STFX: A New Dawn for Social Investing

STFX is a single trade exchange for short-term asset management. The protocol leverages a novel Single Trade Vault (STV) design, in which traders execute short-duration, one-trade ideas through investable vaults. An STV manager raises capital from pooled investors through a one-click simple interface, and the funds subsequently transfer into a DeFi protocol (such as an exchange) for the duration of the trade.

‍

STFX operates at the intersection of decentralized finance (DeFi) and social finance (SocialFi) with a gamified user experience. The Single Trade Finance Exchange (STFX) framework promotes investment opportunities, communication amongst like-minded crypto users, and the ability to trade socially.

Single Trade Vaults (STVs)

‍

STVs are applicable for the duration of a single trade or investment opportunity. Its design combines a high-paced, short-duration traditional financial fund or DeFi asset management vault with an aspect of social co-investing. Anyone can be an STV manager and raise capital for their trade idea; likewise, anyone can invest in an STV.

‍

Each STV serves as a unique opportunity in the DeFi ecosystem. Trade sophistications can vary from a simple leverage or spot trade on a DEX to an intricate yield farming or arbitrage opportunity. STFX aims to enable traders to express their investment convictions through a multitude of DeFi products, including lending and borrowing protocols, decentralized options exchanges, decentralized perpetual exchanges, and DEXs.

‍

When participating in a vault, investors pay 20% of their profits as a performance fee – 5% to STFX and 15% to the STV manager. Of the 5% paid to STFX, 80% will be distributed to STFX token stakers, paid in USDC. Further, a 0.1% derivative DEX execution fee is taken on both sides of the trade.

‍

Protocol Mechanics

‍

Overview & Flow

‍

The general structure and flow of STVs are as follows:

‍

1. An STV manager outlines the trade parameters for their vault: instrument type, direction, advertised entry, stop limit, take profit, leverage, and the intended vault raise. A manager may conceal some parameters based on past performance or the number of STFX tokens staked. Initially, only one parameter may be hidden: entry, exit, or leverage.

‍

2. The manager will ‘initiate’ the vault, sending the STV trade parameters as metadata to the STFX smart contract.

3. Once posted, the STV fundraising period commences. This raise will conclude in one of two ways: the vault reaches capacity, or the allotted fundraising duration expires. Funds are returned if capital is raised and not allocated within 72 hours of completion.

‍

4. When fundraising concludes, the capital transfers to the DeFi protocol (e.g., GMX) for trade execution.

‍

5. The vault manager executes a non-custodial trade. Trades are discretionary and initially involve a manager executing market orders. Given this, a trade’s advertised entry and exit are not binding, and its actual execution may differ from the outlined parameters. However, the asset and direction are binding. The entirety of the total vault raise is deployed into the trade.

‍

6. A trade will be closed to take profit, or if a stop loss or liquidation is triggered. Once closed, the profit or loss is sent back to the STFX protocol smart contracts, resulting in one of two things:

‍

• The STV generated a profit – STFX and the manager collect performance fees (5% to STFX, 15% to manager), and investors claim their principal + accrued profits, less fees.
• The STV generated a loss – STFX and the manager collect no performance fees, and investors claim their principal less accrued losses.

Vaults

‍

Initial vault capacity after the public Mainnet launch will be $50,000, which may increase or decrease over time. Past performance and experience dictate a manager’s reputation, which advertently impacts vault capacity. If a manager’s STV generates a loss, their reputation will decline, and the capacity limit for their next trade will be reduced. This methodology gradually filters out poor-performing traders while permitting profitable ones to raise higher STVs. Alternatively, a manager can stake STFX tokens to increase their reputation and vault capacity. Such increases are distinct, and users may still decipher merit given their base reputation.

‍

Value Proposition

‍

The fundamental purpose of STFX is to invert the traditional money manager model by unbundling funds in a compartmentalized manner. Additionally, the novel invention of STVs and their integrations into DeFi make STFX a blended, short-duration lending application, decentralized exchange, and money manager with gamified aspects. This model affords many benefits and efficiencies to managers and investors.

Source: STFX

‍

‍

Managers

‍

• Cost and time to launch - Decentralized solutions introduce cost and time-saving advantages for launching a fund. An STV manager can raise and deploy capital in as quick as 15 minutes with minimal expenses and effort. In contrast, traditional financial funds require prolonged periods and incur legal, registration, and other fees.

