$100K in LPs, $0 Impermanent Loss. Here's How.

[00:00:00]Most DeFi operators lose money when they move out of range to the downside and they make a poor decision to rebalance.

[00:00:06]I want to talk to you in today's video about all the different options you have that are beyond just your conventional rebalance. So, for example, in this portfolio here, I had these two positions go out of range. I did not lock in any impermanent loss and I am back to earning fees. I have deposited a total of $100,000 into these two positions. I've made over $6,000 in fees and those $6,000 in fees have gone up by 60% because I've been collecting and stacking Arrow. Now, this will be a bit more of a teaching video, but I did create a link where you can actually use this tool that I'm going to walk you through. All you have to do is comment tool below and I'll send you the tool. We're going to call this the LP recovery simulator. And why this is so important is again, as you go out of range to the downside, which I'll just show you here. Let's say you enter an ETH position from 1620 to 2380. In this example, you're earning 50% APR.

[00:01:02]Obviously, as you move further to the downside, you're converted into more and more ETH until you are 100% in ETH.

[00:01:10]You're below range and you are earning no fees. Now, that's a problem and we have decisions to make when that happens. I'm going to walk you through those decisions. Now, do also remember that as the price of ETH in this example goes up, you are converted into more and more USDC until you are out of range, fully converted into stable coin. You're not earning any more fees and you have no more upside. Your ETH is no longer working for you, which is why I'm really, really big on when the markets, especially are bearish, you want to stack assets. In this example, like Bitcoin ETH, you could borrow against it and then you could go earn yields on that borrowed capital and that way, when we enter the bull market, your collateral, the assets that you have lent out have full exposure to the upside. So again, this problem here, the problem to the upside, that's an easy easy fix. Now you can get the best of both worlds. So so that big check mark. But what about to the downside? Now for some this isn't the biggest deal. They literally use and I've done this many times, they use LPs to dollar cost average into the markets while earning cash flow. I've literally set ranges where let's just say ETH was $2,000, I think it's going to go to 1,200. I would set ranges from 2,000 to 1,200 so I'm collecting fees and I'm dollar cost averaging into ETH. And the lower down the range I go, the exponentially like quicker I'm buying back ETH. I'm a big fan of that.

[00:02:36]But for others, they don't want to lose dollar value of their positions. So that's one way to look at it, but there's a bit of a more advanced strategy here. So let's set the playing field, go through some math. And again, just comment tool, you can grab this and then you can use it for yourself. Let's say I enter my position when ETH is $2,000, I set a 20% wide range, and the current price is 1,400. So I have gone way out of range. I wasn't hedged, and I'm in a tricky situation here. Do I lock in the impermanent loss, get back into range?

[00:03:09]Like what do I do? Most people, they just hit the rebalance button, and they lock in a crap ton of impermanent loss, and in this instance, it would take me 4 months to recoup that. To me, that's a big gamble. Because remember, if I rebalance, I am locking in that impermanent loss, I am selling off that ETH, I'm buying back stable coins with it, locking in my losses. And sure, I'm back in a new range, and we may get excited by that because we're back to earning yield, but it's going to take me 3.9 months at 50% APR to recoup that impermanent loss. Even if you were earning 80%, that's still 73 days. That may not be worth it. So what else can we do? Well, there's a few options. You have option A, option B, option C, option D. I'm going to go through A and B. I'm happy to make a part two with C and D if there's enough interest in it.

[00:04:00]Just let me know in the comments. I'll do it. But, the point is, you entered at $2,000. The bottom of your range is $1,600 and we are currently sitting at $1,400.

[00:04:12]Option A, you don't do anything. You stay in your LP. Yes, you're in full ETH. Yes, you're not earning fees. But, as you move back into range, you start earning fees again and as you come back to your entry price point, which was $2,000, your LP is now worth what you entered with and you're back to earning fees. Life is good. But, let's say the price of ETH moves way out of range. You know, you didn't hedge. Maybe you just timed the market. Everything just went wrong. You don't have to lock in that impermanent loss. You could exit 100% of your ETH. You could lend it on a platform like Aave. So, you have not locked in that impermanent loss. We've had a lot of clients do this, by the way, in this market rebound. They're better off because of it than if they would have even just stayed in their LP. I'll show you the math. So, you exit. You're holding your ETH spot.

