OK, There have been some discussions within the Discord, Discourse and Product Working Group over whether a balancer pool, or a Set Protocol structure is better.
So, I’ve done some spreadsheet calculations with the following parameters:
- $10,000 initial investment on 09 October 2020
- 1/3 BTC, 1/3 ETH, 1/3 DPI
- 28 day period between rebalances (Fridays, so likely to avoid the 1st working day of the month used by other products).
- Final date is 23rd April 2021.
- Coingecko opening prices used.
First the relative performance of each:
HOLD without rebalance
First we can consider buying $3,333.33 of each and holding:
| Hold Strategy Value (1:1:1: portfolio) | ||||
|---|---|---|---|---|
| Date | BTC | ETH | DPI | Total |
| 09 Oct 2020 | $3,333 | $3,333 | $3,333 | $10,000 |
| 06 Nov 2020 | $4,761 | $3,961 | $2,475 | $11,197 |
| 04 Dec 2020 | $5,950 | $5,871 | $4,446 | $16,266 |
| 01 Jan 2021 | $8,885 | $7,033 | $4,535 | $20,453 |
| 29 Jan 2021 | $10,142 | $12,653 | $11,209 | $34,004 |
| 26 Feb 2021 | $14,386 | $13,987 | $14,733 | $43,106 |
| 26 Mar 2021 | $15,740 | $15,115 | $14,499 | $45,353 |
| 23 Apr 2021 | $15,908 | $23,102 | $18,242 | $57,252 |
The composition of the funds over the 7 periods is:
A different way to look at this, is to calculate the value at the end date (23 Apr 21), based on $10,000 invested on each start date (this is a little counter-intuitive !):
| Value of Hold Strategy on 23 Apr 21 | ||||
|---|---|---|---|---|
| Entry date | BTC | ETH | DPI | Total |
| 09 Oct 2020 | $15,908 | $23,102 | $18,242 | $57,252 |
| 06 Nov 2020 | $11,137 | $19,443 | $24,567 | $55,147 |
| 04 Dec 2020 | $8,913 | $13,117 | $13,676 | $35,706 |
| 01 Jan 2021 | $5,968 | $10,949 | $13,409 | $30,326 |
| 29 Jan 2021 | $5,229 | $6,086 | $5,425 | $16,739 |
| 26 Feb 2021 | $3,686 | $5,506 | $4,127 | $13,319 |
| 26 Mar 2021 | $3,369 | $5,095 | $4,194 | $12,658 |
| 23 Apr 2021 | $3,333 | $3,333 | $3,333 | $10,000 |
A couple of comments:
- As the market is going up, a later investment is worth less on the 23 Apr 21.
- Investment on the 6th Nov results in more of your portfolio being in DPI with a Hold Strategy (which ties in with the low DPI value in early Nov).
The advantage of this visualisation si that we can do the same for a balancer pool, and the periodic rebalance and get a comparable figure.
Balancer pool
I’ve had to fudge the balancer calculations. What I’ve done is:
- Take the value at each time point.
- Calculate the % change between that time point and the endpoint
- I could not find a 3-way impermanence loss calculator. So I’ve used the coin gecko AAM calculator with a 33:67 split between each token and the average of the other 2 tokens.
- Then I multiple the Hold value of each token (i.e. the value at 23 Apr 21), but its respective impermanence loss top calculate the value after IL.
- Then I sum the modified value to give the pool value on the 23 Apr 21 if $10,000 was invested on the start date.
I think that this is correct/close enough to what the pool would, but if anyone has a better approach I would love to hear it.
