Stack ETH: Opyn’s Zen Bull Strategy is Now Live 🧘♀️🐂
Important details:
- Where: https://go.squeeth.com/ZenBullLaunch
- Chain Supported: Ethereum Mainnet
- Deposits: ETH
- Withdrawals: ETH
- Returns: The goal of the strategy is to earn ETH returns while maintaining a high ETH exposure (or delta) of around 1
- When you DO want to be deposited: Zen Bull is ideal for calmly-rising ETH market conditions during periods of low ETH price volatility (when the ETH price is calmer than the Squeeth market expects!)
- When you DON’T want to be deposited: Zen Bull not a strategy for fast-rising or fast-dropping ETH market conditions during periods of high ETH price volatility (when the ETH price is crazier than the Squeeth market expects!)
- Delta: aims to maintain a delta of 1
- Important metrics to monitor: Zen Bull profitability threshold
Summary
Opyn’s Zen Bull allows users to stack ETH returns with one click.
The strategy focuses on ETH accumulation. DeFi’s open ecosystem of programmable “money legos” makes this possible in a crypto-native way.
It combines Crab with a lending protocol to earn additional ETH returns when Squeeth volatility is lower than expected.
Zen Bull stacks ETH when ETH is calmer than the Squeeth market expects.
Ideal Market Condition to Zen Bull
The Zen Bull strategy is ideal for moderately-rising ETH market conditions during periods of low ETH price volatility (when the price of ETH is calm!).
Specifically, Zen Bull does best when Squeeth realized volatility is less than Squeeth implied volatility (when ETH is calmer than the Squeeth market expects). Zen Bull is a ‘long delta’ ‘short volatility’ position.
The Zen Bull strategy does best when Implied Volatility is above Realized Volatility.
Additional Zen Bull Value Propositions:
- 0 management fees
- The Zen Bull position is 24/7 liquid and users can deposit or withdraw at any time (deposit and watch or actively trade!)
- Zen Bull is an ERC20 token, which means it can be traded on Uniswap, used in Uniswap Pools, or used as collateral for loans (like Crab!)
Under The Hood
The goal of the strategy is to earn additional ETH returns, while maintaining a high ETH exposure (or delta) of around 1.
User ETH deposits are split between the Crab Strategy and lent on Euler to achieve:
1. ETH Returns from Crab’s short oSQTH position.
2. Leveraging up by borrowing USD and buying more ETH to increase ETH exposure on Euler.
These two components are combined to create a position that earns additional ETH returns, while also maintaining positive exposure to the price of ETH (a bullish delta of ~1).
Zen Bull Payoff Chart
Explained in another way, Zen Bull strategy does best when the price of ETH increases in a calm manner during periods of high expected ETH price volatility with low ETH realized volatility (when ETH is calmer than the Squeeth market expects). The green area represents price movements where the strategy would stack the most ETH and increase value based on ETH price movements.
Explaining Zen Bull’s Delta of 1:
The objective of the Zen Bull is to maintain an approximate delta of 1.
A delta 1 position’s goal is to have a one-to-one relationship with the underlying asset in terms of price movements. In other words, when there’s a change in the price of ETH, you would expect the Zen Bull price to move in the same direction and with a similar magnitude as ETH.
The goal of the Zen Bull strategy is to earn additional ETH returns from Crab, while maintaining a high ETH exposure (or delta) of around 1.
The Crab strategy’s delta is 0 (on average), so the ETH exposure in Zen Bull comes only from the ETH collateral in the Euler loan.
Equity in the strategy is assets minus liabilities. In Zen Bull’s case, assets include Crab tokens and ETH collateral in the loan, while the liability is the USD loan.
Rebalancing to Maintain an Approximate Delta of 1
There are two factors that mean the Zen Bull Strategy must be rebalanced.
Maintaining Delta 1
- If the price of Crab increases, the delta of Zen Bull decreases. The strategy must either (a) buy more ETH (borrow USDC, buy more ETH) or (b) withdraw some ETH from Crab so that the Zen Bull strategy delta returns to 1.
- If Crab goes down in dollar value P, the Zen Bull delta increases. The strategy must either © sell some ETH on the loan side and repay USDC or (d) deposit some ETH from the loan component (on Euler) in Crab so that the Zen Bull strategy delta returns to 1.
Maintaining The Collateralization Ratio
To understand levers impacting Zen Bull’s collateralization ratio, here’s a few examples:
- If the ETH price decreases (and Crab price stays the same), the Zen Bull strategy could withdraw ETH from Crab, sell to USDC, and repay some of its outstanding loan to return Zen Bull’s collateralization ratio to 200%.
- If the ETH price goes up (and Crab price stays the same), the Zen Bull strategy could borrow USDC to buy ETH and subsequently deposit ETH into Crab to bring the collateralization ratio back to 200%.
Explaining the Zen Bull Rebalances:
The strategy rebalances every Monday, Wednesday, and Friday after the Crab Auction. There is also a price-based rebalance in case the Zen Bull must be urgently rebalanced based on extreme changes in the price of ETH.
