Maximise ur GLP return

farming with Delta neutral or Leverage up? Backtest data to show when is the best to farm

❓Actually Understand GLP Strategies

GLP is a great but what if u can maximise ur return more effectively?

Learn when to farm with different GLP strategies

💥Understand with examples and backtest from lambro

📌TLDR

This thread explains and comparing returns with backtest on

• 3x & 5x Levearge farming of GLP

• Delta Neutral GLP strategy

1️⃣What is GLP

2️⃣What effects GLP price & bucket weighting

3️⃣Backtest ROI in different Strategies on GLP

4️⃣Summary

1️⃣What is GLP

TLDR of what is #GMX & GLP

GMX is a perpetual dex that allows you to leverage trade & swap. Its liquidity pool model is backed by $GLP.

GLP is a pool of tokens that liquidity providers pool together, earning fees from GMX & taking the PnL of traders including trading fee, mint glp fee, swap fee and liquidation fee.

It is marketed as an index token that farms because essentially you will be holding a basket of tokens and earning fees from GMX with around 50% market exposure and 50% stablecoin.

Its weighting of each token within GLP is constantly rebalancing

2️⃣What effects GLP price & Bucket Weighting

🔹GLP Price

• Trader's PnL

• Price change of Asset price (BTC,ETH) within GLP bucket

🔹Bucket Weighting

When weight of asset in GLP changed, the protocol incentitize user to rebalance the weight by making it cheaper to

• mint,redeem GLP

• trading/swap fee

3️⃣Backtest ROI in different Strategies on GLP

• Leverage Long GLP

• Delta Neutral GLP

📍Leverage Long GLP

Highlevel speaking,

basically u use 1GLP as collateral borrow USDC and mint more GLP & repeat. As more you repeat you can approx get to 2-5x with debt ratio of 50% to 80%

Debt ratio = Debt/ total position

❓How to leverage up GLP in detail

1. Mint GLP

2. Deposit into @Moremoneyfi / @YetiFinance / @DeltaPrimeDefi

3. Borrow USD/ETH (Depends cheapest way to mint GLP and borrow interest)

4. Mint GLP

5. Repeat Step 2 until prefer leverage

Good thing about Leverage is the higher yield

Downside is potential liquidation

So what is a good amount of leverage?

What is the return APY?

Lets explore

Back test on 3x leverage and 5x

Assume 3% USDC borrow apy

From 2022/1/4 to 2023/3/6 in USD value

🔹PnL on farming

• No leverage Overall PnL is -25%

• 3x leverage Overall PnL is -8.27%

• 5x leverage Overall PnL is -100%

As u can see, leveraging amplifies the profit as well as the loss, this is not a conclusive backtest for a strategy. Normally i would suggest a rebalance based on debt ratio to avoid further max drawdown.

However because it did not rebalance when glp was dropping it basically accumulated more glp and had a big comeback when glp went up.

🔹Liquidation

5x leverage u get liquidated on the 18th day, rekt bro

3x nearly got liquidated on 18June2022 with 0.97 debt ratio

In the end of the end as i always say, yield farming is a form of trading, u need to have a view towards the market to do the right farming strategy.

Next lets go thru Delta Neutral GLP and its backtest performance.

📍Delta Neutral GLP

Delta Neutral basically means you have no exposure to the underlying asset.

E.g. you put 1 ETH in staking and short 1 ETH at the same time. Meaning the price movement (delta) does not affect you.

How does Delta Neutral GLP works?

GLP buck of asset currently includes

• ETH 27.23%

• BTC 18.71%

• Chainlink 0.95%

• Uniswap 0.62%

• And stable coins including USDC, Tether, Dai, Frax

To keep a delta neutral position you have short all the non stable coin type of asset.

So every 1 GLP u have to short x % amount of ETH, and as the weighting & price change of each asset within GLP u will have to adjust to keep the delta 0.

Here's the problem: if you rebalance the delta to 0, there will be a cost for every rebalance.

If you don’t rebalance as your delta drift away from 0 and you will be either over shorting or over long exposing PnL to price change of Delta.

Here's the problem: if you rebalance the delta to 0, there will be a cost for every rebalance.

If you don’t rebalance as your delta drift away from 0 and you will be either over shorting or over long exposing PnL to price change of Delta.

Fun thing is that lets say if ETH jumped up 10% for one second and returned to the same price the next second? Should you rebalance? Rebalance for additional cost or trust me bro the eth will return to ur target price?

So the key for a successful Delta Neutral strategy are the set parameters that rebalances the strategy.

Time? Delta? Volatility?

For example sake i have made a back test for rebalancing delta drift every 0.05%

Assuming this rebalancing is optimum, with a delta strategy is basically trading against traders on gmx purely

From 2022/1/4 to 2023/3/6

Overall PnL is 127.19%

Max drawdown ( Daily ) -5.43%

Number of rebalancing 80 times in 426days

WIll be keen to hear out other people’s thoughts on different rebalancing methods.

As u can see from the graph, in sideways/ down trend market Delta neutral is a good farming strategy and obviously when they market is in uptrend u should do 3xlong

I want to repeat one AGAIN

Farming is a form of trading, always pair it with ur view on price movement toward the market!

4️⃣Summary

I hope u enjoyed this thread as it took me a long time to prepare it and i had to pull favours from my quant friends to steal some backtest data to make this thread lol

did it for u @Bernin1001 bro from ur substack comment!

give me that like, retweet and comment what do u want me to cover next! Make this worth it for the twitter follower addict lambro!

All jokes aside, i see a lot interesting strategies coming out from @Neutrafinance @Rodeo_Finance & @steadefi

Steadefi no stress 3x leverage, so u don’t have to monitor closely n they seem to be doing tricrypto strategy on @curvefinance , which is something 👀👀👀

@Rodeo_Finance ‘s strategy vaults with its own lending protocol to leverage up. Haven’t dig through the deck properly yet, but this should enable under collateralized lending since the strategies are locked within the protocols.

Looking forward to @HWxFrank 's work

@Neutrafinance ‘s 1xbull is an interesting product.

If I understand it correctly it should be a similar concept of Delta neutral but with shorting n leveraging your delta exposure will be rebalanced and kept Delta 1 BTC or ETH.

Thanks for reading!

I actually have a full time job, writing these threads has lowered the amount of research i do nowadays.

Feel free to dm me more cool stuff u guys see! Please filter out the bullshit tho thanks!