Transcript: LUNAomics Master Class 5


Finn 0:42
Hello and welcome to The Ether. Today is Saturday, January 8th 2022. This episode of The Ether is brought to you by Luart. Luart is the first gamified NFT platform built on the Terra network. Luart provides a seamless minting and trading experience, all while earning you rewards just for being a user. Be sure to follow them on Twitter and join the community in the Discord server for the most up-to-date news and announcements regarding all the hot new NFT launches, platform upgrades, and new projects hitting the secondary marketplace. Are you ready to #PutYourHelmetOn and join the movement? Find out more at Today on The Ether we have the LUNAomics MasterClass #5: Profit Using Impermanent Loss. Let’s take a listen.

LUNAomics 1:29
Hey guys, how’s it going?

Chad THOReau 1:29
Hey, good, how about you?

LUNAomics 1:30
Very good. Just got off the call with… Or not to call, but the the Space with Orbital Command and their interview with Prism. It’s pretty cool.

Chad THOReau 1:41
Any standout info that you learned?

LUNAomics 1:45
I think I’ve heard most of it, I can’t think of anything that was different. They’re going to allow you to give your LUNA to them, and then in return you’re going to get a cLUNA token that can be split up into the yield and principal. So they take your LUNA and then they stake it, they get the rewards. And then they’re holding the LUNA. So then they give you a cLUNA that represents the LUNA that you gave, and then they distribute it between the pLUNA and the yLUNA. But it seems that there’s not any kind of solid conviction as to what’s going to happen as far as the pricing of each one. They’re gonna leave it to the market to make that decision of what happens with the price.

Chad THOReau 2:33
Yeah, will be really interesting to see where those land compared to each other, whether the yield is valued more or less.

LUNAomics 2:43
Yeah, yeah. So I mean, my plan is not to rush into anything. I’m just gonna see where it goes. And then jump in after everybody else. [chuckle]

Chad THOReau 2:55
Yeah, That’s how I feel nowadays.

LUNAomics 3:01
I got rekt so many times jumping in in the beginning and trying to not miss out. Now I rather just let everybody go on first and then jump on after.

Chad THOReau 3:05
Yeah, the Terra ecosystem is just changing so fast. I mean, I remember when it was just like, “Oh, borrow on Anchor and put it on Mirror.” That’s blowing people’s minds. And now it’s like, every letter in front of the word “LUNA” that is possible is another potential strategy. [chuckle]

LUNAomics 3:24
Yeah. You get alphabet pretty soon.

Chad THOReau 3:28
Yeah, I had a tweet a while back as a joke like that. It was like aLUNA, bLUNA, cLUNA, dLUNA. It’s just the whole freakin alphabet. [chuckle] It’s happening.

LUNAomics 3:40
Yeah, it’s crazy.

Chad THOReau 3:41
Yeah, I’m with you though, I’m just gonna… Oh, you go ahead.

LUNAomics 3:44
No, go ahead.

Chad THOReau 3:45
No, I’m just saying I’m with you. [laughs] Maybe we’re lagging slightly. We’re talking at the same time. Go ahead, go ahead.

LUNAomics 3:51
I know. No, I was just thinking that it’s crazy to think that we’re only a year into this. Where’s it gonna be five years from now, 10 years from now? It’s just crazy.

Chad THOReau 4:01
Yeah, it truly is. Cool. So are we going to give it a few minutes until the top of the hour to get going?

LUNAomics 4:07
Yeah, I wanted to see if Patryk could test is mic, and Patryk are you there?

Patryk 4:14
Hey, guys, can you hear me?

LUNAomics 4:15
Yeah. Hey, thanks for doing this. Really appreciate it.

Patryk 4:18
Happy to be here. Thanks for having me.

LUNAomics 4:20
Yeah. So before we start, I’ll just throw that last question out that I was DMing you to kind of explain that last question. Maybe you could process it before we get to the last part of the call. But my question was, is it possible to rebalance your position… When you first get in you’re like 50:50, but then as the price drops, the pool rebalances and then you’re getting more tokens and less UST or something. Is it possible to take your LPs out, and then redeploy it to get back at a 50:50… I don’t know if that makes sense, but

Patryk 5:09
We’ll make something out of that, I guess.

