If I farm in games, does that make me a farming gamer or a gaming farmer?
If I farm in games, does that make me a farming gamer or a gaming farmer?
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This is the first of a series of Psuedo-Delta Neutral (PDN) hedging experiments that I am conducting on the Solana Blockchain. This is so that I can obtain actual performance results that can hopefully help me to make better decisions as to decide on what strategies work for me and which protocol I prefer.
Disclaimer: This is not investment or financial advice, but a sharing of my adventures and learnings in crypto space, where I conduct various experiments with different tokens and protocols across different blockchains.
For this experiment, I would like to compare the experience of setting up and rebalancing a PDN position at 2 popular Leveraged Yield Farming (LYF) protocols on Solana: Francium and Tulip. As the 2 protocols rely mostly on the same 2 sets of farms from Orca and Raydium. I was (and am still) interested to know how the performance between the 2 protocols using the same underlying farms will pan out.
I had chosen the SAMO-USDC pair because at 2.75x leverage, the APY for farming this pair of tokens was over 500%! How could I resist that? As the market had decidedly taken on a deep bearish undertone by mid-December 2021 when this experiment was conducted, I had chosen a 2.75x leverage instead of 3x just so that I have that extra tiny bit of buffer. I also thought that choosing SAMO-USDC would be interesting to see if the PDN can stomach the expected volatility from the price of a meme token like SAMO.
For a 2.75x Leveraged PDN position, a 79:21 SAMO:USDC debt ratio was required to set it up so that the SAMO in LP position and held as debt are the same. This is a visualization of the expected yield curve using Francium’s Calculator tool.
During these 14 days, I did my best to rebalance the positions’ neutrality. This is done through partial withdrawals (with minimal trading to minimize price impacts) and then redepositing the tokens back into the positions to: (i) reset the leverage back to 2.75x and (ii) equalizing the amount of SAMO in the LP position (long position) and debt (short position).
The 14 days had been an interesting one with quite a bit of market ups and downs that affected most non-stable tokens. And volatility is the enemy of PDN positions, which usually thrive best when the underlying non-stable token trends sideways. The other thing I had noticed is that in a bearish market, there is an increased amount of people who will open leveraged yield farming positions to effectively short the non-stable tokens. The consequence is that the token’s lending utilization will become elevated, causing the borrowing rates to rise rapidly, reducing the farming yields sharply during these periods of high utilization. This actually presents a risk to PDN positions since the inability to borrow more tokens when their utilization goes above the 95% rate means that no additional tokens can be borrowed to re-balance the position.
A wonderful thing that happened during this period was that both protocols introduced dual asset borrowing, which made re-balancing my positions much easier. But I give a slight edge to Tulip for now in terms of UX because: (i) their UI allows me to see my assets in position and debt at a glance from the farming page without any additional clicks and (ii) when re-balancing positions, Tulip’s UI shows me in real time the updated total tokens in LP position and their total debt when I tweak the dual asset borrowing ratio, which made rebalancing a piece of cake without requiring additional calculations from me.
The table above summarizes the results over a 14-day period. You may have realized that the actual ROI is a lot different from the 16.95% estimation using the Calculator tool. That is because that snapshot was taken at the start of the experiment period where things were less volatile, and when SAMO’s borrowing interest was low at 25%. During the 14 days, SAMO had experienced quite a bit of volatility with sharp intraday movements of more than 8% at times that will move it outside the profitable position of the yield curve. The volatility also spiked its borrowing rates, greatly reducing the yield as noted earlier.
In terms of the real 14-Day ROI for this particular experiment, Tulip came out ahead this time with 5.81% while Francium’s was 3.20%. The main difference was due to Francium’s elevated borrowing rate for SAMO which reduced the yield significantly. But I want to emphasize that this data just means that Tulip generated better yield for this pair of tokens over this particular period only and the results for other token pairs and other periods are likely to differ. The exit values are what I got back in USDC after I closed off 100% of the positions.
Besides this SAMO-USDC experiment which just ended, I am also conducting a series of other PDN and non-PDN experiments on both protocols to obtain real data points for me to decide what strategies work best for me and how I should allocate my future positions on both platforms, so do check back.
—
If this article has been interesting to you, you may want to follow and subscribe to me for more similar articles when I publish.
If you have enjoyed the articles and wish to buy me ☕, please feel free to contribute to my tip jars:
**Solana:**BL4i32vz252DXjeTcSPg22bo9gg6Curm8pETJM1zz2cP
Avalanche / Binance / Ethereum* / Fantom / Harmony / Polygon:0x65dE038231aaeFdDe8ffed990d259Bb9538e6310
* I have included Ethereum as a “joke” only: As we know, the ⛽💲 are terrible so let us not go there. 😆
This is the first of a series of Psuedo-Delta Neutral (PDN) hedging experiments that I am conducting on the Solana Blockchain. This is so that I can obtain actual performance results that can hopefully help me to make better decisions as to decide on what strategies work for me and which protocol I prefer.
