Summary:
Use stable coin to buy equal parts of the token pair with the highest yield at the moment at Uniswap. When the yield drops, sell the tokens for a stablecoin and move on the currently highest APY one.
Abstract:
This is high risk strategy since impermanent loss is involved, but currently the top token pairs at UNISWAP have APY of upwards of 500%.
The highest yielding token pair at Uniswap should be checked regularly, then use stablecoin to buy equal parts of the token pair that is currently at the top APY wise and provide liquidity for it. When the APY drops from the first place, sell the token pair for stablecoin and buy the currently highest yielding one.
Effectively always having position in the token pair with the highest APY.
This is very high risk strategy because of impermanent loss. However, the high APYs might offset most of that, most of the time.
Motivation:
Right now most of the current vault APYs are really low, some of them inclining towards centralized services rates. There are people with high risk appetite who wouldn’t mind to allocate smaller portion of their stable coins to chase the highest yield on the market.
Actually this strategy might now even work well with high amounts, since that would move the prices of the token pair too much and also as soon as ton of liquidity is added to the pair, the APY will fall. So there might be a limit of deposits.
For:
Against:
Poll:
You could expand this strategy to Balancer and other AMMs (sushi?). Also including the automatic sale of reward tokens like BAL, UNI etc.
Although I personnally wouldn´t use such a strategy because of extreme impermanent loss risk, it´s a valid attempt.
But this strategy can easily be gamed by malicious players, so there needs to be some sort of token whitelisting.
Imagine I list a worthless token on unsiwayp I just created. Add liquidity of 10 ETH and the total Supply of my token. Then I use my other ETH and start to buy and sell my token against the contract, creating extreme volatility and therefore extreme fees. Since I own 100% of the pool, my actual loss is only the GAS fee.
Now your strategy comes around, sees my token pair creates 10,000% APY and dumps in 2 million $. I say thank you, withdraw my pool share and dump the rest of my tokens on the vault participants, cashing in 2 million USD less Gas cost. Next day I do the same, rinse and repeat.
Valid point for sure.
Easy fix would be to just use tokens from any of the pre-approved lists.
To make it even more bulletproof, it could check the block at which the token was created. If it is too recent it would skip it, thus eliminating just created tokens or tokens that are still quite “young” and might experience extreme volatility during price discovery, thus cause great impermanent loss.
I think a strategy such as this would require far too much management, and moving around significant funds to any pair generating high APY on trading fees would likely dilute the pool such that the trading fees are nowhere near as significant. Additionally, it would be very subjective as to choose when to switch between pairs– do you only do it when the next highest pair is 10% higher? 5% higher?
yes the APY will fall as soon as big liquidity (as yEarn has) is added. Hence again the deposit limits for that particular pool will be useful.
Also if it’s still to big compared to the pool size, it can be split among a number of the top APY pools.