LUNAomics 5:12
I guess I’ll try to explain it better once we jump in.

Patryk 5:16
Alright. I have a few ideas of what might be going on in your mind. But well, let’s not jump the gun.

LUNAomics 5:25
Okay, Jaser. Thanks for co-hosting and pinning those tweets up there. That’s super helpful.

Jaser 5:32
Of course. And yeah, for the folks in the audience, to make it easier for you guys, please check out the pinned tweets. I’ll be pinning all the other stuff that LUNAomics will be talking about. So please keep an eye on that.

LUNAomics 5:43
Awesome. How are you guys handling… We got a couple of minutes before we jump in. How’s everybody handling the pullback? We went all the way down to… Did we get down to $60?

Chad THOReau 5:53
No, I think it only went as low as about $68.

LUNAomics 5:56
No, no, we got down…

Chad THOReau 5:59

LUNAomics 5:59

Chad THOReau 6:01
Not on the chart I’m looking at.

LUNAomics 6:03
I thought we got down to like $62.

Patryk 6:06
I can see $61.2.

Chad THOReau 6:07
Oh, shoot. Yeah, no, I’m totally off. The chart I had open on my desktop is not updated. But on my phone is. Oops. [chuckle]

LUNAomics 6:16
Yeah. $62. I got $62.9 was the low. How’s it been handling the pullback?

Chad THOReau 6:23
Well, I hope it doesn’t go much further. But I mean, if we say here, I’m chillin, but you know.

LUNAomics 6:36
My liquidation is at 42% right now. And I got a bunch of liquid LUNA just sitting in my wallet. So if I needed to I could sell it. The trick is always like, when do you sell it, right. Because if it if it drops from $62 to $35, then you actually only have half the amount to pay down your loan. But yeah, hopefully we don’t get down that low. I’m sure Cephii is salivating every time it drops another 10 points. He has all this capital sitting on the side that he’s just ready to deploy at a 70% pullback.

Chad THOReau 7:11
Just throwing in another $10 million at every $5 interval or something like that. [chuckle]

LUNAomics 7:18
We’ll get there one day, hopefully in a year.

Chad THOReau 7:22
Yeah. Yeah, I think I’m sitting at like, too high… Uncomfortably high right now. I think I’m at like, 47%, 46%, or something like that. So not great. But, could be worse.

LUNAomics 7:35
As long as you know how to pull it down.

Chad THOReau 7:37
Yeah, I mean, I’ve got a plan. I admit, you know I go degen in other ecosystems as well. So I’ve done some off the plan sort of stuff with my loan. But I’m aware of what I’ve got myself into.

LUNAomics 7:55
Yeah. All right, well, why don’t we get started. It’s 11:01. Just to kind of give a format to today, I’m gonna do a little explanation for those that are just jumping in, and have never been a part of these Spaces before. But I’ll just give a brief context of the strategy that we’re looking at for 2022. And then how LPs play into that strategy, kind of explain what an LP is. And I remember when I first started posting things in the beginning of the year about LPs, everybody was asking about impermanent loss, and, “What about impermanent loss?” And it sounds like this scary, huge, risky thing. And I would explain it to every single person that it’s not the capital gains loss of your position. It’s the difference between if you’re holding it in your wallet, and the rebalancing of the pool. And it’s such a complex concept that I just kind of gave up because it took too much effort. And one of the reasons why I started to pinned tweets is because I didn’t want to explain it over and over and over again. I would just write it out and then say, “Go look at the pinned tweet.” And so I think that impermanent last thing, I’ve heard that question more than any other question. And it’s in the frequently asked questions in the pined tweets that I have on the top of my timeline. And there is somebody else that wrote something about impermanent loss, there’s like calculators that are there.

LUNAomics 9:35
But when I saw Patryk’s post on impermanent loss, it was the best post I’ve ever seen. Because the way that you drew that out, Patryk, was just super easy to see what that impermanent loss is with a visual. And so that was really helpful. I added that to my pinned tweet so people can go and read it, and then I tweeted it, just so people can understand. So if you hear for the first time, I’m going to go through the strategy, I’m going to go through what LPs are really quickly, kind of explain the objective of how we use LPs, what the reward is that we’re looking for when we use the LP, and what are the risks. And then I’m going to ask Patryk to kind of explain maybe what are the… Bring more clarity to the points of how we can protect ourselves from the risk of using a liquidity pool, and any thoughts that he has around what was shared. And then we’ll open it up for questions that have specifically to do with impermanent loss. Questions for Patryk, myself or… And then after if you want to ask the co-hosts anything, you can go ahead and ask. And then we’ll jump into, if we have time, we’ll go into open questions. I think that this Space will be a little bit shorter than than a normal Space. Just to honor everyone’s time, so we’ll try to get it over in an hour or so.