‍

• Bureaucracy and regulations – Traditionally, launching a fund is met with heavy regulations to ensure compliance. Although funds in tax havens or corporate-friendly jurisdictions (e.g., Delaware or the Cayman Islands) can streamline processes, prolonged waiting periods frequently occur.

‍

• Investable instruments - Historically, decentralized asset management (DAM) managers have faced limitations in investable instruments, thus hindering performance. STFX will expand on DAM 1.0 by enabling integrations into the broader DeFi ecosystem through perpetuals, options, and decentralized exchange operability, representing an enormous improvement from the spot-based funds typically seen on-chain. With STFX, managers gain greater optionality and the ability to express trades and investment opportunities for generating performance with short positions, options strategies, or complex hedging trades (see here).

‍

• Composability – The composable nature of DeFi money legos enables the possibility of complex and multi-legged trades. This sophistication implies a user could leverage long on a perpetual DEX and then hedge with options on a decentralized options exchange with profits/losses accruing to a single smart contract. Further iterations could include the soon-to-be-released liquidation-protected leveraged trades on GMX provided by Dopex's Atlantic Options.

‍

• SocialFi - The social aspects of STFX also incentivize managers. An STV manager may leverage their existing communities from Discord, Twitter, or other social platforms to build their STFX audience. In turn, a manager gains leverage for trades (in the form of fees) without needing to raise their liquidation price (see Incentives & Bootstrapping section for further details).

‍

Investors / Traders

‍

• No investor minimums – STFX imposes a very small investor minimum of $20, implying anyone can invest as little (or as much) as deemed fit. This promotes exposure and opportunities for small investors to access advanced strategies.

‍

• Accredited investors – Unlike traditional funds, STFX is not limited to professional or accredited investors. STFX is also not subject to KYC - any prospective investor maintaining a compatible wallet can invest in an STV.

‍

• Lockup period and liquidity – In many conventional and DAM 1.0 funds, investors’ capital remains locked with redemptions occurring at set intervals. However, the short-term nature of STVs allows investor liquidity to remain high with fast-paced redemptions.

‍

• Delegation and trade execution – With STFX, trade execution can be delegated to reputable traders. An STV manager’s reputation emanates from past performance, providing investors with transparency when allocating capital. Less experienced market participants not only benefit from better trade selection and execution, but access to vetted, complex strategies, including yield farming, hedging, options strategies, and leveraged trades.

‍

• Auditable and trackable – The on-chain nature of STFX permits automated auditing of a manager’s actions. Traditional funds following a black box model pose limitations with transparency, and investors cannot be certain if investment mandates and sufficient risk management practices were utilized. However, on-chain funds can be purely or partially algorithmic, automating the execution of trades as defined by its parameters. Initially, managers will be bound by direction & asset type, while executing trades at market. Down the line, STFX will allow functionalities such as partial opens, closes, TWAPs and trailing stop losses.

‍

• Gamified and social experience – Investors seek value from connecting with individuals of similar minds. Through intra-vault communication, users can share innovative trading strategies, concepts, and insights. STFX also enables a gamified experience by incorporating trading competitions and exploratory tasks.

‍

Industry Overview

‍

STFX operates within the DeFi segment of the crypto landscape, deriving its volume from capital allocated across the composable ecosystem. The project will initially launch with decentralized perpetual exchanges, with spot and options exchanges to subsequently follow.

‍

Decentralized Spot & Perpetual Market

‍

In 2021, spot and perpetual markets accounted for 95% of crypto asset trading. Spot volume surpassed $49 trillion, and the total perpetual volume reached $57 trillion. Each instrument’s volume grew enormously, with spot volumes increasing 130% and perpetual volumes growing 498%. Furthermore, we are seeing a non-trivial percentage of this volume moving on-chain; the spot volumes of the top 10 DEXs make up 9% of all spot volume, and the perpetual exchanges account for less than 3% of total perp volumes. These statistics show a clear product-market fit for decentralized spot and derivative markets, and STFX seeks to capitalize on this growing demand.

‍

Decentralized Asset Management

‍

STFX also falls under the Decentralized Asset Management (DAM) category. The notion of DAM predates DeFi, with references outlined in the 2014 Ethereum whitepaper. It broadly describes how using smart contracts can enable asset management services in a permissionless and trustless manner.

‍

The current products in this space can be separated into three distinct categories: active on-chain asset management, passive indices, and structured products. STVs, which exist solely for the duration of a single trade, fall under the active on-chain asset management category.

