Product Updates

Next-Level USDT/Stablecoin Strategy: The Sovryn 50/50 Bitcoin-Dollar Balanced Portfolio

November 7, 2023
min read

Leveraging the established principle of asset allocation, Sovryn offers a contemporary twist to the traditional balanced portfolio investment strategy. Instead of the conventional 60/40 split between stocks and bonds, Sovryn enables an intriguing alternative in the face of current economic challenges: bridge in BTC and a stablecoin such as USDT and establish a 50/50 balanced portfolio between Bitcoin and the Sovryn DLLR stablecoin. You can follow this traditional investment strategy but with automatic rebalancing, no transaction fees, and more attractive assets. This is a compelling option in the current scenario where bonds have been underperforming and stocks face significant risks due to high interest rates and a fragile economy.

This product ensures a dynamic balance between the short-term stability of the U.S. dollar and the transformative potential of Bitcoin. By maintaining a 50% allocation to each asset, investors can enjoy the best of both worlds: the growth potential and long-term store of value of Bitcoin and the relative stability in the short term of the dollar.

Balanced Portfolio in Sovryn

How is this mechanism implemented in Sovryn? Sovryn maintains trading pools of a number of paired assets. These pools provide liquidity for users to trade between the two assets. The mechanism these pools use is called an automatic market maker (AMM). Traditional AMM pools require liquidity providers to deposit 50% value in both of the assets that make up the pool. The pool always treats the total value of both assets to be equal. That is, i the number of A-tokens is A and the number of B-tokens is B, then the price relationship is



As the ratio of A to B changes, the implied price of A relative to B on the AMM changes as well. 

If trading is sufficiently one-sided (or the market price changes), the price on the AMM will vary from the external market price. When this occurs, arbitrageurs will see a profit opportunity, buying the low-priced asset for the high-priced one, which moves the ratio B/A until the AMM price again matches the external market price. At that point the arbitrage opportunity disappears, and the AMM is again in equilibrium. Through this process the AMM maintains a 50/50 value balance of the two assets with no effort or cost on the part of the liquidity providers.

When users provide liquidity to an AMM, they are credited with pool tokens that represent the share of the value they added to the pool. The pool tokens are not tied to a specific number of tokens of each asset but to a share of the whole. The number of each constituent token will change as trades occur and as other users deposit or withdraw liquidity.

The Gory Details

Investors who want to set up a balanced portfolio between BTC and USD can do this by supplying RBTC and the Sovryn Dollar (DLLR) stablecoin. RBTC has a 1:1 peg to BTC, and DLLR has a peg mechanism to USD as well. These assets will track the values of BTC and USD. 

To set up a balanced portfolio, the first step is to bridge in BTC. You can do that by going to the Sovryn dapp, clicking the Funding button, and tranferring BTC in to RTBC. If you’re starting with WBTC, you may want to use an exchange or consider a decentralized service such as THORSwap to first swap for BTC.

If you have a stablecoin such as USDT, USDC, or DAI, you can bridge in using Babelfish. This will convert your stablecoin to XUSD on Rootstock, which can then be converted to DLLR using Babelfish, swapped for DLLR on the dapp, or used directlyin the RBTC-XUSD pool.

If you have all your assets in either RBTC or DLLR, you can convert 50% using the dapp so that you have the correct initial 50/50 deposit.

Once you have the assets in place on the Rootstock chain, visit the Pool page on the Sovryn alpha dapp. Find the Sovryn RBTC/DLLR pool, and deposit equal value in each asset. The pool will automatically rebalance the value of both assets so that they remain at a 50/50 balance. That’s all you have to do. You can withdraw your value from the pool at any time without penalty.

Traders use these assets for liquidity so they can trade back and forth between RBTC and DLLR, and arbitrageurs make sure that the two sides are balanced 50/50 with the market price. Because you are providing a service (liquidity), traders and arbitrageurs pay you for the privilege of trading back and forth with your funds. At the same time they provide you with the service of maintaining a 50/50 balance. The fees that are collected from traders and arbitrageurs are credited to the balance of tokens in the AMM, raising the overall pool value to liquidity providers.

In addition to fees, liquidity providers may also earn reward incentives for providing liquidity to specific pools. RBTC/DLLR pool providers are currently paid rewards in liquid SOV that amounts to over 11% APY. SOV can be staked for further gains and used to participate in Sovryn governance. Learn more about rewards for stakers.

On a technical note, RBTC/DLLR isn’t the only 50/50 balanced pool in Sovryn. You might also consider RBTC pools with SOV, XUSD, FISH, BNB, ETH, MOC, and RIF. The same basic principle works with any of them, although the reasons for allocating 50% value to these other assets may differ from the case of DLLR. Other AMMs that don’t show a 50/50 balance operate on a different balancing principle and are not suitable for this strategy.


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Impermanent Loss?

If you’re familiar with AMMs, you may have heard that liquidity providers can experience impermanent loss. In reality, neither impermanent nor loss accurately describes this phenomenon. A more accurate term is divergence loss. Simply put, divergence loss means that when price moves significantly between two assets in a pool, a rebalancing portfolio will underperform a buy-and-hold strategy. However, a balanced portfolio reduces volatility. It will also make sure you have a balance of the assets when you need them.

In a balanced portfolio, you will not suffer a loss if the price of bitcoin rises. You simply won’t experience the level of gains that would have come from buying and holding. Suppose you establish your portfolio with 1 RBTC and 40,000 DLLR when the price of BTC is $40,000. The gains from each strategy are shown below.

This doesn’t account for the fees and rewards you will gain in the AMM for the balanced portfolio, which will make the balanced portfolio more competitive with buying and holding.

Furthermore, this isn’t the whole story. The balanced portfolio actually “buys the dip” and gradually sells into a market run-up. You can see this in the plot below.

Finally, the balanced portfolio maintains constant relative volatility. Since BTC is always 50% of the portfolio, volatility in the BTC price will always affect exactly 50% of the value of the portfolio. With a buy-and-hold strategy, the portfolio will shrink in volatility as the price goes down and increase in volatility as the price goes up. Many financial advisors equate volatility with risk; in that sense, the balanced portfolio manages risk and keeps it at a constant level.

Financial Equilibrium in the Balance

This strategy may not be right for everyone. However, it offers an automatic way to manage your allocation to bitcoin and therefore manage your portfolio volatility. At the same time it pays you for providing liquidity while providing the service of automatically maintaining a 50/50 balance. The additional liquidity makes Sovryn AMMs a more attractive place to trade, which draws in more trading volume and therefore more fees to liquidity providers. All these benefits make the 50/50 Bitcoin-Dollar Balanced Portfolio another attractive option for exercising your financial freedom with Sovryn.

As always, do your own research.

And stay Sovryn!

If you would like to keep up with innovations and opportunities on Sovryn and engage with our community, join our Announcements Telegram Group and our Community Telegram Group.


Nothing on this page should be taken as investment advice. Inclusion of a third-party app or service does not constitute an endorsement of the app or service by Sovryn developers or anyone else in the Sovryn community, and is provided for informational purposes only. If you have any problems with the listed third-party apps or services, please contact the maintainer of that app or service for help. Sovryn does not have any control of your funds in any supported Web3 wallet - you are responsible for your own wallet security. Please do your own research and ensure you understand and accept the risks before trading or using any apps or services to store your funds. a digital age.


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