SYMMIO — Hedger profitability outlook
Introduction: A Glimpse Behind the Hedging Curtain
To help new readers, we refer to Liquidity Providers or Market Makers on SYMMIO as “Hedgers.” This is because Market Makers on SYMMIO typically will hedge themselves, as they hold counter positions indefinitely until the user decides to close them.
Therefore we coined the term “Hedgers” similarly to how 1inch and CowSwap refer to their Market Makers as “Solvers.”
Distilling the profitability of a financial primitive.
Understanding profitability easily and straightforwardly in complex & innovative financial primitives such as SYMMIO’s AMFQ system is important.
Recognizing this, we approached one of our hedgers, Rasa Capital, to gain insight into their activities. Understanding the significant impact such information could have and their aligned incentives with the success of the project itself.
We plan to publish reports on profitability either bi-monthly or monthly. These updates will offer a captivating look into the workings and efficacy of Market Makers on the SYMMIO platform & giving stakeholders more clarity about its performance.
Understanding profitability highlights the effectiveness and efficiency of the idea, but it also holds the potential to draw interest from potential other market participants and encourages existing participants to refine their strategies.
Let’s dive into it.
General note: the profitability of SYMMIO LPs will not be public by default.
Getting into the specifics of SYMMIO LP’s profitability will by default be challenging. Hedgers are motivated to keep their strategies and earnings confidential, as revealing them could potentially remove their edge or provide other market participants with an advantage. However, this reluctance is entirely understandable. A successful hedger who can provide appealing spreads to users should not be expected to give up their advantage or disclose their strategies to potential competitors.
As a result, LPs on SYMMIO are unlikely to provide a built-in dashboard or similar analytics tool to track profits on the platform. This makes it difficult for investors to gauge the overall attractiveness of the system. Additionally, a portion of hedgers’ profits are generated off-chain, making it technically impossible for a normal user to track them.
Incredible Profitability Despite Room for Software and Operational Improvements
Despite the immense potential for improving current hedger software and operations as mentioned in the sections below:
After we rebooted Cloverfield in mid-June, we saw a significant surge in volume towards the end of the month. Let’s examine the period from June 29, 2023, to July 6, 2023, more closely:
The hedger operation was initiated on June 29th with a total account balance of $53,245.00.
The Binance account balance was a deficit of -$25,411, whereas the Onchain account displayed a balance of $24,148.64. The total profit and loss (PnL) derived profits registered at -$1,262.87.
When the Credit Value Adjustment (CVA) is factored in, the PnL-based profits increased to $3,498.57, highlighting the importance of incorporating the CVA in Hedging operations.
Profits from liquidation operations amounted to $1,113.21, and the aggregate hedger profits reached $4,611.78. This was the initial position on June 29th.
The hedger noticed that utilizing an auto-deleveraging strategy could ensure that PnL-based profits would never enter negative territory and that spreads charged on top are enough to create profits on each trade.
Another critical aspect is the fact that even though we do not have active funding on SYMMIO, the hedger is still subjected to Binance funding, which inevitably reduces profitability.
(SYMMIO funding upgrade is planned for Q4 2023)
The data from one week later:
By July 6th, the hedger account balance had escalated to $115,740.00, propelled by an increase in collateral due to rising demand.
This increase in hedger deposits was executed seamlessly on their side, even with open positions, owing to SYMMIO’s remarkable capital efficiency. No capital has to be pre-committed and it can be increased or decreased based on demand and position movements.
The Binance losses had expanded to -$37,234.51, and the Onchain profits rose to $36,973.96. The PnL-based profits were essentially at equilibrium, registering at -$260.55,
CVA profits escalated to $5,565.41, resulting in PnL-based profits minus CVA of $5,304.86.
Profits from liquidation operations surged to $2,955.40, with the total hedger profits amounting to $8,260.26.
Potential for improvement in the current hedger-software model
The currently present hedger software operates reactively, only triggering an action when an on-chain movement, such as a request, is noticed. This functionality allows for substantial self-optimization, particularly if the software can be developed to operate proactively.
In the following sections, we will delve deeper into this proactive approach, and examine its potential for increasing profitability and improving operational efficiency.
These enhancements present an exciting roadmap for improving hedger profitability while also enhancing the overall SYMMIO ecosystem. We’ll continue to engage with our hedgers and the community to refine these strategies and explore new ones.
Summary: Profitability Enhancing Upgrades for Hedgers
Topics the hedger mentioned to improve the hedging operation software include:
- MEV optimized — Proactively Hedging & engaging with Users: Instead of waiting for users to act, hedgers could anticipate user behavior and hedge earlier. This approach can also improve filling prices for users through mempool or off-chain communication between users and hedgers.
- A/B Books and Specific Orders for Specific Traders: Hedgers could improve their profitability by employing an A/B book strategy based on intelligent analysis of users’ trading behavior. Essentially, they wouldn’t hedge losing trades but only hedge winning ones. To accurately implement this strategy, they could use proof of uniqueness to identify users or develop other smart tools.
- SYMMIO Upgrades for Netting and Position Reselling: Hedgers are eagerly awaiting the 2024 SYMMIO upgrade that enables netting and allows hedgers to sell their positions to others. These features would boost market maker efficiency and significantly enhance hedgers’ profitability.
- Auto Deleveraging / Trailing Stop and Limit Buys: A shift from a reactive system to a proactive one could bring substantial benefits, especially when it comes to liquidations. Implementing auto deleveraging, combined with trailing stop losses and limit buys, could allow hedgers to manage their positions more efficiently, improving their profitability.
- SYMMIO Funding Activation: The activation of funding in SYMMIO would also contribute to increasing the hedgers’ profitability.