LUNAomics 11:12
So let’s just jump to it. So the the strategy that we’re doing this year is stacking LUNA with more LUNA. And the details of that strategy is in the pinned tweets, and there’s been Spaces on it that are links in the pinned tweets. But basically, it’s just stacking LUNA with the increasing buying power of LUNA. So the underlying assumption is that LUNA is going to 10x this year. I wast’s kind of we’re in a pullback of LUNA right now, and we’re at 64. It went all the way down to $62. And I think the high was above $100, maybe $102, or whatnot, which kind of puts us at a 40% pullback, which is… That’s a very large pullback in a traditional market. For crypto, I mean, it’s still significant. And so we’re in this 40% pullback. I’m not sure if there’s anybody questioning their conviction on whether or not they still think that LUNA could get to $1,000 this year. My conviction is immovable, I believe that we’re going to hit $1,000, because of everything that I’m seeing in the community. And I remember when we crashed last year in May… $4. And I was telling my friends, “We’re gonna hit $100 this year,” and they’re like, “What there’s no way. If we hit $30, I’ll be happy.” And we went from $4 and we got all the way to $100. And I think it’s easier to believe that we’re going to hit $1,000 from here, then it was to believe that we are going to hit $100 from that $4 low.

LUNAomics 12:50
So yeah, I’m so convinced that we’re going to hit $1,000. So that’s the underlying assumption of the strategy. And so the way that we do that is as LUNA goes up in price, there’s added leverage that you can use with borrowing, that you can slide the bar and get to a certain LTV to pick up more LUNA, and then we add UST to the baseline of LUNA that we’re using. And Rebel Defi, he just showed me a great video that he did. So that’s coming out really soon. And you can actually see, he walks you through on the platform exactly what that looks like. And he’s done a great job. So that’s gonna come out probably today or tomorrow, and you’ll be able to see. I’ll put a link on my profile. And then any questions you can either ask in the next space or on Discord. Discord is super awesome place to ask questions, everybody, they’re super helpful. And especially when we’re dropping, and we’re in a fast market, we’ve had a lot of people jump on and just ask questions and get help. And it’s a really good place to get extra help.

LUNAomics 14:03
So that’s the strategy. The strategy is to stack LUNA with the increasing buying power of LUNA. And one of the things that we do is we don’t just use all the buying power to buy LUNA. We’ll use a certain amount, say like 20% of our buying power, LTV, 20% LTV to buy LUNA, but then you don’t want to waste the buying power of the LTV of 20% all the way to 45%, you don’t want that sitting dormant. So what we do is we take out UST from that 20% LTV, and we slide the bar from 20% all the way to say 30%, or 40%, or whatever a person is comfortable with, take out UST. And in the beginning I was just putting it in Anchor Earn and getting 20%, but the amount of rewards that were coming from the LUNA-UST liquidity pool on TerraSwap, at that point, it was like 90 something percent. And so it didn’t make sense to have LUNA sitting in my wallet, and then UST sitting in Anchor Earn when I could put those two and throw it into TerraSwap, and earn 100% on it. So that’s how that kind of developed. So we started putting LUNA and UST into TerraSwap to get the rewards. And what I noticed is every single time that the price would drop, that the pool would rebalance, and I would pick up more LUNA. So that was just like an automatic rebalancer built into the strategy. And the whole strategy was just to pick up more LUNA, so that fit perfectly into the strategy.

