Smart Token Funds or STFs were created by WazirX as an alternative to mutual funds, the main difference is that you invest in cryptocurrencies. This was designed to include early investors who were not very knowledgeable about the industry. The cryptocurrency landscape has changed dramatically since its inception 2 years ago, as have STFs.
What are STFs?
WazirX, India’s largest crypto exchange, has created STFs (Smart Token Funds) so investors can fund traders with experience in the crypto space and benefit from their skills. It does this by purchasing a smart token created by skilled managers who control investors’ portfolios.
With smart tokens, your portfolio can take a place in the larger collection of portfolios of an avid trader in exchange for cryptocurrencies. Although WazirX allows investors to buy and hold many Smart Tokens at the same time, the limit for the volume of Smart Tokens is at least 5 USDT (tether) and a maximum of 100,000 USDT.
If the cryptocurrencies that make up the STF do well, so does the smart token, which can be sold with the help of sell orders. When selling, the currencies that make up the Smart Token go straight to your WazirX wallet. However, the platform limits the execution of sell orders only once a day. One possible reason for this could be to discourage people from “pump-and-dump” schemes, which are quite common these days.
Investors will only receive a payout if profits are generated by the STF which are liquidated and made available to you, leaving only your original investment.
More about STF traders!
STF traders must adhere to strict KYC regulations in order to be able to manage investor portfolios. However, WazirX chooses not to make any information about these traders public, making it quite difficult to pick the right one for you. The only data available to you is a brief history of your investments along with your strategy.
In addition, you can monitor the performance of your token and how much time has passed since it was created. It is also important to note that the starting price of the Smart Token is set by STF managers, which does not affect the fund’s performance in any way.
The platform also segregates trader and investor funds to avoid confusion and does not allow traders to use investor accounts for deposits, withdrawals and placing P2P buy / sell orders.
Additionally, traders are allowed to purchase their own STF and participate in the programs of the WRX Mining and Referral Commission.
WazirX works to adequately compensate traders and correctly charge investors. Although the project is not fully developed yet, it is being polished to make it more transparent.
Do current market trends favor STFs?
WazirX currently lists over 15 STFs and intends to add more as people continue to search for their desired trader with an ideal portfolio.
XOOM, one of the oldest STFs in the WazirX market, has a very simple strategy for making a profit. The manager has also been in trading for around 4 years, which strengthens his expertise. This also highlights the fact that the platform is looking for people with the right skills and experience to show a more meaningful profile.
It is also quite coincidental that the trader holds almost their entire portfolio in WRX, WazirX’s native token, and is the highest rated STF on the platform. Like most cryptocurrency derivatives, STFs suffer from frequent volatility. This doesn’t necessarily make them a safer alternative to investing in cryptos directly. Another important thing to be aware of is the use of tether (USDT) which has been quite controversial lately. This is mainly due to the fact that allegations have been made in the past against those in power who abused them. Tether is also a stablecoin, which makes it more important for financial institutions.
However, the fact that it trades at such a high price makes it more attractive to investors looking to take big risks for big gains. Not to forget that you play a very subordinate role as an investor. All in all, the concept is great for people in India looking for support in the only recently accepted crypto industry.
DWAYNE D’CUNHA, WRITER ON MEDIA.
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What are STFs and Should You Consider Investing? was originally published in The Capital on Medium where people continue the conversation by highlighting and responding to this story.