Will Social Trading Bring Folks Into Crypto?

VeradiVerdict - Issue #69

Set Social Trading launched last week and is a way to learn a bit about trading and smart contracts with a little bit of fun and speculation involved. The product runs on smart contracts and is a neat way for folks to gain exposure to the industry. Traction has been impressive so far.

  • Set Social Trading is a platform that runs on top of TokenSets that doubles as a marketplace to trade Sets (ERC-20 tokens representing a portfolio of crypto assets that automatically rebalance) and a social network for users to discuss and evaluate various trading strategies.

  • The marketplace is two-sided. Experienced traders apply to join the platform and then open-source their trading strategies to the public. Everyday users can then “purchase” (via an entry fee of 0-5%) to mint these trading strategies, which basically tells Set Social to automatically copy every trade execution that the experienced trader makes with the everyday user’s set. The entire process is automated with smart contracts.

  • The platform currently supports Sets of WBTC, ETH, USDC, and DAI. There are 18 Sets available on the platform with 13 traders, including notable ones like CryptoCat and the Wyre CEO. The platform takes incredible advantage of the social sphere of crypto (discussions of trading on Twitter, Reddit, etc.) and consolidates it into a legitimate marketplace for people to buy and sell strategies.

  • Set Social Trading is an incredible step forward in terms of maximizing trading returns for both experienced traders (via entry fees) and everyday users (via higher returns) alike. It also greatly increases mainstream confidence in crypto trading, as higher returns show users the vast potential of the space. 

On bringing more people into the crypto world

Cryptocurrency, being a technically complex and fairly recent trend, has stirred up tons of confusion and controversy in the past decade. Given its growth since the original Bitcoin whitepaper, it’s hard to deny that cryptocurrency does produce economic value –– particularly when we consider things like decentralized finance and crypto trading. Yet, many of these markets are fairly inaccessible to mainstream audiences and even experienced traders; blockchain protocols can be incredibly complex and the very idea of trading an asset or security that’s not tied to something tangible like a share in a company or a government bond is daunting. Much of the necessity in modern crypto is to educate and introduce users interested, but not familiar, with cryptocurrency about how such markets operate and what opportunity is available. Mentorship and learning from tried-and-true trading strategies are one key mechanism for that.

So, what is Set Social Trading and how does it solve this?

Set Social Trading is a platform that runs on top of TokenSets that allows the public to observe and copy trading strategies from experienced traders. It doubles as a marketplace, where users can trade Sets and generate a profit like they normally would, and a social network that allows users to share, copy, and learn from each other’s trading strategies to optimize their own profit opportunities.

What even is a Set in the first place?

At a high level, a Set is an ERC-20 token that digitally represents a collateralized portfolio of cryptocurrency assets –– like Bitcoin, Ethereum, etc. They have some built-in functionality like automatically rebalancing portfolios to enable simple execution of any portfolio strategy. Sets essentially automate the management and rebalancing process across multiple assets, allowing traders to focus on trading strategies and not necessarily the legwork required to execute them. TokenSets offers 20 sets and have 1600 unique users that own a set, which puts $2 million into the platform.

How does Set Social Trading operate?

Like any digital marketplace, Set Social Trading can be largely thought of as having two-sides. 

First, experienced traders (as determined by the Set team) apply to join the Set Social platform. They execute trades with various Sets on the platform and Set Social open sources their trading strategies to public users. 

Second, less-experienced traders (essentially anyone else on the platform) browse different trading strategies and their performance and can “mint” trading strategies from experienced traders. This essentially means they can carbon copy the experienced trader’s strategies on their own sets to gain a profit by following the experienced traders moves. Users can also follow and learn more about specific traders through the platform. Rebalancing also automatically mimics the rebalancing of the experienced trader’s set. This enables them to effectively earn profit, increasing their confidence in the crypto space, and also gives them unique insights into what trading strategies succeed and why. In exchange for this, everyday users pay an entry fee (between 0-5% of returns) to the professional traders in compensation for following their strategy. All of this is automated via smart contracts and users can pay for any Set with ETH, USDC, DAI, or SAI. The platform currently supports Sets with WBTC, ETH, USDC, and DAI. It’s somewhat similar to the RoboSets (basically sets with automated algorithmic trading strategies) that Set Labs has already offered, but now the strategies can be informed by humans, not algorithms.

Ultimately, Set Social Trading works fantastically on both sides of the marketplace in terms of optimizing returns. Experienced traders who provide the trading strategies can generate an extra profit via open-sourcing their strategies to everyday users. Everyday users can generate huge streams of profit by following smart trading strategies, and this profit largely dominates that nominal entry fee they pay to professional traders. It’s an excellent mechanism to maximize the earnings that both experienced and everyday users can make, while increasing mainstream confidence and awareness about crypto and trading.

Why is this so important?

Given the recency of crypto, the space has always had a fairly social component to it. Enthusiasts and the curious alike interact on Reddit, Twitter, Telegram, Discord, etc. on how bullish or bearish they are on various assets, protocols, trends, etc. Set Social Trading is an incremental step in making this social interaction more productive; it consolidates tweets and posts about the efficacy of various trading strategies into an actionable marketplace where users can profit off of sharing and learning from others’ strategies. 

What are the Sets and who are the experienced traders on the platform?

There are currently 18 Sets and strategies from 13 traders available. Set Labs has an application to be a trader here; they largely look at (1) trading success and (2) social presence, given that much of the inspiration for Set Social Trading was how traders would discuss various trading strategies across a diversity of social media platforms. Some notable ones include CryptoCat, which traded more volume on DEX than Kyber or Uniswap last year, and Wyre CEO Michael Dunworth. Given the set (no pun intended) of traders that the platform already has, it seems that the application to become a trader is rigorous –– ensuring that the strategies that everyday users pay for really do perform well. 

Final Thoughts

Set Social Trading is an incredibly promising platform that can bring tons of traders and mainstream users into the sphere of crypto trading. Being able to learn from successful traders doubly generates more profit for traders and everyday users but also increases everyday users’ confidence in the crypto market when they see the returns they can generate given the correct strategies. It’s an important step forward in increasing accessibility to cryptocurrency and combining the social and technical progress of a blossoming space.


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ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.

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