Opyn’s Crab Strategy v2 Now Supports USDC Deposits and Withdrawals
USqueeeeeeeeeeeeeeeeeeeeeeeeethDC
On July 28, 2022, Opyn launched Crab Strategy v2, a DeFi-native strategy that allows traders to earn USD returns during sideways market conditions ( 🦀crabs move from side to side, get it?!). More specifically, Crab Strategy v2 is best during periods of low ETH volatility (when the price of ETH doesn’t move a lot up or down aka when it’s calm!)
Starting today, the Crab Strategy accepts USDC deposits and withdrawals!
Important details:
- Where: https://squeeth.opyn.co/strategies
- Chains Supported: Ethereum Mainnet
- Deposits: ETH & USDC
- Withdrawals: ETH & USDC
- When you DO want to be deposited: When the price of ETH is calm (i.e. not volatile)
- When you DON’T want to be deposited: When the price of ETH is crazy (i.e. volatile)
- Returns: Crab aims to be profitable in USD terms (in a bear market it can stack ETH)
- Important metrics to monitor: Crab profitability threshold
Crab v2 Overview
Crab v2 is an automated strategy that earns users USD-denominated returns.
The Crab strategy allows users to earn returns (i.e. yield) from being short Squeeth regardless of whether ETH will move up or down. In other words, Crab v2 is a delta neutral strategy. Delta neutral describes a strategy involving a long and a short position, where the combined exposure of the position is market neutral (best for crab 🦀aka sideways markets).
A crab position is:
- Long ETH
- Short Squeeth (where the USD denominated returns aka yield is earned!)
At the highest level, the Crab Strategy makes money if ETH moves LESS than x% up or down between rebalances. This range is called the profit threshold and it changes based on Squeeth’s funding.
To stay market neutral, the vault rebalances during the crab auction every Monday, Wednesday, Friday around 16:30am UTC (or upon large price movements in ETH). The main reasons users participate in the crab auction is because the auction typically trades at better prices than http://squeeth.opyn.co and users can trade in larger size with less slippage!
Ideal Market Condition for Crab
Crab Strategy is ideal for sideways market conditions (🦀crab markets!) when the price of ETH fluctuates within a relatively stable range with periods of low volatility (the price of ETH is calm!). More specifically, the Crab Strategy does best during periods when Squeeth realized volatility is less than Squeeth implied volatility. Put differently, the strategy takes the view that current implied volatility is too high (markets predict ETH is too high), or that realized volatility will be lower than the market believes. This is a classic ‘short volatility’ position.
So, the ideal market condition to deploy the Crab Strategy is when the price of ETH does not move too much up or down between rebalances. ETH can move up or down, but it needs to be within a relatively stable daily range (vs being volatile).
Profits in USD
Crab Strategy aims to be profitable in USD terms. The USD earned by the strategy is the result of being short an amount of oSQTH. When the price of ETH rises, it tends to sell ETH off, trying to maintain its $ value.
Accumulating ETH
Another benefit of Crab is that it can stack ETH in a bear market. Since it aims to gain value in USD, when ETH goes down it tends to accumulate more ETH. (This is unrealized ETH accumulation. In a bear market you would need to withdraw from the strategy to realize the increased ETH amount)
In short, when Crab strategy is utilized correctly:
- ETH up = earn USD, reduce ETH
- ETH flat = earn USD
- ETH down = earn USD, stack ETH
(User example stacking ETH)
Other Benefits of Crab v2
- Crab is a versatile strategy, especially for swing traders
- No spread between funding longs pay shorts
- Deposits are 24/7 liquid
- 0 management fee
How to deposit into Crab v2 (become a crab00000r):
Head to https://go.squeeth.com/USDC, connect your wallet, press the “Approve” button, and sign the txn. Input the amount of ETH OR USDC you would like to deposit, press the “Deposit” button, sign the transaction, and you’re crabbing!
Crab Dapp: https://go.squeeth.com/USDC
Crab Docs: https://opyn.gitbook.io/squeeth/resources/squeeth-strategies-faq
Metrics to Watch:
Profitability Threshold:
- The Crab Strategy makes money if ETH moves LESS than x% up or down between rebalances (the profit threshold). The ideal market condition to deposit in crab is when the price of ETH is calm! (i.e. moves a little)
- See the live profitability threshold on the Squeeth strategy tab
Squeeth Implied Volatility (IV)
- The most important consideration before depositing in the Crab Strategy is Squeeth’s current implied volatility. This is because Squeeth’s Implied Volatility sets the crab profitability threshold.
