Thread by @Panoptic_xyz

1/12 We analyzed simulated LP performance on ETH-USDC 0.3% pool.

Results were surprising:
📢 The optimal width was wider than expected.

• What's the optimal width for max returns?
• How does that change for 🐂 vs 🐻 markets?

Find out 👇

2/12 The strategy is simple:

💦 LP around the current ETH price with ±X% width
⚖️ Rebalance your LP position after a day, week, or month (you pick)
💵 Collect & compound your fees!

3/12 Our analysis includes >1.5 years of data (Jun 2021 - Jan 2023)

On 5 different range factors:
• ±5% (r = 1.05)
• ±20% (r = 1.2)
• ±50% (r = 1.5)
• ±75% (r = 1.75)
• ∞ (UniV2 full-range, r = 1000)

Which one did best?🤔

https://twitter.com/Panoptic_xyz/status/1615816389490802689

4/12 For the FULL period (Jun 2021 - Jan 2023):
Daily rebalancing: r* = ∞ (full range)
Weekly rebalancing: r* = 1.5
Monthly rebalancing: r* = ∞ (full range)

LPs end up w/negative returns for this pool, but were raking in $ during the bull market (~40% returns in < 6 months)

5/12 For the 🐂 market (Jun 2021 - Mar 2022):
Daily rebalancing: r* = 1.5 - ∞
Weekly rebalancing: r* = 1.5
Monthly rebalancing: r* = 1.75

LPs end up positive! (~20% returns in 10 months)

6/12 For the 🐻 market (Apr 2022 - Jan 2023):
Daily rebalancing: r* = ∞
Weekly rebalancing: r* = 1.75 - ∞
Monthly rebalancing: r* = ∞

LPs end up negative (-24% returns in 10 months, but compare that to -55% returns on ETH!)

7/12 During 🐂 market, optimal range was tighter (r = 1.5 - 1.75)
But during 🐻 market, optimal range was wider (r = 1.75 - ∞)

Here's why 👇

8/12 Tight range:
🤑 "Greedy"
🚀 More fees! (~6,000% cumulative fees in 1.5 years, r = 1.05)
💩 Buy losing asset faster, sell winning asset faster

Wide range:
🦺 "Safe"
🚀 Buy losing asset slower, sell winning asset slower
💩 Less fees (16% cumulative fees, r = ∞)

9/12 There's a tradeoff in choosing r:
⬆️ fees ⬇️ payoffs or ⬇️ fees ⬆️ payoffs

@guil_lambert has a good "Guide For Choosing Optimal Uniswap V3 LP Positions" 👇

✅ Gives probability of landing ITM
❌ Doesn't account for where we land ITM
❌ Doesn't account for time spent ITM

10/12 Caveats:
⛽ Ignores gas & rebalancing fees
📈 Assumes fees/returns compound day-over-day
⚠️ Past performance is no guarantee of future results!

Questions:
🌊 What about other pools? (🦄, ₿, SHIB, ...)
⚖️ What about stablecoin pools?

https://twitter.com/guil_lambert/status/1619046939307433984

11/12 Disclaimer:

📢 None of this should be taken as financial advice.
⚠️ Past performance is no guarantee of future results!

12/12 Comment below with questions.

Follow @Panoptic_xyz and @brandonly1000 for more #ResearchBites and other key updates!

Check out our blog 👉 panoptic.xyz/blog
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https://twitter.com/Panoptic_xyz/status/1621252130815483904