Let's talk about automated LP managers in the likes of @GammaStrategies @ArrakisFinance @dyson_money, etc
I believe there is a ton of confusion on these products.
Let me lay it out so YOU as the depositor can make an informed decision!
FIRST, let's start with Impermanent Loss. IL is opportunity cost.
This cost reflects the compromise YOU are accepting to make the trade. That's it!
It boggles my mind that so many in the space focus on "FIXING" IL when in fact it's inherent in nature. It's like a God complex!
This fixation on "fixing" IL confuses the space. We think IL is a "defect" of @Uniswap V3 Concentrated Liquidity.
Compare selling option premium in TradFi. IL is there. Selling covered calls/short puts, you are incurring IL giving up exposure to the asset to earn option premium!
So back to these automated LP managers. Are they terrible? Are they forcing YOU to incur IL? Does their strategy NOT work??
It depends. We first must understand one thing
They are trading ONE strategy
- THEIR STRATEGY -
But here is the problem with automated LP managers. 👇👇
TRANSPARENCY.
What are they doing with their liquidity pools? What kind of risk am *I* taking on as a depositor? What is *MY* crypto doing in THEIR strategy?
We have no idea.....and THIS is the PROBLEM!
How can we invest in something we as depositors do NOT understand?
We have no idea what their LP ranges are or where they are rebalancing. So how can we POSSIBLY know what their strategy is??
We can't.
We need to know if the "Tailored Suit" will fit!
(check out my YouTube video below on this topic)
youtu.be/_EYYHx5BETw
I understand they don't want to be copied, but the problem is that it hurts the depositor more than helps them keep their strategy a secret.
We need convenience. Strategies are a dime a dozen.
If WE can understand THEIR strategy, and it aligns, we WILL pay for convenience!
If we fix the lack of communication of the strategy, then IL will no longer be a problem!
Because those of us that ACCEPT the IL that is possible in THEIR strategy will allow us to develop confidence in THEIR strategy!
It really is that simple.
IL isn't the problem. It never was. It's the inherent nature of providing liquidity. It's a tradeoff.
We can't have ALL the YIELD without giving up some opportunity in other areas! That's why it's called trading.
Stop being so greedy! We can't have our pie and eat it too! :)
Back to focusing on these platforms.
I cannot invest in something that I do NOT understand.
Not saying we must know every rebalance and every range they rebalance in to. We don't need every detail. And this is all they need to become "vague enough" to avoid copy traders.
We need communication from these platforms outlining how much IL to expect, what they are striving to limit in IL, along with a general overview of the actual strategy, we'd all be better off.
Something along the lines of
"Hey we will strive to lock in X% of IL while keeping our ranges in an x% width type of range although there may be outliers....blah blah blah"
If they so please, I am available to help with this. Feel free to DM me :)
At least we as depositors can have a guideline
We need communication on strategy from @ArrakisFinance @GammaStrategies @dyson_money. They are farming US by having US take on all IL while they reap the rewards shows a disregard for US and is frankly disrespectful! Let's fix this!
Their strategy will not fit everyone. But we need to know what they are doing to make an informed decision and understand the expectations of using THEIR strategy!
- FINI -
You can read the unrolled version of this thread here: typefully.com/FLOAT_LOCKER/R6rBBeI