- Implied Volatility is a forward-looking metric designed to gauge how volatile the market may be in the future (high IV signals large price swing is ahead, low IV signals price will remain stable).
- The strategy takes the view that current implied volatility is too high, or that realized volatility will be lower than the market believes (IV).
- If ETH goes up or down less than the amount of implied volatility between rebalances, the strategy makes money, subject to transaction fees, slippage, and other costs.
- If you deposit into the Crab Strategy when IV is low (~85%) & subsequently withdraw when IV is high (~125%+), you are effectively selling Squeeth when it’s inexpensive, and buying it back when it’s expensive. Selling low & buying high is not a good look!
Price Impact (slippage)
- Slippage happens when a trader makes a trade, and the price is higher or lower than expected (for both buying and selling).
- Two primary reasons tend to cause slippage: Volatility & Liquidity.
- Volatility: Transactions take time to make it on-chain. The final price might differ from the expected price.
- Liquidity: liquidity refers to the ease that oSQTH can be traded without affecting its market price. The lower oSQTH’s liquidity, the higher risk a trade will be affected.
Risks
There are 5 main risks for Crab Strategy depositors:
- If you deposit into the Crab Strategy when the profitability threshold is low (IV is low) & subsequently withdraw when the profitability threshold is high (IV is high)
- If you deposit into crab when the current profit threshold is low (~3%) & subsequently withdraw when the threshold is high (~7%), you are effectively selling Squeeth when it’s inexpensive, and buying it back when it’s expensive!
2. If ETH moves more than approximately the profit threshold in either direction between rebalances. i.e. When the price of ETH is CRAZY up OR down (when ETH is volatile)
- The Crab Strategy makes money if ETH moves LESS than x% up or down between rebalances (the profit threshold). The ideal market condition to deposit in crab is when the price of ETH is calm! (i.e. moves a little)
3. If you want to stack ETH in a BULL market
- Since crab aims to gain value in USD, when the price of ETH goes up it tends to reduce the amount of ETH it holds. This is because the strategy seeks to maintain neutral exposure to the price of ETH.
4. If the Crab Strategy falls below the safe collateralization threshold (150%), the strategy is at risk of liquidation
- If the Crab Strategy falls below the safe collateralization threshold of 150%, the strategy is at risk of liquidation. However, automatic hedges reduce the likelihood of liquidation for depositors.
5. Transaction fees, rebalancing costs, and slippage can cut into profits
- The automatic rebalances that maintain neutral exposure to the price of ETH can reduce crab strategy returns. Additionally, negative slippage due to low liquidity can reduce crab profits when depositing / withdrawing.
Building on Top of Squeeth 🏗️
Opyn’s goal is to enable any protocol or developer to utilize Squeeth’s infrastructure. Squeeth has many powerful use cases and we want to make it as easy as possible for teams to integrate with Squeeth’s core contracts. If you’re a developer or a builder, let’s build the Squeethcosystem together! Reach out if you’re a:
- Team building active or passive yield strategies
- Active Uniswap v3 liquidity manager
- Arb bot devs or quant traders
- Lending protocol
- Creative builder with your own idea
For Automated Squeeth Strategies, there will be a few Opyn foundational strategies (e.g. Crab v2!), but integration teams can adjust any parameter of the trading strategy to create their own strategies or build their own novel strategy with different mechanism, triggers, etc.
Example parameters for adjusting Automated Squeeth Strategies could be: how often the strategy trades / hedge frequency, how much of its delta does it trade, auction params, etc.). Could also have some signal based trading strategies too (if RV*1.5<IV, sell squeeth, trade in or out depending on IV vs market, or similar ideas).
Disclaimer: This post is for general information purposes only. It’s also just an elaborate plan to get people to say a funny word. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. This post reflects the current opinions of the authors and is not made on behalf of Opyn or its affiliates and does not necessarily reflect the opinions of Opyn, its affiliates or individuals associated with Opyn. The opinions reflected herein are subject to change without being updated.
