Bitcoin is the most known and currently widely accepted digital asset in the world. Its price can either increase or decrease by double-digit numbers every day.
Such volatility of digital assets scares common people, and puts pressure on professional traders forcing them to search for efficient ways to manage risks.
We at as.exchange have developed Tranched Value Security (patent pending) with the purpose to facilitate risk management and improve returns of underlying assets.
We have put together this guide to help all users understand the basic terms used within as.exchange, and what purpose they serve.
Tranched Value Securities (TVSs), similar to Collateralized Debt Obligations (CDOs), have an underlying asset that needs to be securitized in order to issue TVS. That implies that TVS will derive its market price based on the price changes of underlying asset.
Currently as.exchange supports only Bitcoin (BTC) as underlying, however, we will be launching other types of digital assets, and capital market assets for securitization soon.
Each TVS represents only a fraction of value claim on the overall underlying asset. That means that 1 TVS, can never equal 1 BTC exactly (as in that case it would be the same BTC). It cannot be greater than 1 BTC as well, as that would mean that the securitized share backed by BTC does not correspond to the actual value represented by underlying asset. Thus, 1 TVS < 1 BTC, but the sum of all TVSs issued within the conducted securitization of BTC is always exactly equals to 1.00.
Each TVS has its seniority (currently disabled in as.exchange, and order ranking used instead), based on which it can claim value of underlying asset. That means if there was to be TVS1, and TVS2, the first one would have a higher seniority, and can claim corresponding value share of underlying asset before TVS2 can claim anything. If TVS1 claim cannot be satisfied in full, TVS2 becomes worthless.
An important feature of TVS, which is dissimilar with CDOs, is its Variable Value Share (VVS), and Fixed Value Share (FVS). Each single TVS has both of them, and they can be either different or the same. Even when VVS and FVS are same, due to seniority of each value tranche, the two TVSs issued for the same BTC, will not perform in the same way. Fixed Value Share determines the minimum Dollar (USD) value that the particular TVS can claim (if underlying price doesn’t drop lower than that). Variable Value Share represents the value share (represented in percentage terms) that the particular TVS can claim. That means TVS1 with VVS 50%, and FVS $50, can claim either $50 (if underlying value is not less than that), or 50% of market value of underlying (if it’s more than $50). And if TVS2 (more junior) also was issued with VVS 50%, and FVS $50, and underlying value changes from $100 to $120, each of them can claim 50% of it, and receive $60. However, if underlying declines to $90, TVS1 will reasonably claim $50, instead of 50% of $90, and the TVS2 will not be able to claim $50, but only the leftover $40. With the consequent underlying asset price changes the returns generated by each value share get magnified, and even when BTC increased by 5% only, Junior value tranches can earn 50%, or even more, without any leverage.
Due to FVS, VVS and seniority features the Tranched Value Securities, backed by the same underlying assets perform drastically different even in markets with minor volatility, as they can significantly magnify returns.
With the FVS and VVS parameters, Attachment Point (AP) and Detachment Point (DP) can be calculated to give a better idea of potential risks of the particular value tranche. The AP provides an indication by how much the underlying asset needs to decline, in order for this particular TVS to start losing in value. Thus, AP of 10%, means that if BTC declines by anything less than 10%, other value thanches lose, but not the present one, which will start losing with anything over 10% underlying price decline. The DP on another hand, is an indication by how much underlying needs to decline in order to completely wipe out the value of the current TVS. Value tranche with 100% would be the safest ones, as they imply that BTC needs to be priced at $0.00 in order for this TVS to lose all value, while TVS with DP of 1% would be the riskiest ones, showing that even 1% decline in underlying price, will wipe out all its value.
Due to the importance of the above parameters, they are displayed by default for all market offers that are visible on the OTC market.
In addition to that, a price chart and 7day implied return are displayed. While if TVS was issued today, it’s not possible to have actual price 7 days ago, therefore, the price is extrapolated based on TVS parameters, which is indicated on the chart area, where the green area represents an implied price, and the purple area represents the price after the TVS issuance.
Apart from the above, the regular features of each offer are displayed on OTC market, such as the seller’s name, supported payment methods, and the price the seller had set for the offer.
The same features are displayed when any particular offer is chosen, to confirm the details of the offer.
We tried our best to explain the basic features each trade of Tranched Value Securities on as.exchange has. Furthermore, you can follow our YouTube channel, as we will publish useful videos every week about how you can manage your risks, earn more, and get the best experience of the true financial innovation:
We are continually improving your trading experience, and will soon be introducing more features.
Stay tuned, and please do let us know what additional features you would love to see on as.exchange.