LUNAomics 15:44
And then if LUNA kept dropping, my exit point was never a price point, but it was an LTV point. So that LTV point for me was 50%. So whenever it would hit 50%, I’d withdraw it, kind of lock in my LUNA gains from the rebalancing of the liquidity pool, take the UST half and pay down my loan. So that’s kind of how we use the LP within the strategy, is to get the rewards from both parts of it, the LUNA that we borrow, and then also the UST that we borrow, throw it into a liquidity pool to get more rewards. So that’s kind of the objective of how we use the liquidity pool. So the whole goal of the LP, the reward side, is to gain more yield. And in gaining the yields, we’re continually lowering our cost basis, like our cost for the components of the pool. And then also… And that happens at all times whether it goes up or down. And then it rebalances to give us more tokens as it drops. So those are the rewards of using the LP. Now the risks of using the LP is that when it goes up in price, and we’re believing that it’s going to 10x, so when it goes up in price, we actually will lose LUNA as the pool rebalances. So we will lose LUNA and we’ll gain UST. So a solution to that is you can withdraw some of the UST or withdraw some of the LPs, use the extra UST to buy more LUNA, if you want to continually stack LUNA, and you can kind of make up for the loss of LUNA with the gains that you get in UST.

LUNAomics 17:52
That’s the risk to the upside, the risk to the downside is that when LUNA drops in price, you’re gaining LUNA, but you’re losing UST and it doesn’t happen in a linear way, as Patryk showed on his diagram, it happens on a on a curve. And so the only reason why we hold UST is because it’s a stablecoin, that at any point… If it was in Anchor Earn, at any point, it’s earning the 20% yield. But at any point, if we need to repay that loan, we can take that UST and we can throw it into… We can take it out of Earn and repay our loan, and then lower our LTV. So the risk is that when you put it in an LP, and what a lot of people saw, especially with Valkyrie and Psi, is you’re getting this massive yield, but once the price decreases past a certain point, and Patryk, it looks on your diagram that it’s the 50%. Like once it drops past 50%, it just goes to zero really quickly. So the risk to the downside is that you lose your UST in the pool. So those are the risks.

LUNAomics 19:15
So Patryk, I’d like to ask you a couple questions. So knowing our strategy, knowing how we use the LP, knowing our underlying assumptions, and knowing what risks we’re looking at… You did an amazing job, by the way, on that tweet that you did. It was by far the most easy to understand and very clear definition of LP. And I want to thank you for putting that out, because I had kind of just given up about explaining that and almost like people are using impermanent loss as the capital gains loss of that position. And I was just like, “Alright, if you can’t beat them, join them.” And so in all of my tweets and everything I’m like, “Yeah, you’re gonna suffer impermanent loss if you do. That’s a risk.” But for you to define it that way, now I can go back to like, “It’s not that big of a loss, guys. You just got to protect yourself.” So my question is… And just three main questions, but the first question is, at what point… Knowing our strategy, our UST is really our buffer, right. We want to be able to manage our LTV, by having our UST available to pay down our loan at any time that LUNA drops. So there is a risk of losing our UST when we put it in an LP. At what point would you recommend, from what you have studied with liquidity pools, at what point would be kind of the optimal point to lock in gains, and to also protect your loss of your UST in the LP?

Patryk 21:11
So thanks for your kind words, first and foremost. In terms of the question, I guess, to a certain extent, it might be subjective. I mean, there’s a certain amount of risk tolerance everyone has. And regardless of what the numbers say, it’s not really worth losing sleep over something even if you get any facts that tell you that kind of going 10% lower would be a wise choice. For me, when I look at the curve, and I’m a visual person, to be honest, it really is that interval between -50% and 2x where the overlap between the curves is… Well, they do overlap at least to some extent, then distance widens quite significantly. So a drop by 50% is probably the latest responsible moment, for my taste, to kind of cut the losses, exit the LP, and maintain certain amount of UST, which isn’t that significantly different than what you would have by just staying 50:50 all the time outside of LP.

Patryk 22:41
For the locking of the gains, I’m not sure if there’s any part… We could do the same. So if your LP does 2x, take a certain portion out, especially if you use it in your strategy, then our overall LTV has gone quite a bit down. So it’s a good moment to take a bit out, take profits and increase our LTV again, and kind of reset the position. I think that’s actually will be even better in a situation when we already have a bit more of rewards. Right now, last time I checked, it was… In TerraSwap, I think it was around 80% that we get out of trading fees on LUNA-UST LP, around 40% or maybe 20% on Astroport. But then again, Astroport will provide extra ASTRO incentives. So there’s this extra cash flow from ASTRO that we can use to either buy more LUNA and increase the collateral, or put more into the LP position just to keep it as a dry powder in case of a drop. So I guess choosing between one or the other would be dependent on the situation. Right now I would probably err a bit more maybe… Actually right now, I would probably try to balance out both. Because right now we have dropped already quite significantly. So the chances of another drop versus going upwards aren’t that big. It’s kind of maximum or almost maximum opportunity situation we’re in right now, the way I see it.