Disclaimer: This is not investment or financial advice, but a sharing of my adventures and learnings in crypto space, where I conduct various experiments with different tokens and protocols across different blockchains.
For this experiment, I would like to compare the experience of setting up and rebalancing a PDN position at 2 popular Leveraged Yield Farming (LYF) protocols on Solana: Francium and Tulip. As the 2 protocols rely mostly on the same 2 sets of farms from Orca and Raydium. I was (and am still) interested to know how the performance between the 2 protocols using the same underlying farms will pan out.
I had chosen the SAMO-USDC pair because at 2.75x leverage, the APY for farming this pair of tokens was over 500%! How could I resist that? As the market had decidedly taken on a deep bearish undertone by mid-December 2021 when this experiment was conducted, I had chosen a 2.75x leverage instead of 3x just so that I have that extra tiny bit of buffer. I also thought that choosing SAMO-USDC would be interesting to see if the PDN can stomach the expected volatility from the price of a meme token like SAMO.
For a 2.75x Leveraged PDN position, a 79:21 SAMO:USDC debt ratio was required to set it up so that the SAMO in LP position and held as debt are the same. This is a visualization of the expected yield curve using Francium’s Calculator tool.
During these 14 days, I did my best to rebalance the positions’ neutrality. This is done through partial withdrawals (with minimal trading to minimize price impacts) and then redepositing the tokens back into the positions to: (i) reset the leverage back to 2.75x and (ii) equalizing the amount of SAMO in the LP position (long position) and debt (short position).
The 14 days had been an interesting one with quite a bit of market ups and downs that affected most non-stable tokens. And volatility is the enemy of PDN positions, which usually thrive best when the underlying non-stable token trends sideways. The other thing I had noticed is that in a bearish market, there is an increased amount of people who will open leveraged yield farming positions to effectively short the non-stable tokens. The consequence is that the token’s lending utilization will become elevated, causing the borrowing rates to rise rapidly, reducing the farming yields sharply during these periods of high utilization. This actually presents a risk to PDN positions since the inability to borrow more tokens when their utilization goes above the 95% rate means that no additional tokens can be borrowed to re-balance the position.
A wonderful thing that happened during this period was that both protocols introduced dual asset borrowing, which made re-balancing my positions much easier. But I give a slight edge to Tulip for now in terms of UX because: (i) their UI allows me to see my assets in position and debt at a glance from the farming page without any additional clicks and (ii) when re-balancing positions, Tulip’s UI shows me in real time the updated total tokens in LP position and their total debt when I tweak the dual asset borrowing ratio, which made rebalancing a piece of cake without requiring additional calculations from me.
The table above summarizes the results over a 14-day period. You may have realized that the actual ROI is a lot different from the 16.95% estimation using the Calculator tool. That is because that snapshot was taken at the start of the experiment period where things were less volatile, and when SAMO’s borrowing interest was low at 25%. During the 14 days, SAMO had experienced quite a bit of volatility with sharp intraday movements of more than 8% at times that will move it outside the profitable position of the yield curve. The volatility also spiked its borrowing rates, greatly reducing the yield as noted earlier.
In terms of the real 14-Day ROI for this particular experiment, Tulip came out ahead this time with 5.81% while Francium’s was 3.20%. The main difference was due to Francium’s elevated borrowing rate for SAMO which reduced the yield significantly. But I want to emphasize that this data just means that Tulip generated better yield for this pair of tokens over this particular period only and the results for other token pairs and other periods are likely to differ. The exit values are what I got back in USDC after I closed off 100% of the positions.
Besides this SAMO-USDC experiment which just ended, I am also conducting a series of other PDN and non-PDN experiments on both protocols to obtain real data points for me to decide what strategies work best for me and how I should allocate my future positions on both platforms, so do check back.
—
If this article has been interesting to you, you may want to follow and subscribe to me for more similar articles when I publish.
If you have enjoyed the articles and wish to buy me ☕, please feel free to contribute to my tip jars:
**Solana:**BL4i32vz252DXjeTcSPg22bo9gg6Curm8pETJM1zz2cP
Avalanche / Binance / Ethereum* / Fantom / Harmony / Polygon:0x65dE038231aaeFdDe8ffed990d259Bb9538e6310
* I have included Ethereum as a “joke” only: As we know, the ⛽💲 are terrible so let us not go there. 😆
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