ETFs in the crypto world are called xFunds
- XFunds are ERC20 tokens that change value at the same rate as an underlying index
- XFunds allow investors to keep exposure to non-crypto markets in their Ethereum wallet
- The value of xFunds are 100% collateralized by ethereum stored in each fund's smart-contract
- The mechanics and funding of xFunds are public information
- Anyone can be a market maker with xFunds
- XFunds have only one fee: a 1% fee for market makers -- No management or trading fees
What is the status of xFunds?
XFunds are live on the Ethereum main network. The first funds have shortened settlement dates so investors can test how the funds operate and be able to more quickly see whether the funds operate as they expect. Funds will eventually have settlement dates 1-5 years out from creation.
Because xFunds is new, investors can expect high volatility and spreads. Please experiment with trading small amounts at this time. XFunds only manages the contracts and infrastructure for settlement and has no control over the trading markets. As usual in the cryptocurrency space, buyer beware.
How do xFunds work?
Anyone can send an xFund smart-contract any amount of ethereum to automatically receive an equal number of two types of xFund tokens called "white" and "black" tokens. White tokens represent the underlying index fund. Black tokens represent the counterparty who will honor the price of the index fund. Both tokens can be traded independently on exchanges.
1 ETH => xFund => 0.99 white + 0.99 black
After an xFund's settlement, an equal amount of each type of token can be sent back to the xFund and the xFund will automatically send back the same amount of ethereum. However, if only white tokens are redeemed, their value in dollars will be proportional to the settled index rate. Likewise, if only black tokens are redeemed, their value will be proportional to the negative of the index rate times the exchange rate of ethereum. All redemptions are minus the 1% market-maker fee.
0.99 white => xFund => 0.297 ETH
0.99 black => xFund => 0.693 ETH
XFund tokens can be traded independently on any exchange that supports ERC20 tokens, and can be stored on any wallet that supports ERC20 tokens. Since xFund smart contracts are public on the block chain, it is possible to redeem ethereum from them at any time after settlement, even decades into the future.
How are xFunds secured?
XFund smart contracts have been designed to prevent theft by any party, including xFunds administration. The balances of xFund tokens and ethereum collateral are publicly viewable on any Ethereum block explorer. Additionally, the xFunds fee structure is designed to incentivize xFunds administration to act in the best interests of its customers; we only make money if our funds grow.
Our vision is to make the xFunds name a Switzerland of the internet. We are building investment vehicles outside the domain of governments and other centralized entities to cater to a different and evolving world of the future.
Are xFunds vulnerable to the ERC20 "batchOverflow" vulnerability?
No, not vulnerable. Xfunds' ERC20 tokens do not have a batchTransfer function implementation (the one the vulnerability is related to), and have been checked thoroughly for related buffer overflow bugs.
How can xFund tokens be acquired?
White and black tokens can be acquired individually by either trading for the token you want on an exchange or sending ethereum directly to an xFund contract, which sends you back both tokens, and subsequently selling the token you do not want. XFund contracts are able to receive any amount of Ethereum, even very small amounts, but please be advised there are set Ethereum network fees of at least a few cents per transaction.
How can xFunds be profitable?
There are many strategies that are enabled with adding xFunds to your portfolio. Some ideas are listed below.
- Censor-resistant exposure to equities, commodities, and volitility markets
- Hedging to prevent overexposure to cryptocurrency exchange rates
- Additional leverage on Ethereum long positions
- Market making
- Taking premium for counterparty risk
Are more funds being considered?
Yes. Additional equity markets (global, tech, asia), commodity markets (energy), bonds, real estate, short indexes, and leveraged indexes are being considered. As xFunds receive more liquidity, more funds will be opened.
Are xFunds tokenized CFDs?
Yes. xFunds are socialized Contracts For Difference. CFDs are an existing asset class that you can research independently. Additionally xFunds has made changes to the way risk is shared between party and counterparty to prevent the possibility of a default scenario.
What mechanism is used to prevent counterparty default?
It is impossible for an XFund to bankrupt due to a mechanism added to the settlement calculation. Even if ethereum's price crashes or the tracked index explodes, every token will always have an amount of ethereum that it is able to be settled for.
How does this work? XFunds list an "Equal ETH Per Token At" rate that has a value in a unit called "index-per-eth." Index-per-eth is ethereum's rate in dollars divided by the index's rate in dollars.
Above the "Equal ETH Per Token At" rate, the white token of an xFund fluctuates at its index rate as normal. Below this rate, the white token progressively shares the risk of the fund's solvency. When the index-per-eth rate approaches zero, the fluctuation of white and black tokens settlement values approaches being equal.
Generally speaking, XFunds have a low enough equal-at rate to weather a large crash without engaging this mechanism. Use a fund's calculator to experiment with how the mechanism works for a particular fund.