Yea, this is a directional fund that tries to replicate 1.25x the performance of ETH price. It amplifies the price movement.
I agree, it should be in its separate category vs vaults, something like “leveraged fund”.
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We can set up a few rebalancing / liquidation points but I would say that can be two separate products. One with rebalancing and one without.
The fund without rebalancing doesnt make sense to set up though. Everyone can get into such a position and maintain it easily. Just by a futures contract with 1.25x your money and hold it. There is no “rescue” in that either way. If you set it up as a fund and people start investing during a drawdown, they just effectively get higher leverage. Which I doubt is technically possible beyond a certain point using Maker.
The beauty of having a rebalance pool is that it uses the same principle like the lending pools. You don´t have to rebalance yourself all the time and pay for all the transactions. Instead you pool together with others and enjoy higher capital efficiency, while reaping the benefits of compounding returns.
Yes, in sideways markets it hurts a bit. But using 1.25 leverage is not much at all and it´s a small sacrifice for compounding a bull market.
I´ll do a simulation about a randomly generated (long biased) market with and without frequent rebalancing later, so we have some numbers to compare.
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1.75 x before 2x or more
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I´ll do a simulation about a randomly generated (long biased) market with and without frequent rebalancing later, so we have some numbers to compare.
Hi everyone! Sorry to deliver so late. Sometimes there are many things going on in life…
Just in case this project is still being considered here are two different simulations. The first is long biased (55% long vs. 45% short) while the second one is unbiased (completely random).
you can also download the excel file from my personal server:
https://spo-v1.com/yLETHcharts.xlsx
As we can see, the compunding effect with small leverage still has quite a positive effect in a trending market. (factor 1.25 in simulation)
In a random market, the leverage causes some volatility drag in sideways situations and some increased losses in downwards movements.
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Alpha Yfi strategies are ok
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