The First version of Hotpot Fund’s FAQ has been published.

Hotpot Fund is a decentralized fund project (DeFi Project), which combines liquidity gains and liquidity mining.

Hotpot Fund provides one use-friendly investment portal for users who lack professional knowledge of DeFi investment. Users just need to hold one of these four cryptal currencies ETH, DAI, USDC, USDT; and through simple “deposit” and “withdraw” procedures to invest in DeFi project. The investment is under user’s total control and be managed in and out at any time.

Basic fund operation mechanisms:

· Investor invests fund into public fund pool. The fund pool exists in the form of smart contract, nobody has right to transfer investor’s assets, except investor him/herself.

· Investor can deposit and withdraw at any time.

· The fund manager is responsible for investment operation, he/she use the fund from public fund pool to invest into Uniswap liquidity pool to obtain income.

· The fund manager can only operate strategic combination and complete investment operation within code’s setting range. He /she has no right to transfer and assets in the fund pool and can only use chosen currency to invest.

· The first batch consists 4 currencies, which are: ETH, DAI, USDC, USDT.

What are the users’ benefits?

There are three parts which users can gain incomes from Hotpot Fund:

1. Fund Income: It is Hotpot Fund’s Basic income and it is gained once the fund is deposited. Hotpot Fund is managed by professional Fund managers。 They run the fund with cautious attitude and try their best to maximize income while ensuring the principal is not damaged. Once users deposit their funds, they can gain incomes through the fund’s appreciation straight away.

2. Mining Income: Only users who participated in pledge mining can obtain mining income. Users can pledge their fund shares by pledge fund contract and obtain HPT token, and obtain the token’s income. Because all Hotpot Fund income belongs to its token holders, HPT token has confident value support.

3. Arbitrage Income: Players are required to have sufficient DeFi knowledge and competency to gain arbitrage income. The way HPT token holders capture fund income is NOT by issuing income directly to token holders. All fund income is used to burn HPT token, in order to increase the value of HPT token. For example, the fund produces 10,000 USDC income and anybody can use it to burn HPT tokens of equivalent value through HPT-USDC trading in Uniswap Exchange. HPT token has four trading pairs in Uniswap, of which are HPT-WETH, HPT-USDT, HPT-USDC and HPT-DAI. Therefore, when token is burned, the HPT token value of the pair HPT-USDC will generate premium in relate to three other trading pairs. Advanced players could purchase HPT from those three trading pairs, and then sell it on the HPT-USDC trading pair to gain arbitrage. Code players can even complete all actions described above in one transaction.

What are the benefits for early investors?

In terms of fund income, there is no difference between early stage investor and late stage investor apart from accumulated income.

The advantage of early stage investor is reflected on mining income: since the pledge income contract distributes HPT tokens evenly according to the total pledge amount; when one participates at early stage while Total Pledge Amount is at a relatively low rate, one obtains more HPT tokens (than those who participate late).

Would earlier investors take advantage of late investors?

No.

The mechanism of Hotpot Fund is that whenever investors deposit in this fund, they will not invade the income of earlier investors. Meanwhile, investors obtain the income of fund appreciation thenceforth. This means, late investors will not be taken advantage by early investor.

Can I operate it myself?

Yes.

All operations of Hotpot Fund can be operated by investors themselves.

Can investing in Fund save Gas consumption?

Yes, it can.

One important function of Hotpot Fund is to save large amount of Gas consumption by converging funds and then make unified investment.

We use LP, that holds two Uniswap trading pairs as one example: if user operate by himself/ herself, one needs at least two times of exchanges, two times of adding liquidity pool. The total Gas consumption is about 600, 000. However, the Gas consumption of depositing in Hotpot Fund is about 150, 000, which saves three quarters. The Gas of subsequent investment operation is paid by fund manager, thus save lots of Gas consumption.

We use Gas Price 50 GWei as another example: 450, 000 Gas is saved by one operation for one user within one single investment, which means it saves about 0.0225 ETH. If the price for ETH is $600 each, this could save user $13.5. If 10,000 users make the same operation simultaneously, then this can could save 225 ETH. Assuming the price for ETH is $600, 135,000 Gas consumption is saved for users, which equals to RMB 877,000.

