This article was first published on Aave Blog - Medium
Using ETHLend and Stablecoins to Short Sell ETH — Towards Market Neutral Crypto Trading
Even though we believe in the fact that Ether should tie value in the future, we also recognise the need to have market neutral trading.
Market neutral trading means that traders are also interested in making profit from downside market movements, since naturally market is not all the time going up.
What are Stablecoins?
Stablecoins are a value representation of USD or any other currency on the blockchain. In other words, stablecoins should follow the pegged stable price of FIAT currency (e.g. USD). Recently, one of the most popular ERC-20 based stablecoins has been TrueUSD (TUSD), launched by a Swiss-based entity, which guarantees that every TUSD is backed by one USD.
Previously, the concept of stablecoins has been shaky mostly due to the fact that there was just one sufficiently distributed stablecoin in the market (Tether). However, today there are multiple stablecoins such as TUSD, DAI, USDC and Paxos that are becoming more trustworthy and that are based on the ERC-20 token standard rather than the Omni, which is the underlying blockchain of Tether.
ETHLend is a way to pledge digital assets to receive ETH, USD-pegged ETH or LEND for spending or trading. The borrower can receive ETH while choosing among various digital assets as collateral: one of these assets are ERC-20 token-based stablecoins.
How to Short Ether with Stablecoins through ETHLend?
To short sell an asset, the short seller must first borrow the asset, which is in this case ETH (Ether). After the short seller has the possession of borrowed asset, the user sells the asset and waits for the price drop. After a price drop the user would need to repurchase the asset back with a lower price. After the repurchase, the short seller would end up with a revenue, since ...
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Aave Blog - Medium