‍

As of September 2022, The DAM market currently sits at $260 million in total value locked (TVL) with a fully diluted market cap of $439 million. The active asset management industry accounts for $81 million in TVL. While the combined DAM TVL is relatively low, STFX’s value accrual is derived primarily from volume processed (i.e., exchange model) rather than the value of assets under management. With revenue tied to volume, and the anticipated high-frequency nature of STVs, STFX is likely to generate meaningful protocol fees in its first year compared to DAM 1.0 competitors.

Source: Coingecko

‍

Team

‍

The STFX decentralized autonomous organization (DAO) is comprised of over 20 core contributors and advisors, who largely remain anonymous. The anonymity hinders traditional assessments for credibility; however, STFX’s core contributors are crypto natives who, at least at this early stage, have consistently hit all targets in their roadmap. In addition, the team has deep connections throughout the crypto community, further benefiting STFX adoption, support, and network growth.

‍

Founder

‍

MustStopMurad  – Murad is the founder of STFX and well-known throughout the crypto community, boasting over 100,000 followers on Twitter. He previously ran a crypto hedge fund, as well as worked at Glencore & Goldman Sachs. Murad is regarded as one of the first effective users of on-chain analysis.

‍

Research and Development

‍

7811 – Smart Contract Developer. 7811 successfully built multiple personal projects under a public Github profile, including an AMM with leverage, a betting protocol for NFT swaps, and covered calls.

‍

0xItadori – Frontend Developer.

‍

AG – Frontend Developer.

‍

17 – UI Designer.

‍

Adam Sagas – QA Engineer. Adam gained experience as a QA automation developer at WhiteSource and Galil Software Ltd.

‍

Jimi -  Back-end Development.

‍

Business Development & Operations

‍

0xArcher - Operations

‍

Peach – Head of Community. If you know you know.

‍

ChardyBTC – Marketing and Social Media.

‍

Rhys - Community Coordinator.

‍

Advisors

‍

JasonFromTG – Jason is an advisor to STFX and the largest contributor in the seed round. He serves as the Co-Founder and Chief Investment Officer of Spacewhale Capital and the Co-Founder of Fortunafi.

‍

Wise - Advisor and trader at WhiteRhino.

‍

Investors

‍

STFX raised $2 million in their seed round, receiving investment from elite crypto investors and prominent VC firms. The round saw participation from 10 firms: Prismatic Capital, LedgerPrime, Space Whale Capital, Greymatter Capital, PhD Capital, White Rhino Capital, Airini Research, FYF Ventures, Alpha Citadel, and Garga Ventures. Space Whale Capital, headed by JasonfromTG, contributed the largest seed check and has committed to the project in an advisory capacity.

‍

The capital raised from influential angel investors and crypto natives is crucial to bootstrap the project with STV managers and end users. The investors uphold a combined following of four million users, and their expansive networks will further aid STFX’s growth. Additionally, the protocol aims to increase visibility by onboarding the likes of CL, Thecryptodog, Moon Overlord, Cryptopathic, and Will Clemente as STV managers.

Source: Twitter

‍

Partnerships

‍

STFX is a true decentralized finance application and money lego. It can integrate with other DeFi protocols in a permissionless manner, so long as they are composable and have an SDK. The only limitations of these integrations relate to time constraints in developer work and the composability of the external DeFi applications.

‍

The possibilities for future partnerships span across the DeFi space, with strategic partnerships with GMX, Arbitrum, Optimism, and Perpetual Protocol already underway.

‍

Arbitrum & Optimism

‍

Arbitrum and Optimism are both Layer 2 Optimistic Rollup networks designed to utilize the strong security guarantees of Ethereum while speeding up transaction times and cutting fees.

‍

Optimism was first introduced in June 2019, and its mainnet launched in December 2021. Since then, the L2 has garnered over $880 million in TVL, making it the second largest layer 2 solution.

Arbitrum was launched in May 2021, and in August 2022 completed its much-anticipated Nitro upgrade, thereby further increasing transaction throughput, reducing fees, and providing a better user experience for developers building applications. Arbitrum has become Ethereum’s most dominant Layer 2 network, holding about $2.5 billion in total value locked as of September 2022, impressively generated completely organically without any token incentives.

