Lessons from EX-ETH & What’s Next
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GM Everyone 👋
You may have already read about the new direction of Exponent and our intentions to be as transparent with our community as possible. In the spirit of building in public, we’d like to share our learnings from releasing ExETH in December and how we plan to incorporate the valuable findings into the direction of our next product.
P.S. If you are an ExETH token holder, you’ll want to read until the end of the post 😉
Active Trading & Smart Beta
We discovered pretty quickly from discussions with projects that most of them are interested in products that allow them to earn returns on their treasury without the exposure to short-term price volatility. i.e. taking 10–30% drawdowns in dollar-denominated returns as a strategy, basically trying to time the top/bottom, is out of the question.
An alternative to active trading as a strategy is smart beta or a passive index approach to asset allocation. While this does take the risk of market timing off the table, the crypto market is nascent enough that all assets are highly price-correlated.
Another factor is the notion of narrative rotation in crypto markets. It is possible to build a product to time the next crypto narrative, ie. SOL-LUN-AVAX, DeFi 2.0, Metaverse, OHM Forks. Catching the next narrative switch is a fleeting endeavor as market cycles will always be faster than development.
All Roads Lead to Yields
At the end of the day, the largest driver for returns in DeFi will be yield-based strategies, whereby the assets are not exposed to price volatility and risks/returns are significantly easier to reason with. Luckily, even in a condition of a sideways market — there will always be a way to generate returns that is significantly above what one may obtain in TradFi.
ETH as a capital asset for organizations
Although we think ETH is a viable capital asset for organizations to accumulate over time, because of the above issues with price volatility and that organization’s operating costs still being denominated in dollar terms, taking in ETH as an asset to deposit into the vault is not a great idea as it requires users to put in ETH, an asset that most users aim to HODL, to be traded into stables. Another option for end-users is to buy ETH with their stable coins, once again forcing users to take on volatility risk.
While we think an allocation of exposure to ETH and stablecoins is healthy for projects, pooling all users' assets into a single vault with a blanket mandated allocation is not something that works for everyone, especially not for teams that often have a very unique set of treasury requirements.
There are other usability issues that we encountered, such as:
- Restriction on the level of complexity of strategies
- Users are forced to withdraw a basket of assets instead of a single asset type
- The gas cost of a withdrawal can be extremely high for smaller deposit sizes
- Opportunities exist on multiple networks that the vault cannot have exposure to
These are just some of the lessons and feedback we will take internally to develop future iterations of our products.
What comes next after our Mainnet beta vault? If you’ve been following our blog post, you’ll notice that our current focus is on a CaaS (Capital-as-a-Service) treasury product for teams and organizations, and that’s exactly where we are headed.
Soon we’ll come out with an updated litepaper and more details about Fennec Stash, our high yield cash account for web3 organizations ✨ stay tuned!
Wait, So What Happens to ExETH?
In the next month or so, our ExETH vault will be deprecated. We will first rebalance everything into staked ETH (stETH) to allow for ease of withdrawals.
As a thank you to all users who tried out our product, wallets that have deposited and kept their assets in exETH during the mainnet beta will be legible to redeem XPN via an Airdrop ✨
Thank you all for your participation! There will be more ways to get involved as we keep moving forward with our new product direction. We’ll also announce more details about the airdrop, details on vault deprecations, and our rebalance into stETH as it happens.