The forward-thinking team at Invictus Capital who launched the world’s first crypto index fund, CRYPTO20, have pioneered a new cutting-edge fund, CRYPTO10 Hedged (C10). The fund is powered by data science, tracks the top 10 cryptoassets and provides investors with long-term capital growth potential and superior risk-adjusted returns relative to pure crypto exposure. A dynamic cash hedge provides drawdown protection to preserve capital in times of market stress.
The new fund is not a ‘direct upgrade’ of the CRYPTO20 product and is intended to exist alongside it as a fully differentiated offering. CRYPTO20 is a closed-ended fund, and the maximum token supply is fixed— existing investors often find it challenging to grow their stake in the fund as the number of participants willing to sell is limited.
CRYPTO10 Hedged allows investors direct liquidity to buy and sell C10 tokens through a smart contract. Exchanges are no longer required for liquidity on the buy or sell side; C10 may be listed for convenience sake, but Invictus will not actively pursue listings. This protects investors from having to deal with liquidity concerns and potential slippage in executing a trade in addition to exchange deposit/withdrawal fees.
Built on experience through bull and bear markets, the fund was designed with a rule-based algorithm that tracks the underlying market and incorporates a dynamic cash hedge that buys or sells a proportion of the fund value into or out of cash. Preservation of capital is extremely important, and this all-weather type product is intended to manage downside risk for those who do not want to do so on their own.
“At Invictus, we are specialists in developing fund options and investment products for those seeking diversified exposure to cryptoasset markets, and we believe that the time is right to bring CRYTPO10 Hedged to market”, says Daniel Schwartzkopff, CEO and founder of Invictus Capital.
CRYPTO10 was designed by selecting optimal index hyperparameters following a scientific approach based on judicious data science. Time-invariant backtests show that a fund following a top 10 index, rebalanced weekly, with a 15% cap per asset and a dynamic cash hedge, is expected to provide superior risk-adjusted returns. See the litepaper (link) for more info.
Investors are not required to trade on exchange, which avoids the risk and frustration of cumbersome deposit and withdrawal processes, saving on transaction fees. Further, following the top 10 affords greater support from cryptoasset custodians, with the 15% cap preventing any single asset or source of risk from dominating the fund’s exposure. Margin lending returns are shared with the fund, which would greatly decrease the total expense ratio of the fund, providing investors with exposure to the CRYPTO10 allocation strategy without any drag.
The initial capitalization sale for CRYPTO10 began on 1 April 2019 and ended on 30 April. C10 tokens are available on the Invictus investors portal. Tokens are purchased and distributed in real time by sending Ether to the smart contract address from a user-linked Ethereum address. Much like CRYPTO20, in CRYPTO10 Hedged withdrawals and purchases are processed hourly.
The C10 smart contract functions as the registrar of fund participants, as well as handling all clearing and settling of user interactions. Making use of a smart contract in this manner does not reduce the trust placed in fund managers, as the entire operation of the fund is not decentralized. It does, however, provide three large benefits; namely availability, transparency and reduced operational overhead.
The smart contract is operational 24/7, with token redemptions occurring every hour. Furthermore, token redemptions are guaranteed by the publicly viewable Ether balance on the smart contract. Over 10,000 Ether has been processed through similar functionality present in the CRYPTO20 smart contract.
Every single C10 token interaction is publicly viewable and verifiable. Anything fund managers or users do to increase or decrease token supply via the creation/redemption mechanism or token burning is recorded on the Ethereum blockchain, offering complete transparency. It is not possible to be uncertain about the current state of C10 ownership or the transfer history of tokens. Both fund managers and token holders are accountable for their actions.
By making use of a smart contract to perform common fund administration tasks, the operational overhead of running a fund is greatly reduced. No staff are needed to process token creations, withdrawals or transfers, this results in cost savings that are passed on to the fund.
Invictus Capital strongly believes that blockchain-based solutions will be the future for much of the traditional financial sector and that the CRYPTO10 fund is a step in the right direction for that future.
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