1. The Liquidity Dilemma of This Cycle

In the current bull market, market behavior is quite different from previous cycles, showing higher volatility and deeper corrections. Both institutional and individual investors often see their assets lose value, reflecting two major problems in the current cycle.

1) Lack of on-market and off-market liquidity; on-market token issuance leads to dispersed liquidity.

In the current macroeconomic context, the U.S. has been in a rate hike cycle for 2 years and 4 months and a quantitative tightening cycle for 2 years and 1 month. Rate hikes reduce market liquidity by increasing borrowing costs, while quantitative tightening directly withdraws liquidity from the market. The high debt and deficit fiscal situation caused by the pandemic’s excessive money printing, combined with the rate hike cycle, has led to a surplus issuance of U.S. Treasury bonds since 2023, further extracting liquidity from the financial markets. Additionally, the repeated inflation and robust economy in the U.S. have delayed expectations of interest rate cuts, leading to high market volatility due to uncertainty about future rate cut timings and magnitudes.

Although this cycle’s ETF narrative has brought new traditional institutional funds to the market, traditional institutions lack confidence in future market trends, resulting in random ETF inflows and outflows. Moreover, due to ETF settlement methods, these funds are difficult to spill over into the altcoin market. Furthermore, with the low threshold for asset issuance, the token issuance speed and volume in this cycle have reached unprecedented heights, further dispersing the already insufficient on-market liquidity.

2) Lack of Alpha, insufficient overall upward momentum, and no escape from declining trends.

The main reason for the lack of more off-market funds is the scarcity of genuinely innovative products in this cycle. When the market lacks alpha, secondary trading becomes a liquidity game, making it difficult to establish an independent trend. Therefore, most users in this cycle generally invest in hot spots and airdrops rather than genuine value investments. The so-called “failure of value investing” is likely due to the lack of value innovation in the investment targets, and the token price increase is essentially due to slowed liquidity. This results in increased market panic when a downturn begins, leading to widespread deep declines.

2. DeFi Alpha Solution

Under the dual pressure of insufficient external liquidity and inadequate internal innovation, both the average win rate and odds for investors are declining. So, what kind of DeFi protocol do we need to improve user win rates and odds?

1) Addressing liquidity shortage

• Products should be designed to counter high market volatility by aggregating market liquidity and improving overall win rates.
• Avoid internal market cuts; core user games should come from external profits, and pool players should share returns, increasing average win rates.
• Avoid liquidity lock caused by repeated nesting and prevent TVL withdrawal due to the expiration of point activities.

2) Addressing alpha shortage

• Launch products suitable for any market stage, even in declining trends.
• Innovative business models should allow decentralization to play its true value instead of being a narrative shell, providing risk hedging and return optimization for assets through innovative solutions, offering excess return opportunities for some users and improving individual odds.
• Investment targets should not be limited to staking and airdrop point assets, making long-tail assets also applicable, lowering user entry thresholds, meeting broader user needs, and expanding market space.

3. Why Doubler?

Doubler uses the generalized Martingale strategy to achieve low buy and high sell. It increases the win rate for risk-loving users and offers U-based investors a strategy with lower risk and similar high returns as bullish options and leverage but with more flexible trading terms. By introducing market positive externalities, it gains extra income for the pool and aggregates market liquidity to counter high volatility, approaching the “always win” feature of the Martingale strategy in a decentralized manner. Additionally, Doubler separates costs and future income rights, meeting the needs of risk-loving users for high returns under lower risks than traditional options and leverage markets.

3.1 Generalized Martingale Strategy

The Martingale strategy involves doubling the bet amount after each loss. Once a profit is achieved, it covers all previous losses and ensures a profit equivalent to the initial bet amount. However, this strategy alone carries high risk because individual funds are limited, and continuous losses will quickly exhaust the investor’s funds.

Martingale strategy wiki link：https://en.wikipedia.org/wiki/Martingale_(probability_theory))

Doubler integrates the core principle of the Martingale strategy, “buy more when it falls,” into an open shared liquidity pool. During high market volatility, making reasonable additional investments reduces the overall position cost, creating a cost advantage in profitability, and profits when the market rebounds above the average low price. All investors joining the pool share risks and returns, breaking the limitation of individual fund scales. This method optimizes the risk dispersion mechanism and provides participants with a new way to pursue wealth growth beyond individual fund limits.

Introducing External Income for “Win-Win”

In both centralized and decentralized financial worlds, investment models are often zero-sum games. For example, both long and short operations rely on finding a counterparty, making the market a competitive environment where one’s profit comes from another’s loss.

