3x Neutral AVAX-USDC Pangolin

Thesis

This vault is suitable for depositors who want to earn yield in USDC, from fees in the AVAX-USDC Pangolin swap pool, while believing that the price of AVAX will trend sideways with low volatility.

Essentially, if you believe that the price of AVAX will remain in low volatility for a long period of time, this vault will be the best match for you.

Overview

Using 3x leverage on deposits, this strategy earns boosted yield from AVAX-USDC swap fees as well as auto-compounding PNG rewards, while reducing losses due to small price swings of AVAX.

Implementation

Depositor deposits USDC to the vault and receives svTokens 3N-AVAXUSDC-PNG

Vault optimally swaps USDC for equal value of USDC and AVAX (50/50 ratio)

Vault borrows AVAX and USDC such that:

Total value of assets are now 3x the value initially deposited

AVAX borrowed is equal to total amount of AVAX to be deposited as liquidity

Vault optimally swaps all AVAX and USDC for equal value of USDC and AVAX (50/50 ratio) again

Vault adds equal value of AVAX and USDC to the AVAX-USDC swap pool in Pangolin, receiving AVAX-USDC PLP tokens

Vault stakes AVAX-USDC PLP tokens in Pangolin farm, earning PNG

Keepers auto-compound PNG tokens for more AVAX-USDC PLP periodically

Keepers check vault’s position status to determine if a rebalance is needed

Depositor withdraws their position from the vault by burning svTokens 3N-AVAXUSDC-PNG and receives USDC

🎓

Rebalance: a “reset” of the vault’s assets such that the debt ratio stays within a healthy range and the delta exposure is true to the intended strategy

Risks

Yield generated from swap fees and reward emissions is not enough to cover borrow interests for leverage

Volatility of AVAX price increases, resulting in increased costs incurred due to more rebalances executed

Higher fees incurred due to higher price slippage incurred during rebalancing

Backtest Results

Key Takeaways AVAX price: -74%

Vault USD Value: +15%

The vault experienced its severest “losses” in May 2022 when the AVAX price suffered an extreme drop. This event triggered numerous “rebalances”. The vault experienced its best “gains” from late August to November 2022 when the market went through a prolonged period of stability (little volatility).