Source: Nansen

‍

STFX will be launching its initial Alpha Mainnet competition on Arbitrum, followed by the full Mainnet launch on both Arbitrum and Optimism post-audit. Both L2s were selected for their low cost and low latency interactions, as well as their strong community bases. The popularity of both networks enable easier integration of STFX with prominent protocols and dapps.

‍

GMX

‍

GMX is a decentralized perpetual and spot exchange that permits trading assets on-chain with up to 30x leverage. It works through a shared liquidity pool (GLP). The multi-asset pool supports trading, allowing users to take long or short positions and conveniently perform swaps on both Arbitrum and Avalanche. STFX will be launching with a GMX integration, allowing vault managers to deploy GMX trades from day one.

‍

Perpetual Protocol

‍

In April 2022, STFX received a grant of $12,000 from Perpetual Protocol, an on-chain perpetual futures DEX with deep liquidity and composability. It is the most used Optimism protocol, reporting over 4.4 million transactions. STFX entered a strategic partnership with Perpetual Protocol, allowing STVs to trade several perps (see roadmap in next section).

‍

DeFi Applications

‍

STFX can integrate with any permissionless, composable DeFi application. This ensures STFX maintains its ability to quickly expand and stay relevant with the latest offerings of investment instruments, financial primitives and strategies offered by new and existing options exchanges, spot exchanges, and yield farming protocols.

‍

Roadmap

‍

STFX will be a progressive launch, starting in September, with each stage taking approximately 1-2 months:

‍

1. Guarded Testnet
2. Alpha Mainnet (Trading Competition)
3. Public Mainnet

‍

It’s currently estimated the Alpha Mainnet trading competition will start at the beginning of October on Arbitrum, with the Public Mainnet launching early December on both Arbitrum and Optimism. It will launch with limited investable instruments and features, shipping additional features thereafter.

‍

After the Public Mainnet launch, each STV will begin with a default vault capacity of $50,000, and the following actions enabled: create STVs with customizations, open and close trades in STVs, invest in STVs, track past and present investments and managed STVs, create and edit a profile, and view other profiles and results.

‍

Additional milestones, features and estimated ship dates are as follows:

‍

• September 2022 – Mainnet Development Completed
• September 2022 – Mainnet Internal Alpha Testing & QA
• September 2022 – Mainnet Target Group Alpha Testing
• October 2022 – Alpha Mainnet Competition
• October 2022 – Platform Audit
• November 2022 – Public Sale & Governance Token Launch
• November 2022 – Derivative DEX #2 Integration
• November 2022 – All Past Vaults Analytics
• November 2022 – Platform Analytics
• November 2022 – Calculator for Managers / Investors
• November 2022 – Manager Updates as the Trade Progresses
• December 2022 – Manager Stake for Skin-in-the-Game
• December 2022 – Multi-Collateral Investment (not just USDC)
• December 2022 – Multiple Languages
• January 2023 – Staking Token for 80% of Platform Fees
• January 2023 – Liquidity Mining System Developed
• January 2023 – Performance Fee Customization
• February 2023 – Trailing Stop Losses
• February 2023 – Spot Trading
• March 2023 – Options Trading
• March 2023 – Stake Token to Receive VIP Perks (Tier System)
• April 2023 – Investment Occurs as a L1 Transaction
• April 2023 – Per-Vault Analytics
• May 2023 – Ultrafast Fundraise
• June 2023 – SDK / API for Automatic Vault Creation
• July 2023 – Countertrade Feature
• August 2023 – Smarter Automated Algorithmic Execution / TWAP-Style Entry

Tokenomics

‍

Token Overview

‍

The tokenomics of a project comprises all factors that describe the underlying mechanics of a given asset, including the incentives and psychological/behavioral forces that affect its value. Tokenomics can be separated into supply and demand dynamics, both of which will be analyzed below.

‍

Token Utility

‍

The STFX token serves both governance and utility functions. Staked STFX will be used for protocol governance decisions, including future integrations and new features. The token also functions as a utility across the ecosystem for STV managers and investors. It has strong value accrual mechanics, and each STFX token can be staked to earn 80% of platform revenues (with the remaining 20% accruing to the DAO treasury).

‍

The token utility can be broken down by platform participant (subject to change):

‍

STV Managers

1. Stake STFX tokens to boost maximum vault capacity.
2. Stake STFX tokens to promote STV at the top of the page or category.
3. Stake STFX tokens to reduce STFX’s percentage of platform fees.
4. Stake STFX tokens to unlock privileges naturally obtained from previous winning trades.
5. Earn STFX tokens from liquidity mining actions.