All in all, since fund manager’s investment operation is regarded as investment for the whole converging fund, this unit’s gas consumption is much less than individual’s consumption.

What is the difference between Hotpot Fund and smart pool?

The fundamental difference between Hotpot Fund and Smart pool is: Smart Pool is single asset and Hotpot Fund is a combination of assets.

The concept of smart pool was originally come from YFI, the many subsequent plagiarism code YF* inherited this concept. Every kind of YFI crypto currency or crypto asset is of single asset kind at certain point in time. As figure shown below:

Nevertheless, Hotpot Fund users only need to hold one of those four crypto currencies ETH, DAI, USDC and USDT, and by making simple “deposit” and “withdraw” to complete investment operation. This fund’s invested asset is the kind of combined assets. As figure below:

There are four kinds of assets in the testing strategy of Hotpot Fund’s ETH fund, which are ETH, ETH-USDT trading pair LP and ETH-USDC trading pair LP.

Single Asset VS Combined Assets, in fact this little difference conveys a lot of meanings:

· The users of smart pool are required to identify the quality of investment target by themselves and make their decisions. However, Hotpot Fund is operated by professionals to carry out assets allocation and they can make modifications of investment combination and asset position according to market condition spontaneously.

· The investment strategy of Hotpot Fund tends to be conservative, protecting the principal is its primary concern, not to pursue the highest rate of return. This means we are going to equip a significant amount of stable crypto currency within its investment combination to mitigate the risk brought by currency fluctuation.

Therefore, we say that Hotpot Fund is the first fund in token circle, as it comprises of combination assets, which is more fund- like.The biggest difference between Hotpot Fund and traditional public fund is: Hotpot Fund cannot converge users’ assets into its own account and the assets cannot be transferred.

Also, there is big difference between Hotpot Fund and smart pool’s investment values. Both Hotpot Fund and smart pool’s income are formed of three components: liquidity gains (agency fee), currency fluctuations and liquidity mining. YFI’s smart pool is more focused on liquidity mining, whereas Hotpot takes more concern of liquidity gains (agency fee).

As shown in Uniswap mini program, The following picture shows account user demo’s liquidity gains of investment in USDC-ETH trading pair in the last 192 days.

The figure reflects:

1. The accumulated liquidity gain of USDC-ETH trading pair in half year is 19.56%. if we exclude currency fluctuation, this rate of return is very attractive.

2.From 18th/September to 17th/November, UNI’s mining time: as a lot of opportunistic funds flow into liquidity pool, which causes the agency fee gains significantly lower than average value. When mining is finished, opportunists’ fund left, the liquidity gains returned to average level. Therefore, under normal situations, the accumulated liquidity gains are supposed to be higher. Certainly, there is mining income during those two months that makes up the loss on liquidity gain.

Hotpot Fund’s investment strategy is to choose right investment combination at different period to pursue definite income, such as liquidity gain, meanwhile mitigating currency fluctuation and minimizing risks.

Does this earn less than holding crypto currency?

From March, 2020 to present, the rate of return of demo account is about 175%. (This is a good performance year, but is less likely to be in this way in long term.)

From investment perspective, this is very good rate of return. But there are other people saying: if one buys ETH from March and hold the currency until now, one might get similar rate of return. This is true, yet the ideology of making money varies.

This ideology is hold crypto currency + the concept of buy at low and sell at high, whereas Hotpot Fund focus on liquidity gain (agency fee).

The concept of money making behind Hotpot Fund.

The picture below demonstrates our Demo account in Uniswap Wechat mini program, which shows the curve of daily income of USDC-WETH trading pair.

The picture below shows the histogram of change of USDC-WETH trading pair’s Liquidity gain and cumulated value from 19th/May to present.

From these two diagrams, we notice that:

1. From 19th of May onwards, for the period of half year, liquidity rate of return is about 20%.

2. The red curve represents the present value of investment. The blue curve represents if users decide to hold the currency, its estimated present value. So it is noticeable that liquidity gain enriches total income.