There are two ways to rebalance:
- Leverage Rebalance:
- The loan component of the Zen Bull consists of ETH collateral and USD debt. If the strategy can achieve an accepted delta by buying or selling more ETH against its current loan while maintaining an acceptable collateralization ratio range of 180% — 220%, this is the preferred method of rebalancing for the strategy since it will avoid a higher rebalance cost). Leverage Rebalance help set delta to 1, but changes the collateralization ratio, which is a healthy level as long as the collateralization ratio is within 180% and 220% immediately before the next rebalance.
2. Full Rebalance:
- If a leverage rebalance is not possible, the strategy will perform a full rebalance with a separate Crab Auction rebalance and a rebalance of the loan component of the strategy. A full rebalance will only happen if a leverage rebalance cannon happen due to the collateralization ratio being too high or too low (outside of the 180% to 220% range), but does set delta to 1 and cr to 200%.
Zen Bull Simulation
If Zen Bull was available since Squeeth launched on January 14, how would it have performed in a simulation compared to long ETH until now?
This graph shows a simulation of Zen Bull return compared to long ETH return. From January 12, 2022 to December 6, 2022 Zen Bull returned -41.72% while long ETH return was -47.37%.The +5.65% difference between the Zen Bull returns (red line) and long ETH returns (blue line) represents the additional ETH returns a user would have earned from depositing in the Zen Bull strategy.
*The return simulation analysis assumes some of the following: full rebalance every 2 days, uses historical interest earned or paid on Euler, assumes a fixed slippage in vol points for crab rebalances (5 vols), assumes 0 slippage for ETH-USDC trades and crab deposits and withdrawals, and assumes that rebalance size is based on ETH price changes.
Excess ETH returns show the additional ETH returns over time from a user being deposited in the Zen Bull strategy vs. holding ETH. Positive excess returns show times when Squeeth Implied Volatility was greater than Realized Volatility. Negative excess returns show times when Squeeth Implied Volatility was less than Realized Volatility (or when slippage cost + RV > IV). Zen Bull is ideal for calmly-rising ETH market conditions during periods of low ETH price volatility (when the ETH price is calmer than the Squeeth market expects!)
Zen Bull vs. Crab vs. Long Squeeth vs. Long ETH
Deciding between Zen Bull, Crab, Long Squeeth, and Long ETH? Let’s look at the market considerations for each:
Ideal market condition:
- When the price of ETH increases a lot in a short amount of time
- When you want leverage *without* the possibility of being liquidated
- Long Squeeth (short for squared ETH) supercharges ETH, giving the derivative an ETH² payoff
Long ETH
Ideal market condition:
- When the price of ETH increases, either rapidly or slowly
- Hold without having to think about liquidation risk or actively trading
Zen Bull Strategy 🧘♀️🐂
Ideal market condition:
- When you want ETH+ returns
- When the price of ETH increases calmly within a range (non-volatile, without large spikes up or down)
- When you want to earn additional ETH returns (yield) with positive exposure to ETH (delta = 1)
Ideal market condition:
- When you want USD returns
- During a sideways market (delta = 0), when the price of ETH is calm (non-volatile, without large spikes up or down)
- When ETH is rangebound
Squeethcosystem:
Zen Bull Risks
There are 4 main risks for Zen Bull Strategy depositors:
- Depositing into Zen Bull when the current profit threshold is low (~3%) & subsequently withdrawing when the threshold is high (~7%), effectively sells Squeeth when it’s inexpensive, and buys it back when it’s expensive! In other words, if you deposit when the price bands are tight / narrow, and withdraw when they are wide, this will have a negative effect on PnL.
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 strategy may be unprofitable.
The Zen Bull Strategy earns ETH if ETH moves LESS than x% up or down between rebalances (the profit threshold). The Zen Bull strategy is ideal for moderately-rising ETH market conditions during periods of low ETH price volatility (when the price of ETH is calm!).
3. If the Zen Bull Strategy falls below the safe collateralization threshold (200%), the strategy is at risk of liquidation.
If the Zen Bull Strategy falls below the safe collateralization threshold of 200%, the strategy is at risk of liquidation. However, automatic rebalances reduce the likelihood of liquidation for depositors.
4. Transaction fees, rebalancing costs, and slippage can cut into profits.
The automatic rebalances that maintain positive exposure to the price of ETH (delta ~1) can reduce Zen Bull strategy returns because of transaction costs to rebalance. Additionally, Price impact 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, Zen Bull!), but integration teams can adjust any parameter of the trading strategy to create their own strategies or build their own novel strategy with different mechanisms, triggers, etc.
Example parameters for adjusting Automated Squeeth Strategies could be: how often the strategy trades / rebalance 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).
Power Perpetuals are still in their infancy, but we have been studying them in depth since their inception (July 9, 2021!) and remain extremely excited about their potential.
If you are as intrigued by this new primitive as we are, we would love to hear from you. You can join the Opyn Discord, email us at squeeth@opyn.co or DM Opyn.
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. This post 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.
