Today we’re introducing the Hermetica stSTXearn token: A non-custodial yield product for Stackers.
We once again sat down with our partners at the institutional derivative trading firm Two Prime, this time to study the question:
“What makes an excellent altcoin yield product?
The answer, we discovered, has 4 key elements:
- An attractive APY
- Limited downside
- Success in all market regimes
- Non-custodial, trust-minimized, and secure
We are proud to say that our newest strategy accomplishes all four of these objectives and finally brings the first of its kind yield product to Stacks.
How It Works
The Hermetica stSTXearn strategy runs an automated options strategy that alternates between buying and selling binary calls on STX based on a simple trending following system.
Bull Trends
If price is in a positive trend (above the 5 week moving average), the strategy buys two binary calls:
- One at-the-money barrier (50 delta; 1% above spot)
- One out-of-the-money barrier (20 delta, 15%-17.5% above spot)
The strategy allocates 1/3 of the capital at risk to the 50 delta and the other 2/3 to the 20 delta. This combination creates a unique payout profile for the strategy as each binary call option serves a distinct, yet complimentary, purpose.
The 50 delta gets hit regularly and thus creates a base yield for the strategy.
The 20 delta, on the other hand, only pays out during large moves and thus creates outsized upside optionality.
You can think of it like this: The 50 delta is a steady yield that keeps the token profitable so it can wait for the large moves where the 20 delta brings in the big returns.
Bear Trends
If price is in a negative trend (below the 5 week moving average), the strategy sells a binary call (33 delta; 7–10% above spot).
Selling binary calls, as opposed to selling vanilla calls, generates yield from premium payments but without tail risk.
No matter how much the STX price rallies the token can only lose a defined amount. In other words, we get yield without becoming Taleb’s Turkey who runs the risk of wipe-out out during a black swan.
Additionally, the token is denominated in stacked STX (stSTX) which means it accrues yield from staking on top of yield from the trading strategy.
Historical Performance
During the 4.5 year backtest period the Hermetica stSTXearn token generated an average 16.2% annualized return on STX. In other words, if you would have run this strategy over the last 4.5 years your stSTX stack would have grown by 72.4%.
The strategy achieves this return while taking a defined risk. The backtest shows only one prolonged drawdown period of -16.8% (in 2019/20). The strategy has a win rate of 65%. Meaning the token has a positive return 2 out of 3 epochs.
Note: backtest results are not a guarantee of future returns.
Compared to the current alternatives in the Bitcoin DeFi ecosystem, the Hermetica stSTXearn token 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 Stacks.
Try out our stSTXearn token at app.hermetica.fi.
