How to Create a Successful DUO
- Wirex's DUO is dual-currency wealth product offering up to 400% yield
- Our Head of Trading has pulled together top tips on how to create a successful DUO
- This includes selecting currencies you'd like to hold in the long-term, selecting liquid mean-reverting pairs, and rolling or holding your earnings
Wirex’s DUO product is popular for those wanting to invest and reap potentially high rewards. As Wirex’s Head of Trading, I’ve spent a lot of time analysing customer behaviours and mechanics in DUO. Factoring in the element of risk at hand with investing, I want to share some strategies that could help you choose a DUO product that has a better chance of success.
What is DUO?
Wirex’s DUO product is built around a pair of digital currencies you select. One of them will be the ‘invested’ digital currency that you deposit. The second one will be referred to as the ‘quote’ digital currency that it is paired to. There are close to 100 digital pairs available and any of those pairs can be invested in DUO. The amount invested is locked until expiration of the DUO product in either 12 hours, 1, 2 or 7 days, with guaranteed returns in one of the two currencies.
How does DUO work?
Depositing the invested digital currency into a DUOconsists of swapping this currency’s potential volatility over the quote currency, for a fixed predetermined reward indicated by the Annual Percentage Rate (APR). The APR is scaled by the DUO’s timeframe (12 hours, 1 day, 2 days or 7 days) and multiplied by the invested amount to calculate the exact reward amount paid to the user at expiration.
For example, using BTC as the invested digital currency, and USDT as the quote digital currency:
For 0.5 Bitcoin (BTC) invested in the BTC/USDT 12 hours DUO at 200% APR, the reward at expiration is: [0.5] * [12 / (365*24)] * [200%] = 0.00137 BTC.
There are two scenarios at expiration. If BTC doesn't exceed the initial price at the end of the term, you'll earn extra BTC. If BTC exceeds the initial price, BTCs will be sold at a price higher than the initial price and you'll receive USDTs.
Scenario one: If the price of BTC/USDT at expiration is lower than the initial price, you'll earn extra BTC.
The amount you'll receive by the expiration date is determined by the following formula: Invested amount × (1 + APR*(term in hours)/(24*365.0)) = 0.5*(1+ 200%*12 / (365*24)) = 0.50137 BTC
Scenario two: If the price of BTC/USDT at expiration is higher than, or equal to, the initial price, we'll sell BTC at the initial price and earn USDT.
The amount you'll receive by the expiration date is determined by the following formula: Invested amount × Initial price x (1 + APR*(term in hours)/(24*365.0)) = 0.5*16,500 * (1+ 200%*12 / (365*24)) = 8,272 USDT
Ultimately, whether you receive BTC or USDT back, you’ll want to ensure that these tokens have more value than what you initially deposited. The best way to achieve this is by seeking minimal volatility for the time the DUO is open.
The lower the pair’s volatility, the more likely the expiration price of BTC/USDT will stay near the initial price level
Tips & tricks to create a DUO investment strategy with better odds
Investing in a DUO involves risk, and there are no guarantees of the result. As a trader, I used to price and trade similar products called ‘reverse convertibles’ that are still offered to high-net-worth clients in private banks, and have spent considerable time analysing DUO products. From this, I’ve put together my top three tips that I believe will help your DUO perform more successfully:
1. Select two currencies that you’d like to hold in the long-run
DUO is a short-term product. At expiration you will receive either the ‘invested’ currency, or the quote currency. If you are indifferent between holding one currency or the other in the long run because you believe both will perform well and equally at some point in the distant future, then what happens in the short-term matters less.
2. Select a liquid mean-reverting pair, meaning they’re more likely to stay close to the initial price, such as:
From liquid markets, which are usually less volatile than illiquid ones. Liquid markets are more actively covered by market makers. Market-makers provide the markets’ liquidity and improve the depth of the pair’s order books, making them more resilient against potential manipulation, and therefore less volatile. BTC, ETH, or any of the top 10 or 20 cryptocurrencies by market cap would be good options .
BTC quoted pairs, which are usually more ‘mean-reverting’ than USDT quoted pairs. The 30-day correlation between the BTC and ETH prices often exceeds 90%. It remained above 74% this year. The 74% estimate was reached around the Ethereum Merge in September this year.
It’s obviously recommended to avoid investing in an asset when a specific risk, linked to a specific event, is looming. These currencies will de-correlate from other currencies. For instance, investing in ETH-linked DUO pairs around the Ethereum Merge was certainly not recommended. Today, investing in XRP-linked DUO pairs also holds a high risk as the market is expecting the summary judgement in the SEC vs Ripple case to be released in the near future.
3. Roll your investment or Hold depending on the DUO’s outcome.
If you receive your invested currency with the reward at expiration: you could reinvest the amount in a new DUO on the same pair to seek further rewards. In this case, you would be rolling your position, meaning you would reinvest the amount received in a new DUO
If you receive the alternative quote currency with the reward at expiration: it means that the invested currency outperformed the alternative quote one. The user incurred an opportunity loss because holding on to their initial invested currency instead of investing in the DUO would have given a better outcome. In this case, to avoid 'realising' or ‘locking’ the loss, the user shouldn’t roll. Instead they could hold and seek to recover their initial investment. In other words, they could set a “Limit Buy order”, where they buy back the initially invested amount for the alternative currency amount received at the initial price (the order’s “limit” price).
There’s obviously no guarantee that this strategy will succeed in the long-run because:
- a high correlation observed in the past does not indicateany future patterns
- there is no guarantee that a limit order will ever be filled, or that the market price will move in the user’s favour
You can never know for sure the outcome of a DUO. Due diligence and monitoring of volatility and correlation are always recommended.
The content of this publication should not be construed as an express or implied promise, guarantee or implication by Wirex that clients will profit or that losses in connection can be limited from reliance on any information. The content is purely educational and informative, not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice and should not be relied on for those purposes. The author and Wirex are not responsible for any loss arising from any investment based on any perceived recommendation, forecast, or other information contained here.
None of the information in this article constitutes an offer (or solicitation of an offer) to buy or sell any currency (whether cryptocurrency or fiat) or product, make any investment or participate in any trading strategy. Crypto products, including Wirex DUO, can be risky for users. The value of your assets may decrease significantly and lead to a total loss, and there may be no regulatory recourse for any loss from such transactions. Please do your research thoroughly.