Yield Mechanics for xTokens
xTokens are designed to be explicitly yield-bearing. They represent managed deployment of capital into defined strategies, with clearly articulated sources of return and risk.
In simple terms, rwaUSD answers the question “how does capital become usable?”, xTokens answer the question “how does capital get put to work?”. This separation is intentional and mirrors how traditional finance distinguishes between collateral infrastructure and asset management.
What an xToken Represents
Each xToken represents a specific yield strategy, rather than a general claim on collateral. Holding an xToken means opting into a particular deployment of capital, with known mechanics, expected return drivers, and risk boundaries.
An xToken may deploy capital into:
DeFi money markets and liquidity venues
Structured lending and borrowing strategies
Market-neutral or basis strategies
Institutional credit or liquidity strategies accessed through Multipli
Unlike rwaUSD, which is passive at rest, xTokens are active by design. Yield accrues as a function of strategy execution, not merely from holding the token. These strategies may include:
Leveraging Liquidity for Arbitrage
Liquidity Provision: Once your token is securely stored in Ceffu, Copper on-chain wallet, Ceffu provides our institutional trading desk with the necessary liquidity on major centralised exchanges, such as Binance and OKX. This liquidity is crucial for executing our high-yield generating strategies. Arbitrage Strategies Our institutional trading desk employs a combination of contango arbitrage strategies and spot perpetual arbitrage to generate synthetic yield on crypto tokens. By leveraging spot perpetual arbitrage, we capitalise on funding rates, ensuring consistent returns through market-neutral positions. Concurrently, our contango arbitrage strategy takes advantage of price differentials between spot and futures markets in contango conditions, securing risk-free profits. This dual approach enables us to maximise yield, minimise risk, and offer you reliable, high-performance yield generating opportunities in the dynamic cryptocurrency landscape. 1. Contango Arbitrage
Contango arbitrage is a trading strategy employed in the futures and spot markets to exploit the price difference between the current spot price of an asset and its futures price. This difference is captured by building a short position in futures and a long position in spot simultaneously.
Example:
Identify the Arbitrage Opportunity: Notice that Bitcoin is in contango with the futures price being $5,000 higher than the spot price.
Buy Bitcoin on the Spot Market: The trader buys 1 Bitcoin at the current spot price of $30,000.
Sell a Futures Contract: Simultaneously, the trader sells a futures contract for 1 Bitcoin at the futures price of $35,000.
Wait for Contract Expiry: Hold both positions (the spot Bitcoin and the short futures contract) until the futures contract is close to its expiration.
Settle the Contracts: As the futures contract approaches expiry, the futures price converges with the spot price. Assume the spot price of Bitcoin at expiration is $30,000.
In this example, our arbitrage trade generates ~0.14 BTC in contango, providing significant returns on deployed BTC. This yield will be paid out in the native token i.e. BTC.
2. Spot-Perpetual Funding Rate Arbitrage Spot-perpetual funding rate arbitrage involves capitalising on the funding rate exchanged between traders holding long and short positions in perpetual futures contracts while maintaining delta-neutrality through the spot position.
Example:
Spot Market Purchase:
Purchase 1 BTC at $30,000 in the spot market.
Perpetual Futures Market:
Open a short position of 1 BTC in perpetual futures.
Funding Rates:
Assume the funding rate is 0.01% per 8 hours.
As a short position holder, we receive the funding rate payment.
Daily Yield Calculation:
Funding payment per 8 hours = 0.01% of 1 BTC = 0.0001 BTC
Daily funding payments (3 times per day) = 0.0001 BTC x 3 = 0.0003 BTC
Monthly Yield:
Monthly funding payments = 0.0003 BTC x 30 = 0.009 BTC
In this example, our market-neutral strategy generates ~0.009 BTC in funding rate payments over a month, providing significant returns on deployed BTC. This yield will be paid out in the native token i.e. BTC.
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