‍

STV Investors

1. Stake STFX tokens to reduce performance fees.
2. Stake STFX tokens to deposit above the capacity limit.
3. Stake STFX tokens to gain priority access to high-performing vaults or top managers.
4. Earn STFX tokens from liquidity mining actions.

‍

Token Distribution

‍

The token ticker is STFX and is hard capped at 1 billion units.

Source: STFX Team & Docs

‍

Seed Round

‍

100 million tokens (10%) are allocated to initial seed round investors, subject to a 12-month linear vesting period. The seed round was completed at a $20 million fully diluted valuation.

‍

Public Round

‍

170 million tokens (17%) are allocated to the public round, allowing the public to gain exposure to the STFX token. The public round is anticipated to take place around November or December 2022, with details to be announced on STFX’s Twitter and Discord.

‍

The public round will be a fixed ICO with a valuation of $50 million.

‍

Team

‍

200 million tokens (20%) are allocated to the team, including the core contributors. Tokens will be used as compensation for their continued dedication and hard work. The team is subject to an 18-month linear vesting period, six months longer than seed round investors.

‍

Future Employees

‍

50 million tokens (5%) are allocated to future employees and strategic partners. Future employees are subject to an 18-month linear vesting period.

‍

Community Incentives

‍

230 million tokens (23%) are allocated to community incentives. These tokens will be used to onboard new users and incentivize actions on the platform, akin to liquidity mining. As outlined in the roadmap, a liquidity mining system is anticipated for early 2023. Tokens can be used for the following actions:

‍

1. Earning STFX as a manager by prudently managing the risk of their STVs.
2. Earning STFX as an investor by investing in the best-performing STVs.
3. Earning STFX by providing liquidity on DEXs.
4. Earning STFX by using the platform in any form early on (airdrop).
5. Earning STFX by sharing referral or vault-specific links.

‍

STFX DAO Treasury

‍

250 million tokens (25%) are allocated to STFX’s DAO treasury to finance the STFX protocol; those staking STFX will vote on governance decisions regarding the allocation of funds. The STFX DAO treasury is subject to a 12-month vesting period.

‍

Token Inflation / Emissions

‍

The public round is anticipated to take place around November or December 2022. Following the token generation event (TGE), 170 million tokens (17%) allocated to the public round will be in circulation. Subsequently, remaining STFX tokens will gradually enter circulation over an 18-month period as investors, team members, and other participants complete vesting durations.

From Month 1 – Month 12 – 62 million STFX tokens will enter circulation each month (after TGE).

‍

From Month 12 - Month 18 - Seed investors, community incentives, and STFX DAO token holders are fully vested. Following the 12-month mark, only team-allocated tokens remain subject to a vesting period, and 14 million tokens will enter circulation each month.

After the TGE and public round, 830 million STFX tokens will come into circulation over 18 months. As with many early-stage projects, the initial high inflationary period may create sell pressure.

‍

Token Demand

‍

The STFX token will retain its inherent demand as platform users seek to maximize the protocol. By staking STFX, users receive 80% of protocol revenue, making the token a productive asset.

‍

Aside from rights to protocol fees and governing power, additional factors can influence STFX demand.

‍

1. Fee Rebates – Managers and investors will be granted reduced fees and rebates on STVs, creating structural demand for the token. This methodology follows similar structures present in BNB and FTT.
2. Increased STV Capabilities – Staking STFX allows managers to increase vault capacity. Investors also seek value from staking STFX tokens to gain priority access to STVs and increased investment capacity.
3. STV Advertising – In the attention economy, STV managers must compete for investor mindshare. Managers can burn and/or stake STFX to increase visibility on the platform.

‍

Catalysts

‍

SocialFi

‍

Until relatively recently, the investment landscape lacked an embedded social layer. The emerging trend of SocialFi represents the intersection of social networking and DeFi and describes how investors communicate and collaborate as they trade/invest alongside each other.

‍

In today’s modern era, social networking platforms are gaining widespread notoriety with financial audiences. Whereas the industry was once confined to a handful of platforms, it now thrives with ever-expanding options. Platforms such as Reddit, Discord, and Twitter have seen a significant increase in content and posts pertaining to financial topics. The GME Reddit Saga and subsequent rise of crypto-related memes represent a seismic shift in the SocialFi landscape, including how investors interact and share ideas, and therefore collectively make and/or lose money together.

