to invest in the Set Protocol's Ethereum trading strategy Robo Set ETHRSI6040, with the remaining 25% used to purchase ETH. This essentially means that xSNXa holders, besides being bullish on SNX long-term, are also bullish on ETH. However, if the trend of ETH reverses downwards, Robo Set ETHRSI6040 will rebalance to prevent investors from bearing too much loss.

xSNXa is just one of the strategy variants xTokens has introduced for xSNX, and the team is considering offering other strategy variants for those bullish on SNX but bearish on ETH. This hedge fund introduced by xTokens has also gained recognition from Yearn founder Andre Cronje.

https://twitter.com/AndreCronjeTech/status/1295580669683421184

However, a contract vulnerability was discovered shortly after xSNXa went live, and the issuing team is currently addressing it urgently. Investors are advised to consider purchasing or exchanging only after xTokens completes the contract maintenance.