LUNAomics 24:29
So when you say maximum opportunity, that would be like maximum opportunity to enter the LP, kind of with an initial position?

Patryk 24:40
I mean that right now I don’t expect LUNA to drop much further. I mean, it can go down a bit more and I don’t have a crystal ball, so don’t take my word for granted. So, right now I would feel very, very comfortable setting up your strategy. Knowing that… Well, quite likely, I won’t have to pull out my phone at 2am in the middle of the night to decrease my LTV. But from LP perspective, what we can see on the graph is that regular position, maybe 50:50 or pure LUNA would increase linearly, as the price of LUNA increases. It’s like a no brainer. LP position increases proportionally to the square root of of the price. So the further we go, the slower the value of the position increases. So at some point, it just makes sense to get a portion out of LP and put it into collateral where we have pure bLUNA, so kind of LUNA position, to increase the gains in the long run. And that’s kind of what I like in your strategy, to be honest, where you maximize the extent to which we benefit from price action of LUNA by maximizing your stack of LUNA essentially. Even if it’s in LP, if we if we exited, I don’t know, +50%, +75%, it’s not that much different than keeping LUNA and UST separate. We might get a little bit of extra benefit out of trading fees to kind of balance it out, or maybe even go ahead a little bit, and then we add to collateral. And yeah, rinse and repeat.

LUNAomics 26:43
Got it, got it. So, okay, to put real numbers around, what your paper put down, say somebody had $1,000 of LUNA and then $1,000 of UST, they put it into the LUNA-UST pool. Your paper says that the impermanent loss is insignificant to the downside, down to a 50% loss in LUNA, is that correct? So say LUNA was at $100. You put $1,000 in LUNA, at $100 price, and you also put $1,000 in UST, you parked it in an LP. Is it true that LUNA… Say you just put it in your wallet, scenario one, you put both those components in your wallet. And then in another wallet, you put those two components and in LP, that when LUNA’s price drops from $100 down to $50, that you’re not going to see a significant difference in your UST balances between those two wallets. And you won’t see a significant difference in the UST part. Is that correct? Or am I missing something there?

Patryk 28:11
What I, well, at least try to, say is that the value of the entire position won’t differ that much. In your example where we start with $2,000 worth of LUNA-UST LP, at 50% drop the value of LUNA and UST kept separately would be $1,500, because the 1,000 of UST stays the same, LUNA dropped from $1,000 to $500, 50% drop. With LP position, we would have around 1414, so that’s, let’s say you have… 6% or 7% of a value difference. In UST terms, it might be slightly more, I think it might be around 10%, 15% less UST that you would have in LP, than in kind of 50:50 separate, like in LUNA and UST held separately. So from my perspective, this is where the difference between the LP line and the keep them separate line really started diverging quite fast. And I personally see this last responsible moment to get out of LP to preserve your UST to be able to pay down the loan.

LUNAomics 29:42
Awesome. Awesome. And so everybody, I hope you caught that, that when we take out UST, we’re banking on that UST staying stable to be able to repay the loan. And so what Patrick is saying is that a 50% decrease in the price of the volatile token is your last point of responsibility. Never let it get past a 50% reduction, because at that point, the curve steepens, and you will begin to lose your UST way faster. But if you pull it out before 50%, then your UST side of your LP will stay relatively… I mean, a 4%, 6% is acceptable, that it dips that much. So, anytime you put your money into an LP, it’s really good to take a mental note of where the prices and where that 50% mark is. And if you want to be conservative, even don’t let it get down to 50%. If everybody had that mindset… And so this is kind of really… I think this is a secret sauce masterclass, because the more people that understand this, it could affect the liquidity of the market. Because all of you who are listening right now, now you know your stop loss point. And say it was Psi, or say it was Valkyrie, or Pylon, or any of these LPs, the more people that understand that 50% is the place where your UST side of the pool starts decreasing in an exponential rate, everybody will run for the exits at that 50% point. So in some case, it’s better that a limited amount of people know that, because the more people that know that you’re going to have a mass run for the exits at that 50%. So I mean, it might be very wise just to… Now that this is out, it might be wise to not wait for that 50% decrease and if LUNA is at $100, you exit that LP way before that 50% mark, just to not be a part of the mass exodus. And the more conservative that you are, the less you’re gonna encounter a liquidity crisis on your exit. Well, actually, when you withdraw your liquidity, there is no liquidity crisis. Am I correct in saying that? Because when you withdraw liquidity, you’re just taking it out.

