What is a Dual Currency Product?
A Dual Currency product is a short-term investment product involving two distinct cryptocurrencies. It is a non-principal protected financial product with a floating return. That is, the returns will be adjusted based on the predetermined benchmark that is called “linked price”.
Investors can get started with a Dual Currency product by subscribing to any digital currency specified in the contract. The final settlement currency is determined by the settlement price and the linked price on the expiration date. Users of Dual Currency products are able to trade cryptocurrency at any time and anywhere, and they can still earn high interest regardless of market trends.
Although varying with the market, the rate of return provided by a Dual Currency is fixed after the investor confirms the purchase, and once the purchase is successful, the order is irrevocable, and it does not support early redemption before it expires. At settlement, the investor can obtain the fixed minimum return of the original investment currency, but the investment currency may also be converted into another currency due to market fluctuations, which is the biggest feature that attracts investors.
To put it simply, users of a Dual Currency have to deposit one cryptocurrency and can earn income based on two assets. After a crypto asset is deposited, it will be locked in yield and allows users to earn as the value of the investment asset increases. How much investors can earn will depend on how their staked asset performs at maturity.
The value of assets in the crypto market fluctuates constantly. Dual Currency investors can take advantage of this trend and earn income for it when the value achieves a predetermined benchmark. If the value at settlement is higher than the benchmark, the invested cryptocurrency will be purchased (sold) and converted into another currency. For example, an investor purchased a Dual Currency product under BTC by using BTC. Here is how we can determine whether the settlement currency is BTC or USDT: If the settlement price is higher than the linked price, what the investor will earn is USDT; if the settlement price is lower than the linked price, what the investor will earn is BTC.
Despite all of the above-mentioned content, investors need to fully understand the products and the risks before making purchases.
When is the best time for users to get started with a Dual Currency product?
Users can subscribe to a Dual Currency product when they want to realize the following goals:
- Make profits: To earn part of the investment profit and obtain higher income, users can sell the cryptocurrency held at the target price;
- Buy at a low price: When the market is going down, users can buy cryptocurrency at the target price, that's, to obtain higher yields by "buying the dip";
- Increase cryptocurrency holdings: Users can buy more cryptocurrencies when they have already held some cryptocurrencies and want to continue profiting from them;
- Hold more stablecoins: Users can purchase more stablecoins when they have already owned some stablecoins and want to continue profiting from them.
How to Calculate Your Return?
Example 1: Investing in BTC to buy a BTC_USDT dual currency product
User A invested $1 BTC to buy a Gate.io Dual currency product with a linked price of $20,000. When the product expired on February 1, 2021, user A would receive:
(1) If the settlement price of BTC_USDT < 20,000 USDT, the payment will be settled in BTC, and the payment amount is = 1 BTC * (1+100%/365*31)=1.0849 BTC
(2) If the settlement price of BTC_USDT is ≥ 20,000 USDT, the payment will be settled in USDT and the payment amount is = 1 BTC * 20,000 * (1+100%/365*31) = 21698.63 USDT
Example 2:Investing in USDT to buy a BTC_USDT dual product
User B bought $20,000 USDT on Gate.io Dual currency product at $20,000. When the product expired on February 1, 2021, user B would receive:
(1) If the settlement price of BTC_USDT ≤ $20,000 USDT, the payment will be settled in BTC and the amount of the payment is = $20,000USDT/20,000*(1+100%/365*31)=1.0849 BTC
(2) If the settlement price of BTC_USDT > $20,000 USDT, the payment will be settled in USDT, and the payment amount is = 20,000 USDT*(1+100%/365*31) = $21,698.63 USDT
In summary, when the product is settled, users can get 108.49% of the collection of payment. However, the numerical relationship between the settlement price and the linked price can change the final currency collected by the user. That is, the user may finally receive the profits in a different currency.
Pros and cons of Dual Currency products
Similar to other financial products, Dual Currency products also have their pros and cons. Therefore, users should fully understand the merits and risks before investing in Dual Currency products. The following are some of the pros and cons of Gate.io's Dual Currency products:
- It provides a chance to get high returns.
- It provides an opportunity to hedge risks.
- Immune to market fluctuations, it allows users to earn income in any market.
- Flexible, it allows investors to determine the pre-agreed benchmark based on market sentiment and expected risky returns.
- Users are unable to withdraw their assets during the subscription period, which will decrease the liquidity of the assets.
- The level of income users get will only depend on the final performance of the staked assets on the maturity date.
Some important terminologies
Getting to know some words related to the product below will help users better understand the product.
Annual percentage rate (APR)
APR refers to the interest investors will earn if they lock their cryptos in a Dual Currency product for a year, including compounded interest.
APR = rate of return / holding days * 365*100%; Holding Days = Expiration Date - Purchase Date
*APR will change in real-time with the market, and the actual APR should be based on the one at the time when the order is placed successfully.
It refers to the date when the investment ends. The product will be delivered and settled at 8:00 (UTC) on the expiry day, and the income and principal will be automatically released to the spot account after settlement.
Investment currency is the currency that is used by an investor to invest in a Dual Currency product. In the Dual Currency BTC section, Bitcoin is linked to the price of BTC/USDT, and investors can get in with BTC or USDT.
The settlement currency is the currency that investors will receive as payment on the expiration of the product. This settlement currency depends on the outcome of the settlement price with respect to the linked price. For Dual Currency BTC, it could be either BTC or USDT.
Linked Price/Target Price
The linked price is a benchmark price that is used to determine the currency of investors' returns. On the expiry day, the settlement price will be determined against this benchmark price. That's to say, if the settlement price is below the linked price, the product will be settled in the investment currency (i.e. BTC in this case); otherwise, it will be settled in USDT.
The settlement price refers to the underlying settlement price of the Deribit option platform at 8:00 (UTC) on the maturity date of the product.
*Learn more about Gate.io's Dual Investment at GateLearn
What's a Dual Currency product?