‍

To date, protocols have not fully harnessed the power of the crowd. STFX does this by allowing communities to trade together like never before; Twitter users, Discord groups, and investor syndicates can co-trade in a permissionless and non-custodial manner with gamified features.

‍

Incentives & Bootstrapping

‍

To garner widespread adoption, STFX created a system that incentivizes both investors and STV managers.

‍

Investors benefit from the delegation of trading to more experienced traders, enabling them to participate in a non-custodial manner without long-term commitments.

‍

Managers are financially incentivized to run STVs by earning performance fees. From the manager’s perspective, this can be viewed as accessing leverage without taking on elevated  liquidation risk. The illustrative example below shows the incremental profit a manager can realize by raising an additional $50,000, compared to trading independently (assuming a 15% performance fee).

In this example, the trader longs BTC at $20,000 using 2x leverage and $10,000 of self-funded collateral, with an implied liquidation price of 1BTC=$10,000. If this trade returns 10%, the trader stands to make $2,000 (20%) individually. However, if the manager maximizes initial vault capacity by raising an additional $50,000, they are set to make $3,500 (35%) from the same trade. The manager obtains an additional implied 1.8x leverage without raising their liquidation price.

‍

As the incentives of STV managers and investors are aligned, the tailwinds for bootstrapping the protocol and achieving adoption are favorable. While additional features, including liquidity mining and the platform’s gamified nature further instill its promise, the incentives for both user segments are paramount.

‍

On-chain Credibility  

‍

The STFX protocol is entirely on-chain, enabling users to analyze past performance and assess the credibility of any STV manager or investor. Past performance will directly influence a manager’s ‘reputation’ score, ensuring the identification and allocation of capital to reputable, trustworthy traders. Prospective vault managers will likely be interested to easily generate an on-chain performance record to assist in raising capital for a fund.

‍

Team, Partnerships & Marketing

‍

STFX’s core contributors and investors are crypto-native and encompass expansive networks to aid in onboarding new managers and users. The protocol is catered for the crypto Twitter/Discord/Telegram audience. This enables marketing campaigns to perform well and increase the potential for virality.

‍

Imagine an influential STV manager hits a home run trade for investors. The manager and a large proportion of the STV investors will turn to Twitter, social groups, and various platforms to post and share the news. STFX benefits from the free marketing, which creates a constant flow of discovery for the protocol, akin to how Tradingview charts are widely displayed on social media. Effective marketing strategies include a continuous stream of information to capture user mindshare. Consequently, these users are funneled into becoming active users of the protocol. This positions STFX in an ideal manner to achieve virality and investor mindshare.

‍

Public Blockchain & DeFi Adoption

‍

STFX benefits from the increased adoption of public blockchains and DeFi. As the number of addresses and on-chain transactional volume rise, STFX can benefit from the increased exposure to end users. Despite temporary reductions in TVL and market cap, the DeFi ecosystem has exhibited a strong product-market fit with exponential growth potential. STFX aims to scale alongside these ecosystems and process an increasing amount of transaction volume through its innovative platform.

Source: Messari

Source: The Block

‍

Investable Instrument Expansion

‍

STFX will initially launch with the ability to trade four different perpetual future pairs on GMX: ETH, BTC, LINK and UNI. The protocol will continue to integrate across the DeFi landscape to provide users maximum optionality. Managers and users will benefit from the added investment opportunities in the form of chain additions, spot trading, options exchanges, borrowing and lending protocols, yield farming, and delta-neutral strategies. The expansions of these instruments create sizeable catalysts for the platform and user growth.  

‍

Gamification & Viral Marketing

‍

The social nature of STFX allows for the gamification of trading and creates an immersive experience for crypto users. Examples include:

‍

• Trading Clans / Guilds –Traders and investors can congregate into specific clans or guilds; clans could collectively trade through a proposed voting system or participate in intra-clan competitions.

‍

• Trading and Investor Competitions – STV managers can battle over a set period to claim the title of ‘best trader.’ Likewise, STV investors can compete to be crowned the ‘best investor’ or ‘fund of fund’ manager. Interactive competitions can also be leveraged for effective marketing campaigns and capturing social media mindshare.

‍

• Leaderboards –STV managers and investors can be further incentivized to effectively allocate capital through social status and the willingness to top the leaderboards, similar to FTX and Bitmex leaderboards.

