Within Nova, we’re developing a range of automated strategies to manage assets within the Nova protocol. There has been lots of curiosity around these tools, especially since the community has had a chance to explore some of the early prototypes within the Nova Devnet!
In this article, we’re sharing details on some of the strategies that will be available in the Nova Mainnet launch or shortly after! We’d love to hear which tools you want to use and also if you have any ideas for different automated tools. You can do so in our #feature-request discord channel! https://discord.gg/cq9JngGwUz
1. Dollar Cost Averaging (DCA)
Dollar cost averaging is one of the most popular and tested investment techniques. A 2012 study by Vanguard found that historically investing your money in a lump sum vs. dollar-cost averaging produced better results 66 percent of the time!
Using this strategy, you can allocate and top-up funds overtime to regularly purchase an asset of your choice. In accumulation periods, it helps you establish a strong average entry price to an asset.
Some of our community have seen the take profit tool within our devnet Dapp, in the future, these two sets of instructions will be able to be combined to let you get great average entry and exit prices!
2. Transaction Count re-balancer
The amount of usage that a blockchain network or a token asset within a network receives is a good indicator of the value and growth potential of an asset. Studies have attempted to associate blockchain value models to Metcalfe’s Law and indeed transaction count is used as an important factor in those calculations.
It can be very hard to standardize the rates of transactions across blockchains and tokens. Some blockchains have different considerations of what a transaction is and some successful token based protocols have surprisingly low transaction throughput due to initiatives such as lockups which naturally reduce the flow of funds.
Instead, we take each total transaction value and set it in ratio with another asset. You can set a period in which to monitor transaction count and rebalance if changes have occurred.
Here’s an example:
3. SMA trader
Simple Moving Averages (SMA’s) are a popular trading indicator which calculates the average price over a certain period of time.
Below you can see an example (the blue line) of a 50 day SMA on the 1 day chart on Bitcoin. This strategy will hold the asset when the price is above the blue line and can be set to sell a % of the asset when the price is below the blue line. When the price returns above the blue line, the asset can be repurchased.
As you can see, sometimes the price likes to hover around the SMA and crosses over frequently. In this strategy, you can choose some additional conditions around the selling or repurchasing of assets:
- Duration: if the price crosses and remains on that side of the blue line for a specific period of time, execute the swap
- Daily Close: Wait for the final price of the day, if that price has moved across the SMA price then a swap can be executed. Additionally, you can wait for multiple daily close prices to confirm a swap. For example “the price has to be below the SMA for 2 daily closes before executing the swap”
Using a 50 day SMA and a 2 day close confirmation on the Bitcoin chart, this strategy would have sold Bitcoin at just over $58k and would be waiting for a re-entry. If configured well, it can capture a healthy majority of upside gains while protecting from downside risk. As long as an asset has at least 50 days worth of price data, this strategy can be applied to any asset!
4. Dip Buyer
Buying the dip (or BTFD as sometimes referred to) has been a classic crypto investment technique that has served many investors well. Despite the huge growth of crypto in the last year, “Fire sales” are still a fairly common occurrence and are fantastic opportunities to add to long term plays.
Here are the steps of the strategy:
- Select the assets you want to BTFD for and add them to the “Watch list”
- Choose the minimum dump requirement “The asset has to decline by x% in x Days to trigger”
- Choose how much of your reserve you want to allocate to each purchase “When the trigger happens, use x% of my USDC to BTFD!”
- Whenever an asset records a dump of appropriate magnitude, the strategy will buy the dip and hopefully provide you with a great deal
5. Reduced Volatility
Crypto is still an incredibly young asset class and the inflows and outflows of capital between crypto sub sectors and the industry itself mean that crypto is about 10 times more volatile than most fiat currencies.
Calculating the variance in an asset’s price over time means that we can begin to understand when an asset’s price movement can be considered volatile.
This strategy allows a user to set a variance threshold that, if hit and price is trending downwards, can trigger a sale of the asset into something more stable
When variance reaches an appropriate level, the asset can be repurchased in a less volatile environment.
This strategy should allow people to preserve and potentially even increase the dollar value of their assets over time. Interestingly, bollinger bands operate with similar calculations using standard deviation. We’re also exploring ways in which we can use bollinger band values to trigger buy and sell when the price reaches either the positive or negative deviation value in the bands.
6. Active Address re-balancer
Similar to the transaction count re-balancer, other types of on chain data can be used to rebalance.
Young assets often have huge growth potential and can outperform more established assets as they reach critical mass. However, many assets don’t reach their potential in this space and it can be hard to recognize a flatlining or declining protocol and protect yourself.
The theory behind this specific rebalancing technique is that increased addresses over time suggest meaningful growth of an asset’s adoption, whereas reduced addresses holding an asset suggest that people are selling and leaving the network.
This tool allows you to add in strength as an asset proves itself but equally scales down your position if it shows weakness in itself or compared to others within the market.
7. Conditional Distribution
Sometimes as an investor, you have a price target in mind and you have high confidence of the price target being reached.
Utilizing a conditional distribution instruction within a portfolio allows you to capture yield on an asset while you wait for the price target to hit. It can also be used to set stop-losses. We’re working on making it as easy as possible to set multiple different price conditions to allow you to manage an asset exactly how you want. Eventually price targets will be able to be used to trigger different tools for different situations such as take profit if the price rises.
The ruleset is guaranteed to execute as soon as our oracle services confirm the price has been hit meaning you can sit back and relax!
The future of automated tools in Nova
- More indicators
- Increasingly advanced algorithms
- On-chain aggregators that recognize when to deploy certain tools and with what parameters
- More data sources to produce even greater diversity of tools
We want to hear from you what you think of these ideas and if you have any ideas you want to see deployed within the Nova protocol!
Are you a developer? We’re also curious about collaborating with others who design trading strategies, bots and algorithms. Please contact us at https://twitter.com/NovaFinance_ to discuss ideas and how we can support you!
About Nova Finance
Nova is a programmable asset framework that allows people to access DeFi without having to learn complex financial management skills. Within the product, users can create a portfolio of assets which auto-generate returns through yield strategies while auto-executing on investment strategies such as dollar cost averaging, take profit calls and much more.
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