@Uniswap V3 farmers, deciding whether borrowing against your spot holdings to LP or LP'ing the entire stack? I got you.
Comparing 2 strategies for $ETH $USDC pool:
1. Borrowing 50% in USDC LTV to LP
2. Simple LP 100% of assets (no borrowing) #UNIV3
Which one is better? ππ
Investment - $12800
Price of ETH - $3200
LP Range for ETH/USDC - $2555-4000
LP is 50/50
LTV will be 50%
Forecasted APR - 47.13%
Timeframe - 1 year
Yield APR will be a flat rate & based on $3220 avg price
Borrow APR NOT accounted so add a 10-20% fee to the loan
Let's get started:
I am breaking down the results in 3 separate tweets that will follow this one. Each will show values at the lower and upper range set:
- LP Value ONLY at exit
- LP Value & Yield at exit
- LP Value, Yield, Lent Asset Value, & Loan Repayment at exit
- All results calc'd for @base
Results WITHOUT β οΈ1 yearβ οΈof yield earned. LP VALUE ONLY
π’ Borrowed LP exit at $4k - $375 Profit
π’ Simple LP exit at $4k - $750 Profit
π Borrowed LP exit at $2555 - $985 Loss
π Simple LP exit at $2555 - $1970 Loss
Results WITH β οΈ1 yearβ οΈof yield earned + LP VALUE (Lent Asset Value NOT calculated here)
π’ Borrowed LP exit at $4k - $3392 Profit
π’ Simple LP exit at $4k - $6783 Profit
π’ Borrowed LP exit at $2555 - $2032 PROFIT
π’ Simple LP exit at $2555 - $4063 PROFIT
Results WITH β οΈ1 yearβ οΈof yield + LP VALUE + LENT ASSET FINAL VALUE + Loan Repayment
THE FINAL NUMBERS πππ
π’ Borrowed LP exit at $4k - $6592 Profit
π’ Simple LP exit at $4k - $6783 Profit
π Borrowed LP exit at $2555 - $548 Loss
π’ Simple LP exit at $2555 - $4063 PROFIT
Summary:
- Borrowing to LP isn't ideal long term
- Yields of the SIMPLE LP will win long term (1 year+)
- Short term borrowed LP can win, but don't overstay welcome longer than a few months (may as well trade)
- Borrow fees NOT calculated here so add 10-20% borrow fees to loan
My thoughts:
- Long term, Simple LP WINS
- Use @ApertureFinance to maintain higher ETH ratio to increase LP gain (increases risk exposure)
- Simple LP is easier to manage
- Borrowing isn't capital efficient
- Using perps on leverage can allow larger LP allocation but riskier
If adding a trading strategy and methodology to identify whether to use the Simple LP vs when to use the Borrowed LP approach, this can be a VERY powerful strategy.
Someone like @ctoLarsson can utilize this to generate additional alpha in trending & choppy markets!
I'm looking forward to the progression of this space. With platforms such as @Panoptic_xyz @SmileeFinance paving the way for better tools and better ways to manage our liquidity, I'm only excited for what's to come!
Thank you to @MetrixFinance and @jakeacall for the robust tooling to help me calculate this. I used @DefiLab_xyz last year which brought some challenges. Still a great tool and the OG pioneer of the space.
The borrowed calculation #'s for those interested in how I derived the results:
Loan was depositing $12,800 of ETH at $3200 (4 ETH)
Borrowed LP - 4k exit:
6775-6400 - 375 LP profit after loan repayment
3017 = yield earned
16000-12800 = +3200 Lent Asset Profit
6592 total profit
Loan was depositing $12,800 of ETH at $3200 (4 ETH)
Borrowed LP at 2550 exit:
5415-6400 = -985 LP difference vs loan
3017 = yield earned
10220-12800 = -2580 Lent asset Loss
-548 total Loss
This thread is an improved update to the thread I tweeted last year shown below. I noticed there were some mistakes made that skewed the numbers, but the overall concept is still intact:
twitter.com/FLOAT_LOCKER/status/1644789651872563201
You can read the unrolled version of this thread here: typefully.com/FLOAT_LOCKER/V919LVv