Thank you for taking the time to review the proposal.
You made some good comments.
Let me summarize these in my own words:
- In the moon scenario (ETH >$4k), Impermanent loss (IL) would be very high
- Still in the moon scenario, the position is unlikely to generate enough fees to compensate for the IL
- In a scenario with ETH at $10k, the outcome for this position looks very bad (IL>$100m)
- When the ETH price rises, ALM can be solved with selling ‘less ETH’ for DAI when needed
- When the ETH price falls, this strategy would not solve for ALM in any way as it is then out of range and does not accumulate DAI
- When the ETH price falls, ALM can be solved optimally by selling DAI today
- The high exposure to ETH of the capital pool is very important to members
- The future version of tokenomics is likely to reduce the ETH in the capital pool, this should be taken into consideration for position sizing
- Changes in the split of funds between various Uniswap v3 pools or in the ranges selected for the strategy would not improve the merits of this investment
I’ll start with the bottom of the list - items 7 and 8:
- ETH exposure:
Indeed, I’m aware of the key importance of the ETH exposure to the members (as @Dcc reminded us a few days ago on the forum).
→ Even if this strategy is implemented, the total exposure to ETH would remain higher than 90% no matter the outcome in terms of ETH price.
- Tokenomics 2.0:
The impact of the evolution of tokenomics is a very good point.
It should be taken into consideration for the position sizing.
→ If for example we can reasonably expect the capital pool to shrink by 50% (or more), then yes, I’d suggest limiting the position size to 5% of the pool (or less).
Items 1-6
Next, I’ll address items 1 to 6 together by taking a step back and looking at different scenarios.
(A quick note on your calculations: these seem correct regarding impermanent loss. However - all things staying the same - I expect the daily rewards to trend higher following the increase in the ETH price)
On Outcomes (items 1-3):
Indeed, there is no scenario which gives us a perfect outcome across all criteria (IL, fees, ALM)
→ This strategy represents a balancing act between fee generation and addressing ALM (for the position AND the capital pool), as stated in the objectives.
Unfortunately, there is no way of knowing where the ETH price will be 1 year from now.
(although I do remember quite well the exuberance across the board when ETH reached $4k (during times with interest rates much closer to 0), this period does feel quite remote)
→ Each member should make his own estimate of probabilities for each of these scenarios (and others) to evaluate the merits of the proposal.
On ALM (items 4-6):
One advantage stated in the description is that the strategy programmatically sells ETH for DAI, instead of waiting for claims and hoping the ETH price is right at the time.