[00:05:01]Look what happens as the market recovers back to your price point of $2,000. You don't have a $100,000 worth of ETH. You now have $106,000 worth of ETH because you have more ETH.

[00:05:13]But, that's not all. Let's just go back to $1,400 here. So, you remove your ETH.

[00:05:18]You do not sell it, so you don't lock in impermanent loss. There's There's no damage done. You lend your ETH out on a platform like Aave and then you borrow against it. Maybe you start at a 20% LTV. Maybe you start at a 40%. By the way, this calculator will help you do all the math. Let's say it costs you 5% to borrow and let's just say you enter the same pool, different range, and you're back to earning 50%. Watch what happens. You haven't sold your ETH. So, as the price of ETH recovers, you are recouping all that paper loss and you're actually 6% ahead of the game, and the capital you borrowed when you entered an LP is dollar cost averaging out for you, so you are not only just earning cash flow, but you are exiting that position.

[00:05:58]Your ETH is moving into USDC, and as the price of ETH recovers, you may be fully into USDC on that borrowed capital. You can pay back your debt plus be well ahead because of the fees and the appreciation on your LP, and you're in profit across the board, and then you can decide what you want to do. Hey, we're entering a bull market. I'm going to move into a lot more spot holdings.

[00:06:18]I'm going to lend out my assets, borrow against them for cash flow, but I want as many assets. Remember the game that we play here is accumulation. Someone told me like, "Dude, you're not going to get rich in DeFi." I'm like, "I didn't."

[00:06:27]Crypto is the multiplier. DeFi is the yield engine. DeFi will not make you rich unless you have millions and millions and millions of dollars, but what DeFi will do is it will help you accumulate assets, so you can stack those assets and go for a multiple in a bull market. This is where the money is made. This 9X, 6X, 5X, the multiples, your crypto portfolio multiplies, and then you extract profits by laddering out. DeFi ain't going to make you rich. It's a cog in the wheel of your entire system. That entire system is what's going to make you rich.

[00:06:59]Anyway, really hope this helps. I'm also happy to share a part two to this video, option C and option D. There is a time and place to lock in that impermanent loss and go to stables, and I can explain that. And there's another option is you actually exit the position, and then you convert half your ETH into a correlated asset like Bitcoin in this example, and now you are back to earning cash flow, and as the markets rebound, ETH and Bitcoin, because they're correlated, are going up in value, so you're seeing massive appreciation in your LP or in your DeFi portfolio.

[00:07:27]You're also earning cash flow, and you're recouping all that impermanent loss that you locked in by selling the ETH, buying the Bitcoin. And this calculator, which is free, by the way, just common tool, can help you do some of the math. And just simple logic states that if it was a perfect correlation of ETH and Bitcoin, then your LP would be going up in value at the exact same rate of as just holding ETH. Plus, you'd be earning yields. Now, we don't have a perfect 1.0 correlation, but you get the point. If you have a 0.9 correlation, then it may be worth going into a correlated pair. Yes, we're $3,000 short of just holding ETH, but you've been earning cash flow the whole time. You've been making yields the whole time. And depending what you do with that yield, like I buy Bitcoin ETH, I buy assets that appreciate. Right now, I've just been stacking Aero because Aero is on a tear with the whole Aerodrome Velodrome merger. But the point is, you could see multiples and you could see a velocity effect. It just depends what you do with your fees. And that's what I got. Comment tool below if you want the tool. If you want a part two to this video, be happy to do it.

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[00:08:52]Or you can check out the description below. With that's it. I'll see you in the next video. Appreciate you. Hope this helped. Peace.