Hi Tetuans, let’s take a look at Tetu’s auto compound strategies.
TLDR
- Impermanent loss is risky.
- Impermanent loss is useful.
- Auto compound vaults on Tetu.
- Auto compound fees on Tetu is only 1%
- All fees collected are distributed in 45/45/10
- Auto compound is automatic, and that’s good.
Impermanent Loss
Providing liquidity in LP is a popular method of obtaining good Yield thanks to tokenomics and incentives of many projects, however it is necessary that this positioning and asset management be carried out in a cautious manner by farmers.
The biggest enemy of LP positions is the impermanent loss, if the farmer does not effectively anticipate periods of high volatility, the impermanent loss can generate opportunity costs and even high asset losses compared to the result of keeping both assets on hold .
When volatility is extreme the losses caused by the impermanent loss can be so dramatic that even an APY of 300% is not enough to cover the value the assets would have if they were on hold instead of LP.
Does auto compound solve the problem of huge potential losses due to impermanent loss?
Well, the answer is no. When large IL losses occur due to high volatility, all auto compounded assets in the underlying contribute to this loss being smaller. It’s not a solution, but it makes the problem smaller.
Perhaps this is a good time to quote a passage from the book of wisdom:
“Life will inevitably bring suffering, wisdom is choosing what you are willing to suffer for.” The Book of Wisdom.
This dynamic brings opportunity and hope because the flip side of impermanent loss is that it works like a subtle magic trick.
If you enter an LP position prepared to suffer an impermanent loss on a specific side completely anticipated by you and the scenario materializes, well, that’s where the magic occurs.
In this scenario the auto compound will not only “make the problem smaller” it will actually act as the 8th wonder of the world, as an ancient Tetuan put it. And the LP position will not only protect capital, but it will get bigger and bigger, with gains in fees over time and auto compound of rewards.
“Time is friend of the wise and enemy of Seth.”
Auto Compound Vaults on Tetu
Currently Tetu offers auto compound strategies in Polygon’s famous DeFi protocols:
- Curve
- Sushi
- Quick
Tetu’s auto compound vaults are signaled by the following symbol:
Auto compound fees
Auto compound fees on Tetu is only 1% this way, only 1% of all rewards produced by the LP position are collected as fees and 99% of the rewards are used to auto compound the underlying position. 1% fee is very small compared to other protocols that offer auto compound in Polygon.
And even with this small amount, xTETU holders benefit the most from the auto compound fee as all fees collected are distributed in the standard flow of 45% for xTETU, 45% for Protocol Liquidity and 10% for investment fund.
It is worth remembering the automation of the auto compound. It’s great to deposit on the LP and let the rewards be added to it automatically without having to worry about repetitive interactions with smart contracts to carry out the process manually.
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