Learning Lab › Crypto Yield: How It Works and Where It Goes Wrong

Synthetic dollars, and how to read any yield

Lesson 5 of 5

By the end of this lesson you’ll be able to explain where a synthetic dollar’s yield comes from and what turns it negative. You’ll know what EU and US law say about stablecoin interest, and you’ll have seven questions to run on any yield.

A collage after an old engraving. Two teams of four heavy horses strain in opposite directions on a bare gray ground, each with a small driver at its head, and a small deep blue sphere hangs still on the taut rope between them.

How a hedge makes a dollar

A synthetic dollar in its pure form holds crypto, not cash, and keeps its dollar value with a hedge. For every dollar of ether or bitcoin it holds, it sells the same amount short on a derivatives exchange. If the coin falls, the short gains the same amount, and the two together stay worth a dollar.

A dollar of ether, which loses if the coin falls, beside an equal short, which gains if the coin falls, the two bracketed together as worth a dollar. A box of traders betting on a rise sits below both, joined only to the short. A blue arrow labeled funding runs from the traders up to the short. A rust arrow labeled negative funding runs the other way.

Funding, a payment between the short and traders betting on a rise, can run either way.

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Synthetic dollars, and how to read any yield

How a hedge makes a dollar

Continue with The Crossover Pro

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