Doubler’s profit comes from the real income generated by “buying low and selling high” in the shared liquidity pool, gaining external income. This provides participants with a new profit opportunity and achieves a win-win situation for all participants in the pool, breaking the common zero-sum competition environment in decentralized finance.

Figure 1: External Income of Martingale Strategy

Aggregating Market Liquidity for “Always Win”

The traditional Martingale strategy is often hailed as the “always win protocol,” with its core logic being that sufficient liquidity will eventually cover all previous losses and achieve the initial bet’s profit. However, in reality, achieving sure-win requires massive funds to support the exponential growth of bet amounts, which has certain limitations for most individual investors because personal TVL or liquidity is usually limited.

Doubler upgrades this strategy through an open liquidity pool, significantly increasing the available chip amount by aggregating market liquidity, cleverly using the openness of the cryptocurrency market to reduce the risk of strategy failure. The Lite version encourages users to increase investments during market downturns by introducing a tokenization strategy for income rights, becoming the first protocol truly applicable to declining trends/high volatility markets. Smart contracts ensure the strategy operates normally, making the Martingale strategy infinitely approach the ideal state, moving towards achieving the “always win” goal.

3.2 Asset Income Rights Separation Strategy

Readers might wonder why new users would buy more when the market falls? When the pool’s average price is higher than the market price, wouldn’t users entering sacrifice their costs to lower others’ average prices? This brings us to the ingenious cost-income rights separation design of Doubler Lite.

In Doubler Lite, for each asset added to the pool, the protocol separates the ownership of costs and future income into C-tokens and 10X-tokens, as well as E-tokens. Different market conditions will result in users receiving different tokens. In a declining trend, users will receive profit tokens that share all future profits to incentivize investment, creating an incentive mechanism for “buying more when it falls” when users are optimistic about future price rises. The specific calculation methods and issuance mechanisms of the three types of tokens are detailed in the white paper.

• C-token: Represents cost tokens, the number issued represents the total cost of all assets in the investment pool, priced in USD. When the pool is in a profitable state, C-tokens will receive dynamic rate returns, settled daily.
• 10X-token: Represents profit tokens, enjoying the rights to capture the pool’s overall profits, with a maximum issuance of 10% of the pool’s value. There are three ways to obtain: 1) Investing assets when underwater to mint 10X; 2) E-token conversion; 3) Secondary market trading, such as Uniswap.
• E-token: Represents the unilateral minting rights of the unissued part of 10X tokens in the pool, which can be exchanged for 10X tokens at a certain ratio.

Figure 2: Asset Income Rights Strategy, Doubler Supplement

Scenario 1: When the overall pool is in a profitable state (above water), i.e., the current price is higher than the average price, users will receive C-tokens and E-tokens when investing.

• Continuous Rise: (C-token dynamic rate returns, gold standard benefits) + (E-token convertible to 10X-token, capturing rising profits)
• Decline: (C-token value unchanged) + (E-token convertible to 10X-token, holding or selling on the secondary market to users optimistic about future rising space)

Scenario 2: When the overall pool is in a loss state (underwater), i.e., the current price is lower than the average price, users will receive 10X-tokens, C-tokens, and E-tokens.

• Continuous Decline: (C-token value unchanged) + (E-token convertible to 10X-token) + (10X-token holding or selling on the secondary market to users optimistic about future rising space)
• Rise: (C-token dynamic rate returns, gold standard benefits) + (E-token convertible to 10X-token) + (10X-token sharing pool profits)

Users exit settled in USD, coin-based (e.g., ARB-ETH in the pool). The core game point for users in the pool is the timing of entering and exiting the pool, the timing of burning E-tokens and minting 10X-tokens, and the trading game between C-tokens and 10X-tokens. These game points determine the overall strategy and potential profitability of players, and Doubler has more gameplay mechanisms worth exploring for users.

10X: A Call Option Without Expiration

Based on the given scenarios, if a user believes in the token’s future growth, it is worth buying more while the price is low to capture higher future profits at a lower cost. Since the maximum issuance of 10X tokens is 10% of the pool’s total value, and these 10% tokens enjoy 100% of the pool’s profits, holding 10X tokens is like holding a call option.

Traditional American call options require users to exercise their rights at a predetermined strike price within a specified time frame. If the market rises as expected within this period, the user gains profits by exercising the option. If the market does not rise to the strike price, the option becomes worthless.