‍

• Referral Links – With the implementation of a GMX / FTX-based referral system, users are incentivized to invite friends and followers to join the STFX community.

‍

• Liquidity Mining System – As outlined in the roadmap, STFX will introduce a liquidity mining system to help bootstrap the protocol, onboard users, and reward specific actions. This will serve as a significant catalyst for adoption and user growth.

‍

• Multiple Languages – STFX plans to launch in multiple languages to make the platform accessible to all DeFi users.

‍

Competitor Analysis

‍

STFX aims to unbundle the notion of traditional funds while also competing against current DeFi asset management protocols. Understanding how STFX compares is best achieved by evaluating why others failed to gain significant traction, beginning with DAM 1.0.

‍

The STFX team has identified nine reasons why DAM 1.0 failed:

‍

1. Efficiency gains are low.
2. Market participants are impatient.
3. Unexciting offerings.
4. Stress and anxiety-inducing management.
5. Too transparent.
6. Limited track records.
7. Investor preference.
8. Scope of investable universe.
9. Seasonality.

‍

DAM 1.0 failed to gain traction as it was merely an extension of traditional financial concepts, failing to excite and capture the attention of potential investors. Its lack of variety in investable instruments, pressure to continually produce perfection, and the transparency of protocols resulted in participants preferring independent trading.

‍

STFX provides higher volatility and lower duration vault systems, as opposed to the variety of vaults currently seen in DeFi. This distinction, coupled with the gamified and social aspects of the protocol, will allow STFX to engage and grab the attention of crypto market participants.

Source: STFX Medium – Market Map Vaults-Based DeFi Products

‍

Enzyme Finance (MLN)

‍

Launched in 2016, Enzyme Finance was the original DAM protocol. Enzyme allows managers to build and grow vaults based on individual investment strategies, including discretionary investing, ETFs, and market making.

‍

As of September 2022, the protocol has $75 million in AUM, 3,098 deposits, and 1,166 vaults. At its initial peak in 2017, MLN had a fully diluted valuation of $423 million. However, in 2021, it reached an all-time high in TVL of $206 million.

Source: CoinGecko, Enzyme, TokenTerminal

‍

MLN is the native token of the Enzyme platform. It is used to pay fees (in addition to ETH gas) to incentivize developers to build on Enzyme. There are currently 1,453,963 MLN in circulating supply and a total supply of 2,124,975.

‍

Most vaults are long-duration investment vehicles with integrations into various DeFi protocols, such as Uniswap and Compound. The vaults can spot long assets or perform simple yield farming to generate returns.

‍

While Enzyme Finance proved mildly successful, the protocol faced the following limitations:

‍

1. Prospective users could easily view and replicate the holdings of vaults without incurring the Enzyme fees. The transparency caused prospective users to recreate vaults rather than pursue investments.
2. The lack of investable instruments limited the ability for managers and users to generate returns.
3. The vaults’ long duration, low volatility nature failed to excite investors and resulted in participants preferring independent trading.

‍

dHEDGE

‍

dHedge is a non-custodial, social asset management protocol on Ethereum, Optimism, and Polygon. The project launched on the Ethereum mainnet in September 2020 and as of September 2022 has $12 million AUM.

The protocol is supported by leading VCs and investors and delivers an eminent UI/UX with more social capabilities than Enzyme. At its peak in May 2021, the protocol had $33 million in AUM, and in March 2022 it commanded a fully diluted valuation of $407 million. The circulating market cap peaked at $36 million in April 2021.

dHEDGE’s failure to gain significant traction attributes to the following factors:

‍

1. The DHT token is an inflationary governance token that offers little utility to the holder. As a result, investors lacked the incentive to buy the token, causing attention and capital to remain low.
2. The transparent system permitted the copying of strategies.
3. Inadequate marketing strategies impacted investor interest.  
4. Limited SocialFi & gamified features.

‍

Babylon Finance

‍

Babylon Finance is an active asset management protocol focused on community and investment clubs. The protocol, built on Ethereum mainnet, allows users to create investment communities (“gardens”) to jointly manage capital through varying investment strategies. As of July 2022, the protocol had $4 million in TVL, 99 investment clubs, and 1,613 users; however effective November 2022, the project will be wound down due to exposure and irreparable damage from the Rari hack.

‍

The vaults on the platform primarily consisted of yield generation strategies for stablecoins and blue-chip assets, such as Ethereum or wrapped Bitcoin.

