ON–139: Active LPs

Coverage on Sommelier Finance, Arrakis, and Gamma Strategies.

Sep 23, 2022

ON–139: Active LPs

About the editor: Spencer Noon is Co-founder & General Partner at Variant Fund.

Note from the editor:

Today Reservoir’s incredibly rich aggregated NFT dataset became available for querying on Dune. It includes historical listings, granular floor price changes, full trait metadata, detailed marketplace attribution and much much more. Check out the dashboard here and reach out to Reservoir to learn more. The NFT market will be the focus of next week’s newsletter featuring the best of what all you create. Happy hunting wizards!

While we’re on the subject of NFTs, I also wanted to flag a an insightful tweet storm on NFT liquidity and market-making written by Geoff Hamilton, who is an investment partner for us at Variant. Geoff has years of experience in TradFi, working at tops firms such as Bain Capital and Millennium. He is a great person to follow on twitter for those interested in the fundamentals of DeFi and NFTs.

Network coverage:
Coverage on Sommelier, Arrakis, and Gamma.

① Sommelier Finance

📈 Dynamic strategies on Sommelier Finance

  • LPing in constant-product AMMs is challenging for the passive investor. The distribution of PnL's for Uniswap V3 LP positions generally skews left, with negative mean returns after accounting for impermanent loss. LP positions on correlated pairs tend to outperform uncorrelated pairs. Sommelier Finance is a strategy execution platform that enables active management of LP positions which take advantage of correlations (and other profitable conditions) in token pairs to minimize impermanent loss.
Source: Flipside Crypto
  • Sommelier's first Cellar (vault) optimizes a stablecoin lending position on Aave to maximize earned interest. Due to recent market conditions USDT is currently the clear best stablecoin to lend, but in the future the Cellar will rebalance to a different stablecoin. Currently the vault has $1.14M in total value managed (TVM) and yielding ~18.5% APY.
Source: The Graph
  • An upcoming Cellar on Sommelier will take advantage of mean-reversion in the CRV/ETH token pair to actively manage a profitable LP position. A CRV/ETH LP position suffers drawdowns when price deviates from the mean, but impermanent loss is minimized if the position holds until mean-reversion.
Source: CoinGecko

② Arrakis

📈 Arrakis reaches $1.3b in TVL without incentives

  • Arrakis is a decentralized market making platform that offers automated and optimized LP strategies to create deep and sustainable liquidity for web3 projects. Being the largest single LP on Uniswap V3, Arrakis has accumulated over $1.3b in TVL and has been integrated by projects such as MakerDAO, Synthetix, Aave, Polygon and Frax. Arrakis upcoming V2 vaults provide a novel way of how projects can utilize protocol automated liquidity management (PALM) on top of Uniswap V3.
Source: DeFi Llama
  • The largest vaults on Arrakis are the DAI/USDC 1bps and 5bps vaults. Together they generated over $1.45m in fees. MakerDAO integrated these vaults as collateral into their platform, which enables LPs to 50x leverage their DAI/USDC into Arrakis, creating the deepest Uniswap pool by far.
Source: Arrakis
  • Strategies built on top of Arrakis are optimized for creating long term deep liquidity for projects. The performance of its management can be evaluated by a) volume facilitated and b) performance vs HODL. Here an example for the GEL/WETH Arrakis vault vs HODL.
Source: Dune Analytics - @flourworks

③ Gamma Strategies

📈 Gamma now managing 82 pairs across 5 different networks

  • Gamma Strategies is an active liquidity manager on Uniswap V3 that actively adjusts liquidity ranges on behalf of LPs using a vault which runs strategies on 82 pairs across 5 different networks. Users deposit assets directly in the vault, which deploys those assets to Uniswap V3 in accordance with an automated rebalancing strategy. Total LP swap fees earned to date have totaled $7.93m and swap fee APRs have ranged between 20 - 50%. 10% of the swap fees are taken as protocol revenue and distributed to stakers of the GAMMA token.
Source: Gamma