Compared to traditional American options, holding 10X tokens is a better strategy:

10X tokens have no expiration date, meaning the exercise period is indefinitely extended. The strike price of 10X tokens is not fixed; in Doubler’s strategy, the pool’s average price is the strike price. As long as the market price exceeds the pool’s average price, 10X tokens can capture profits. The strategy of buying more as prices fall lowers the strike price of 10X tokens and increases their profit potential.

In the secondary market, traditional options lose value as they near expiration if they do not reach the strike price, becoming worthless. In contrast, 10X tokens retain value indefinitely as they have no expiration date, with the key factor being users’ differing costs and future growth expectations.

There is also potential for arbitrage opportunities. For example, one could hedge risk by selling call options while holding 10X tokens, profiting from the cost of the options. This opens up more strategies for users to explore.

Figure 3: Call Option vs. 10X-Token

10X: Leveraged Long Position Without Liquidation

Another way to capture large profits with lower capital is to take a leveraged long position. However, leverage is high-risk, amplifying both gains and losses. For instance, with 10x leverage, a mere 10% market drop could result in liquidation and loss of all capital.

In comparison, holding 10X tokens offers nearly 10x leveraged returns without the risk of 10x leveraged losses. The open fund pool aggregates market liquidity as a whole, overcoming individual capital limits and continuously expanding the overall pool margin, achieving perpetual profits. Regardless of asset price fluctuations, the maximum issuance of 10X tokens is 1/10th of the pool’s market value, ensuring no liquidation.

The risk for users is that 10X tokens have no value when the pool is underwater. However, since 10X tokens can circulate in the secondary market, users can exit whenever others are optimistic about the asset’s future rise. Compared to losing all capital with a 10% market drop in leveraged markets, 10X tokens can counter high market volatility, providing a lower-risk avenue for excess returns.

Figure 4: Leveraged Long vs. 10X-Token

10X: A More Efficient Income Derivative

This year, protocols that separate income from yield-bearing assets have created new demand markets with their innovative designs. Doubler Lite’s asset income separation is similar to these yield-bearing asset protocols (yield derivatives), but the market demand and user strategies are completely different.

• Asset Type Differences

  Yield derivatives split the yield-bearing part from the base asset, limiting the types of applicable assets. Common asset types include staked assets, dynamically yielding stablecoins, and airdrop-expected point assets. Doubler Lite splits U-based costs and profits from asset value appreciation, applicable to any asset, offering a broader market.

• Transaction Term Differences

  Yield derivative markets set pools with fixed trading terms, resembling traditional call options. For example, yield assets based on points will end their point activities before partner airdrops, expiring the yield derivative pool, with assets redeemed and TVL lost. As mentioned earlier, 10X tokens retain long-term trading value.

• User Strategy Differences

  In yield derivatives, the core user strategy is based on the interest rate’s rise or fall within a certain period, often relying on the issuer. There is a possibility of front-running by a few users, as seen with Etherfi and LRT assets. The interest rate returns of LRT are realized by Etherfi, introducing non-public information competition, making the market semi-strong efficient.

Doubler Lite users’ core strategy revolves around the asset’s price fluctuations, determining the optimal buy-in time and trading strategy. The price fluctuation expectations are reflected in the secondary market without issuer realization, reducing non-public information competition and enhancing market efficiency.

Figure 5: Yield Derivative Protocol vs. Doubler

Summary

In conclusion, Doubler and traditional call options and 10x leverage are U-based financial derivatives, offering similar excess returns with lower risk and more flexible terms. Yield separation protocols are currency-based derivatives, while Doubler applies to a wider range of assets, catering to greater user demand and market space, with higher market efficiency.

Figure 6: Doubler vs. Other Financial Derivatives

Conclusion

Youbi Capital, as the lead investor in Doubler’s seed round, is delighted to see Doubler Lite’s mainnet launch and over $3M TVL within days. Doubler is tailored for this market cycle, suitable for high-volatility markets, offering innovative solutions to the “external and internal liquidity shortage >> cycle alpha” dilemma. By aggregating liquidity to counter market volatility and using income separation strategies to offer risk-loving users a strategy with lower risk but similar odds as call options and leverage, we anticipate more exciting developments from Doubler. Let’s wait and see how familiar users of the testnet “betting pool + big winner” mechanism will be pleasantly surprised.

Disclaimer:

1. This article is reprinted from Youbi Capital. All copyrights belong to the original authors [Gwen Li, NG, Chen Li]. If there are any objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
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