Introducing: On-chain Rebalancer Vault

Idea contributed by Cephii, on-chain pseudo-grid bot; observing and taking profit from the volatility of the asset.

Strategy

  1. Users may deposit a combination of two assets to a vault with pre-determined proportion (e.g 80% Luna, 20% UST or 50% Luna & UST each), which will be the standard that the vault will re-balance towards in future trading
  2. Vault will also have pre-determined deviation (e.g. ±1.5%), which will be the standard that the vault will execute the trading.
  3. Once deployed, Nexus on-chain Rebalancer vault will observe the price action of the pair and execute buy or sell trade once the condition is met : price fluctuation being greater than the standard in comparison to the trend line that has been selected by the strategy.
  4. The trading will be executed until on of the following condition is met: price fluctuation is no longer greater than the standard deviation or the balance of the pool has been met
  5. Parked UST, deposited but not in action, would be used to mint aUST whilst parked for maximum capital efficiency
  6. Users may withdraw the assets whenever they desire

Limitations

In order for such service to be provided on-chain, trading inevitably is conducted via AMM-based DEX, meaning that slippage involvement is also inevitable. Thus, not all pair would be suited for such strategy. The ideal candidate for such strategy should possess following characteristics :

  • Constantly high volume of trading
  • Price action with heavy volatility, resulting in long term upward trend
  • Thick liquidity
  • Σ [ Spread from the volatility - Slippage] > Desired APR

Luna-UST pair is the perfect candidate for such strategy :

  • Growth of the Terra blockchain will dictate natural increase of trading via the pair
  • Luna is expected to have high volatility in short term in order to serve as a seigniorage asset, constantly acting as a medium of UST pegging
  • Such active usuage of the pool would yield higher fees to attract significant level of liquidity provider
  • Luna to the moon

Risk

This strategy bears fundamental risks being exposed to the performance of the constituting assets, almost similar to IL risk that you would bear for being liquidity provider at AMM-based DEX

Simply to put, constant depreciation of the constituting assets may result in principal asset loss

Benefit for the ecosystem

  • High Frequency Trading would result in higher transactions volumes and trading volumes, contributing to higher returns for Luna stakers and liquidity providers
  • Alternative usage of liquid Luna on chain

Development Status

Initial simulation is being built for the strategy, whilst compiling necessary smart contract legos to realize such strategy. In the meantime, we would appreciate feedback about the product from the community on how we can optimize the product or provide additional features that users will find useful.

Lunatics, lets befriend with the volatility and fluctuations.

8 Likes

Personally, this is one of things I’m most looking forward to being released in the near future. How’s the modelling going? Are you modelling the profitability at different percentage splits or is it more general?

I hate to ask the question but do you have any rough timelines? I can see this become a core component of my strategy so am obviously chomping at the bit but also need to plan in the short term.

This is an excellent strategy in my opinion, one that I’ve been manually implementing myself – with one key difference: instead of simple vanilla LUNA, my volatile assets of choice are the Nexus nLUNA/PSI and nETH/PSI liquidity pools. The way I see it, PSI price is tightly tethered to LUNA, so the LP yield more than makes up for the added risk. I DCA fiat in to Anchor Earn, and do weekly rebalancing.

I have a question on your view of the OCR Vault that’s really about what kind of protocol you guys see Nexus becoming. Would you prefer that OCR be:

  1. a One-Click strategy with parameters set by the dev team and fine tuned through governance, or

  2. an adaptable tool that the user could setup according to their own preference; eg. choosing which asset pair to work with, what proportions to target, etc.

There’s pros and cons for both, and I do have a solid opinion on which path would lead to more rapid growth, but I’m curious as to the Nexus developers take(s) on the subject!