Set Protocol Launches Ethereum Trading Strategy Bots

Set Labs, San Francisco-based investment platform, unveiled an Ethereum-based financial trading instrument that captures crypto's volatile attributes for the investor's benefit.

The "Trend Trading ETH 20 Day Simple Moving Average Crossover Set" uses a two year back-tested "Moving average" to capture the momentum of price swings and limit losses in the market.

The ETH Crossover Set uses the ERC20 token to represent user's funds as either Ether or as Coinbase's stable USDC. The Set employs two MakerDAO's ETH/USD price oracle ts to track the daily price and moving average of Ether and is programmed to make trades "Whenever the current price of ETH crosses the 20 Day Simple Moving Average indicator."

If the Set is currently in ETH and the price goes below the moving average, it rebalances ETH into USDC. Likewise, if the Set is currently in ETH and the price goes above the moving average, it rebalances USDC into ETH. "Essentially, you would be momentum investing or swing trading," said company CEO Felix Feng.

"Typically, momentum trading is effective in markets that 1) do not have valuation models, 2) have large amounts of volatility, and 3) have frequent mispricings. Momentum investing is not typically used in US stocks, bonds, or options - as they have clear valuation models. However, for commodities and assets like crypto - momentum trading can be an effective strategy that allows protection from losses in downtrends and capture subside on the uptrends. Based on historical data, this may be an extremely effective strategy - until a valuation model has been figured out."

As opposed to manually reviewing trend lines and executing trades on a centralized exchanges, or delegating these decisions to a manager of a hedge fund, Set applies technical indicators encoded in smart contracts to remove human decisions from quantitative trades.

The company deployed the Set Protocol system to the Ethereum mainnet in April 2019 along with the launch of TokenSets, the dApp, and two trading strategies: Buy and Hold and Range Bound.

Buy and Hold is similar to a traditional index fund, where one Set token is collateralized by multiple underlying assets, in this case BTC and ETH, which automatically rebalance back to a target allocation.

"Since Sets can be configured to rebalance on any on-chain indicator, we can also build trading strategies built on fundamental indicators and eventually combine multiple indicators to build complex algorithmic strategies," said Feng.

Set Labs, the company behind Set Protocol, was founded in 2017.