If you’ve been exploring the crypto world for a while, you already know that crypto assets are extremely volatile. And it is literally extreme since some crypto coins experience swings ranging in multiple percentage points. And no matter how fruitful it may look, a sudden downfall can easily erode your portfolio’s value. Keeping this in mind, Binance has come up with an innovative solution: Binance Dual Investment.
Binance Dual Investment: an overview
Binance Dual Investment allows you to deposit a cryptocurrency and earn yield based on two assets. Basically, you commit your crypto assets, lock in a yield and earn value if your committed assets’ value increases.
The return you get depends upon the outcome of your bet at the expiry date. If the value of the holdings increases such that your earnings exceed the savings rate, you’ll get a higher return. If it does not happen so, you’ll still get the yield from your savings.
Before explaining further, there are some terms listed which you’ll need to know.
- Subscription cut-off date – the date until you can subscribe funds to this Dual Investment product.
- Expiry date – This is when you can redeem your crypto with the interest that you earned.
- Strike price – The price threshold that determines which settlement currency you’ll get paid in.
- Settlement price – The price of your crypto at the expiry date. It’s calculated using an index of some of the most liquid spot BTC-USD market pairs.
- Rate of return – The fixed interest you’ll earn when the product settles.
- The annualized rate of return – The interest you’d earn if you’d lock your crypto in a Dual Investment product for a year. For example, if your annualized rate of return is 365%, then an estimation of your daily return is 1%.
How does BTC dual investment work?
Through this product, users holding BTC can hedge their bitcoin holdings.
The main idea is that if the settlement price is higher than the strike price, the product is settled in BUSD. Otherwise, the product is settled in BTC.
What that means is, if the product settling is in BUSD, users can effectively sell their BTC higher than the current spot price at the expiry period.
The higher the strike price and the shorter the period, the lower the yield. Similarly, the lower the strike price and the longer the period, the higher the yield.
To explain this more aptly, Let’s say a user has 1 BTC at a price of $10,000 and subscribes to a 30-day Dual Investment product with a 2% rate of return. The strike price is set to $12,000.
After a month, one of the two outcomes will happen:
- If BTC is above $12,000, the user’s 1 BTC is paid out in 12,000 BUSD plus the 2% interest worth 240 BUSD. The user now has 12,240 BUSD.
- If BTC is below $12,000, the user’s 1 BTC returns back plus the 2% interest worth 0.02 BTC. The user now has 1.02 BTC.
How to use Binance Dual Investment?
You’ll find the available products on the Binance pool page. After that: