Today we are introducing the Hermetica Earn vault: A non-custodial Bitcoin yield product that combines a market-tested derivative strategy with best-in-class risk management to reliably earn BTC in all market regimes.
We sat down with our partners at the institutional derivative trading firm Two Prime to study the question:
“What makes an excellent Bitcoin Earn product?”
The answer, we discovered, has 4 key elements:
- An attractive APY
- Limited down-side
- Success in all market regimes
- Is non-custodial, trust-minimized and secure
We are proud to say that our newest strategy accomplishes all four of these objectives and finally brings a first of its kind Earn product to Bitcoin DeFi.
How It Works
The Hermetica Earn vault runs an automated exotic option strategy called the European Reverse Knock-out (ERKO).
The monthly “knock-out” option structure creates a high and a low barrier where investors receive a payout if the price of Bitcoin closes inside those price barriers.
For investors, there are two equally profitable payout scenarios:
- Bitcoin’s price is higher by 1% to 20% of the strike price
OR
- Bitcoin’s price is lower by -1% to -20% of the strike price
In essence, vault depositors profit when Bitcoin moves higher or lower, within a range.
Because the maximum risk per trade is defined by the amount invested (1% per monthly epoch), the downside is limited and capital in the vault is protected.
The strategy is designed to generate a positive risk-adjusted return in all market regimes.
Backtest Data
During the 6 year backtest period the Hermetica Earn vault generated an average 6.5% annualized return on BTC. In other words, if you would have run this strategy over the last 6 years your BTC stack would have grown by 42%.
The strategy achieves this return while taking a defined risk. The backtest shows only one prolonged drawdown period of -9.90% (in 2020/21). The strategy has a positive win/loss return ratio of 2.35. Meaning when it wins, it wins 2.35x more than when it loses.
Compared to the current alternatives in the Bitcoin DeFi ecosystem, the Hermetica Earn vault offers attractive returns across market regimes while limiting downside.
In our opinion, it is the ideal strategy to earn a consistent risk-adjusted yield on your Bitcoin.
Try out our Earn vault on testnet at hermetica.fi.