‍

The platform failed to gain traction as market participants opted for fast-paced, exciting investment decisions rather than slow accumulation, long-duration yield generation strategies.

‍

STFX

‍

STFX represents the first decentralized asset/trade management protocol that caters to the demands of crypto market participants. Digital asset markets trade significantly different than traditional markets; one day in crypto feels like a lifetime in traditional asset classes. Crypto markets trade 24/7, and participants seemingly relish the risk. Leveraging SocialFi and gamified aspects, the STFX protocol caters to profit-hungry participants with short-term vaults, a myriad of investable instruments, and near-instant, gamified feedback loops.

‍

Risks

‍

Adoption – As with any early-stage project, adoption poses a potential risk. The STFX protocol relies on the diligent use of STV managers and investors to generate fees. In addition, the solace of individual trading will inevitably serve as an imminent threat to asset management platforms.  

‍

Execution Risk – STFX could face scrutiny if its development team cannot ship a product with great UI/UX, integrate new features, or adhere to the outlined roadmap.  

‍

Smart Contract Risk - Smart contracts can potentially encode complex business, financial, and legal arrangements. Since STFX will integrate with multiple decentralized protocols, the smart contract risk is elevated. To counteract these associated risks, the protocol will undergo routine audits. STFX is planning both a private and decentralized audit during October/November 2022 (e.g., Standard Audit + Code4rena + Immunefi).

‍

Long Tail Assets & Front-running - The first iteration of the STFX protocol supports trading perpetual futures in high-volume pairs. However, if more tokens are permitted to trade in an STV, it is possible that long tail, illiquid assets would experience significant price moves from STV vault orders. There’s a risk that managers could front-run orders or MEV searchers could target large STVs.

‍

Targeted Liquidations/Copy-trading – STVs are tracked on-chain, making them susceptible to targeted liquidation hunts. Future integrations into a privacy protocol could aid in reducing the correlated risk.

‍

Industry Risk – Previous protocols in the decentralized asset management industry have failed to gain traction. While STFX includes innovative, attractive features, the industry risk still exists.  

‍

Anonymous Team – The anonymity of the STFX team presents a notable risk. Although anonymous crypto teams are not uncommon, they can create a barrier to trust and credibility. Likewise, some institutional investors will not have the mandate to invest in anonymous teams.

‍

Regulatory Risk - STFX faces an external element of risk in the form of regulation. Traditional funds are subject to complex, arduous regulatory practices and know-your-customer (KYC) laws. Since STFX is launching an innovative on-chain, single-trade vault structure, it is conceivable that regulatory bodies may require managers and investors to comply with some or all regulations imposed on traditional funds. In addition, the STFX token itself could encounter further inspection if constituted as a security. While future implications from regulations remain unknown, STFX’s decentralized foundation may aid in triumph.

‍

Summary Evaluation

‍

Marketplaces and exchanges can be some of the most challenging types of businesses/projects to launch, requiring attracting and fostering two distinct audiences. For example, Airbnb has homeowners and renters; Aave has lenders and borrowers, exchanges have liquidity providers and traders. As a new project, catering to two separate audiences can often force small, early-stage teams to bifurcate their energy and focus. It’s one of the primary reasons these types of projects often fail; however, when overcome, these same challenges can solidify a deep moat that’s difficult to compete with, especially when combined with a first-mover advantage that cements network effects.

‍

We think STFX is well-positioned to overcome these obstacles and succeed where others have failed (see Competitor Analysis section). Operating at the intersection of DeFi and SocialFi, with adoption and user-retention driven by a gamified experience, while simultaneously promoted by a respected group of crypto-natives with loyal Twitter followers, STFX will likely attract significant attention immediately at launch. In addition, the STFX team has done an excellent job aligning incentives for both investors and managers, creating a compelling value proposition that we expect will keep users engaged, translating to strong user-retention rates.

‍

STFX has been designed from the ground-up for the crypto-degen Twitter/Discord crowd – a devout and obsessive group that takes pride in bragging about trading successes, and even failures. All the pieces are in place for viral forces to take effect.

‍

Undoubtedly, STFX capitalizes on numerous growing trends and will be an interesting project to watch.

‍

--------

This report is for illustrative purposes only. Portfolios managed by Prismatic Capital LLC may hold investments in the company described herein, and the reader should not assume any such investments were or will be profitable.