SMART Alpha Use Cases
The utility of SMART Alpha will grow over time as its junior and senior assets becomes integrated into the wider DeFi ecosystem. Today, it should appeal most strongly to the following user types:
DAOs and project teams with material holdings of their native asset can diversify their treasury at unprecedented scale with the downside protection offered by the senior side of their respective asset’s pool. In doing so, they simultaneously subsidize leverage for their biggest advocates on the junior side of the pool.
Teams should be aware that a pool skewed greatly in favor of senior deposits can pose significant risk to junior depositors in the case of negative price performance.
On-chain options protocols have created somewhat liquid avenues for users to speculate on the price direction of blue chip digital assets, namely Bitcoin and Ether. These solutions do, however suffer, from an inefficient pricing of volatility relative to legacy solutions, as well as minimal secondary liquidity.
SMART Alpha junior and senior tokens provide perpetual exposure for users looking to express either positive or negative views on an upcoming week's price performance. While it is an inherently less capital efficient solution, it offers this functionality for any ERC-20 asset with a Chainlink price feed at a cheaper price.
Risk-averse users in search of low-volatility collateral could borrow against SMART Alpha senior tokens once secondary markets emerge to provide liquidity for liquidations as needed.
The downside protection offered to senior depositors varies epoch to epoch as a function of junior pool dominance.