3. Liquidity gain is a compounded income. It will grow slowly, but steadily as time proceeds, unlike currency fluctuation that is hard to predict.

4.liquidity gain is a deterministic benefit. The rate of return can be high or low at different time, yet it increases unquestionably. Thus, Hotpot Fund investors can sleep tightly in the evening without worry about short term currency fluctuation. No need to be anxious.

The logic behind currency trading

If we purchase ETH in March, its average price is around $200; if we sell it out when its price reaches $600, the rate of return would be 200%. This logic of making money is simple and straight forward, but why we still invest in Uniswap liquidity pool?

For experienced dealers, they normally cannot bear with low efficiency of fun pool transaction. Although the trading rule is simple (buy at low and sell at high), and the concept stays intact either in short term or in mid-long term; it is not easy to gain profit successfully in long term operation.

The ideal is plump, the reality is very skinny.

One needs to make accurate decision at every key point, making one single mistake would normally annihilate all previous incomes.

Certainly, when one faces Unilateral rise or fall, the best option is to hold the currency determinedly or leave the field and observe. The precondition is one can see the right direction, leave and the apex point and entry at the lowest point. This is mission impossible for a 24 hrs virtual currency market.

It is not short term fluctuation money that Hotpot fund is trying to make here! Although short term currency fluctuation might cause big influence on the value of the fund, as long as we do not purchase it madly when price rises or sell it when price drops, but entry in batches when its price is relatively steady and ensure our holding assets’ value is below short term average line; we hence do not need to worry about short term fluctuation and only need to leave the rest to time.

Clarification of Impermanence Loss

When one invest in Uniswap liquidity pool, one word is mentioned repeatedly: Impermanence Loss.

Some we-medias have frequently made emphasize on investing in Uniswap will produce impermanence loss without even understand what it means. Some other we- medias claim they can solve this issue in better way. Now let us explain in detail of what impermanence loss is.

Everybody knows, when we invest in Uniswap liquidity pool, we need to invest in two crypto currencies at the 1:1ratio according to its exchange value at that time.

In the following diagram, we use USDC-WETH trading pair as example to conduct comparison analyze of three situations: all holding ETH currency, half ETH and half USDC and invest in Uniswap liquidity pool. When currency fluctuation carries difference performances, we hold 200 ETH tokens at the price of $500 each for start to see how it performs when currency price rises and falls.

As shown from the diagram: when currency price rises, the rise occurs in Uniswap liquidity pool is less than the rise of all hold ETH; when currency falls, the former value decreases less than latter.

This is called impermanence loss! The precondition of its cause is: the amplitude of currency rising is greater than the liquidity rate of return of Uniswap. Impermanence loss only occurs under this circumstance. If currency price falls, invest in to liquidity pool can reduce the falling rate. If the rising rate of currency price is lower than rate of liquidity rate of return, it is still more profitable to invest into liquidity pool. All the situations do not lead to impermanence loss.

Hence, impermanence loss is kind of misleading. When some regular users hear it, they think invest in liquidity pool will cause loss, but it can only occur under certain condition. It is just a theoretical loss, it does not take into consideration of user’s actual band operation capability. Can user really sell the currency when the price is $600? This requires very high band operation capability. It is often difficult to decide when to sell during investment process.

Additionally, the diagram above does not take into consideration of Uniswap’s liquidity income. What will happen when we add it into the table?

This is not a rigorous calculation, yet it explains sufficiently: once liquidity income is added, it can hedge losses when currency value drops and thicken income when currency value increases.

Of course, we take optimistic view of ETH 2.0 in long term. These two competitors: currency value and liquidity income, who will win in long term? Is it currency value rocks sky high? Or, the tortoise wins the rabbit? Nobody knows. We prefer to choose definite result; some others prefer to be steady currency holder. There is no right or wrong, they are just different paths to the future.

Is Hotpot Fund safe?