| % Increase in single asset to 23 APR 21 | |||
|---|---|---|---|
| Entry date | BTC | ETH | DPI |
| 09 Oct 2020 | 377% | 593% | 447% |
| 06 Nov 2020 | 234% | 483% | 637% |
| 04 Dec 2020 | 167% | 294% | 310% |
| 01 Jan 2021 | 79% | 228% | 302% |
| 29 Jan 2021 | 56.9% | 82.6% | 62.7% |
| 26 Feb 2021 | 10.6% | 65.2% | 23.8% |
| 26 Mar 2021 | 1.1% | 52.8% | 25.8% |
| 23 Apr 2021 | 0.0% | 0.0% | 0.0% |
| Impernanece loss for asset | |||
|---|---|---|---|
| Entry date | BTC | ETH | DPI |
| 09 Oct 2020 | 1.29% | 0.93% | 0.05% |
| 06 Nov 2020 | 4.60% | 0.14% | 2.57% |
| 04 Dec 2020 | 1.75% | 0.25% | 0.53% |
| 01 Jan 2021 | 5.40% | 0.16% | 2.42% |
| 29 Jan 2021 | 0.10% | 0.20% | 0.02% |
| 26 Feb 2021 | 0.77% | 0.16% | 0.13% |
| 26 Mar 2021 | 1.09% | 1.01% | 0.00% |
| 23 Apr 2021 | 0.00% | 0.00% | 0.00% |
| Value of Balancer Strategy on 23 Apr 21 | ||||||
|---|---|---|---|---|---|---|
| Entry date | BTC | ETH | DPI | Total | Loss to Hold | % Loss |
| 09 Oct 2020 | $15,703 | $22,887 | $18,233 | $56,823 | -$429 | -0.75% |
| 06 Nov 2020 | $10,625 | $19,416 | $23,935 | $53,976 | -$1,171 | -2.12% |
| 04 Dec 2020 | $8,757 | $13,085 | $13,604 | $35,445 | -$261 | -0.73% |
| 01 Jan 2021 | $5,646 | $10,931 | $13,084 | $29,661 | -$664 | -2.19% |
| 29 Jan 2021 | $5,223 | $6,074 | $5,424 | $16,721 | -$18 | -0.11% |
| 26 Feb 2021 | $3,658 | $5,497 | $4,122 | $13,277 | -$42 | -0.32% |
| 26 Mar 2021 | $3,332 | $5,043 | $4,194 | $12,570 | -$88 | -0.70% |
| 23 Apr 2021 | $3,333 | $3,333 | $3,333 | $10,000 | $0 | 0.00% |
Periodic rebalance of Set Protocol
This strategy calculates the total value at each rebalance date, and then redistributes it so it is 1/3 BTC, 1/3 ETH and 1/3 DPI going into the next period.
Looking at the end value with different start dates we get:
| Value of Rebalance Strategy on 23 Apr 21 | ||||||
|---|---|---|---|---|---|---|
| Entry date | BTC | ETH | DPI | Total | Gain over hold | % gain over hold |
| 09 Oct 2020 | $17,119 | $25,889 | $21,312 | $64,320 | $7,068 | 12.3% |
| 06 Nov 2020 | $15,289 | $23,121 | $19,034 | $57,444 | $2,297 | 4.2% |
| 04 Dec 2020 | $10,129 | $15,318 | $12,610 | $38,058 | $2,352 | 6.6% |
| 01 Jan 2021 | $8,188 | $12,382 | $10,193 | $30,763 | $438 | 1.4% |
| 29 Jan 2021 | $6,351 | $9,486 | $7,111 | $22,948 | $6,209 | 37.1% |
| 26 Feb 2021 | $3,547 | $5,365 | $4,416 | $13,328 | $9 | 0.1% |
| 26 Mar 2021 | $3,369 | $5,095 | $4,194 | $12,658 | $0 | 0.0% |
| 23 Apr 2021 | $3,333 | $3,333 | $3,333 | $10,000 | $0 | 0.0% |
Note: I find the 37% improvement for the 29 Jan 21 start date to be counter intuitive, however, I can’t find an error in my calculations.
Comparison
Comparing all three strategies by variable start date:
If we drop the balancer, we can use a simpler figure to compare the hold vs the reblance strategy starting on the 09 Oct 20:
Some final comments:
- Excluding fees, A v1 balancer will always underperform a simple hold.
- This backtest shows ~1 to 2% loss over periods up to 28 weeks.
- Balancer stats show income around 2 to 3% per year (0.4% fee on BTC:ETH, or 0.3% fee on BTC ETH)
- The rebalancing strategy outperforms vs hold
- However, it can underperform (If 1 asset continues to underperform the other two and the rebalance keeps buying it).
- Reblancing Set Protocol contacts costs gas and management time.
Calculations
Can be found here - any review is welcomed. 