We adopt the following methods to strengthen the safety of contract:

· The contract requires strict audit, a minimum of two or more security companies are required to carry out the auditing.

· We only invest in Uniswap in one batch, its security is already approved. Plus, the token types of which Hotpot Fund is going to invest requires strict selection.

· Division of permissions — the fund manager can only operate investment combination among trusted token。We specifically design trusted token in the setting of our contract, and fund manager has no permission to modify trusted token. The action of setting up the trusted token is carried out by management staff presently, but will be handed over to autonomous community in the future.

What is the difference between Hotpot Fund and the strategy of high frequency quantization?

We firmly believe that, decentralized finance (defi) is the destined future. Closed source and/or centralized fund does not only consist high legal risk, but also requires great dedication to accumulated trust. It is also difficult to create excellent product.

The high frequency quantization strategy is a product that is formed by binding with centralized exchange. However, Hotpot Fund takes the path of Defi. They are two totally different options. There is no right or wrong, just different path to the future.

The basic investment strategy of the Fund

All Hotpot Fund staffs have rich experience in defi investment. The fund relies on self-invented defi data analyze system and custom formatting mode. We aim to bring our clients safe and maximum gain. The basic strategies show below:

The security issue of holding currency

The fundamental principal of Hotpot Fund investment strategy is to acquire stable long term income based on guaranteed security. The security of the holding currency is our primary concern. Until end of December, 2020, UNISWAP have total 26,897 liquidity pools, consists liquidity $1.8 billion. The fund will select suitable pools by strict standards and only operate in permissioned pools.

Data analyze based investment strategy

On the basis of ensuring the security of funds and relying on high efficient and accurate big data analyzation, fund managers will adjust investment strategy according to daily market variations and make plan for the next stage target trading pool and execute trading pool matching actions.

Basic information of HPT token

· Token symbol: HPT token

· Name: Hotpot

· Initial circulation: one million

· Distribution: 50% for mining (first batch of 40,000), 10% for initializing 4 Uniswap trading pairs, 10% for operating costs (gas, etc.), 10% for marketing, and 20% for the team.

· Mining: The first phase of the 4 funds, each can mine 10,000 tokens, the mining cycle is 100 days, and each fund releases 100 tokens per day.

· Features: Can be destroyed, cannot be added, purely deflationary tokens.

The value capture mechanism of HPT tokens

All the income of the hotpot fund belongs to the HPT token holders.

The way fund income is captured by token holders is not to directly distribute fund income to token holders, but to purchase HPT tokens on Uniswap exchange and destroy them by using fund income. All purchase and burn operations are driven by smart contracts. Anyone can call the harvest function of the governance contract to complete the operation of token purchase and destruction.

The specific method is as follows:

1. Fund income is collected into the controller contract (Controller);

2. On Uniswap, a trading pair is established for each fund, and a total of 4 trading pairs are established, of which are HPT/ETH, HPT/DAI, HPT/USDT and HPT/USDC respectively;

3. The controller contract provides an entrance to the harvest function, which uses the collected fund income to exchange for HPT on Unsiwap and burn the tokens at the same time;

4. After the fund’s income is collected into the governance contract, anyone can call the harvest function of the controller contract to complete the operation of token exchange and burn.

HPT token is a purely deflationary token, which makes the price of HPT rich in imagination and can enhance its value. Since there are funds with multiple currencies, HPT tokens have multiple trading pairs on the Uniswap Exchange. This design brings some interesting opportunities for arbitrators:

Since the profits of each fund must be unbalanced, that means some funds will have higher profits and others lower. For funds with high profits, when someone calls the *harvest* function to swap and burn HPT tokens, it will cause the price of the HPT tokens in the trade pair to rise, thus bring arbitrage opportunities for arbitragers. Arbitrage between different trading pairs will in turn smooth out the HPT price difference caused by the imbalance of fund profits. The arbitrage operation of arbitrageurs ensures that HPT tokens always have good liquidity, without worrying about liquidity dries up.

In conclusion, we are committed to make Hotpot Fund the first truly decentralized currency fund in token circle!