Patryk 32:38
Well, if there’s enough people taking liquidity out… I mean, imagine, I don’t know, half of liquidity just disappearing from the pool, or maybe 75%, I mean, quite obviously, that probably won’t happen immediately. I wouldn’t be too worried about the mass exodus at -50%. Because every person has a different entry point. So 50% for me and 50% for you could mean a different price level. But still, there might be certain loss of liquidity. Unless we’re talking about anyone managing tens of millions of dollars or more, probably that loss of liquidity won’t be that big to be honest. And not everyone is yet using Anchor to borrow and using LP in a way you have kind of laid it out in the strategy.

LUNAomics 33:40
Okay, so okay, that leads into exactly my last question for you is, okay, so just to clarify 50% from your entry point, if you enter at $30, then that curve steepens when LUNA drops to $15, is that correct? And then somebody that enters $100, that curve steepens when LUNA hits $50. So both people would have different curves, according to the price that they entered, is that correct?

Patryk 34:13
Yep. Yep, they would both have… The shape of the curve is essentially the same, it’s just one curve would be above the other. So kind of different trajectories, if you will.

LUNAomics 34:26
Got it. Okay, so to protect your downside of losing your UST, you want to make sure that you exit before that 50% drop. Is that correct? To prevent the UST…

Patryk 34:42
Yes, 50% is the last moment. And actually, now that I think about this, in your strategy, if someone assumes around say, 40%, 45% LTV level, then a drop of LUNA price would anyway force us to make a move before 50% drop and manage the LTV. So in real life, unless you’re keeping LTV of 30% and lower, and would avoid liquidation all the way to 50% drop, you will need to take action sooner, and won’t really enjoy to see that decision making mechanism of 50% drop.

LUNAomics 35:24
Awesome. So if we manage our position in the way that we’ve been talking about, like for me, I keep a 40% LTV and I manage at 50%, there’s there’s no chance of it even getting to that place where your UST is getting affected. And so you’ll have that UST to pay down your loan as long as you’re managing your LTV in the way that we’re teaching. Okay, so the downside is pretty taken care of in this situation. The upside, you’re saying that there’s the divergence after 2x, and then… So would you say that as long as somebody is taking their gains and converting their LUNA to bLUNA and adding it to the collateral, that they’ll never get to that 2x gain place where they start losing a significant amount of their LUNA?

Patryk 36:26
So it’s kind of… Still putting this in the framework of your strategy, if we sit at around 40%, 45% LTV, and LUNA does 2x, then our LTV essentially drops to 20ish percent.

LUNAomics 36:46
Could you say that one more time? Could you say… Sorry.

Patryk 36:48
Yeah, sure. I mean, if LUNA does a 2x, then our collateral has increased twice, which means our LTV drops by a factor of two at the same time. So if our starting position and, say, target LTV is around 40%-45%, then after 2x move of LUNA we would have LTV of around 20%, 22.5%, which is sub optimal. In a similar fashion as you didn’t feel comfortable just borrowing 25% and putting it into LUNA, you wanted to max it out to 45% by borrowing more UST to keep it as a dry powder. Similarly, here, if we ended up in the 20%-25% LTV range, there’s some money that we could borrow and make use of it to make more money. And that’s simply making… Following the strategy to making an efficient move to take a bigger loan, so like take more UST, and put it into LUNA and UST as necessary to kind of reset the position. And we now have a starting point, which is very good one because it has more LUNA in it, it has more UST in it, and we have moved forward.

LUNAomics 38:19
Awesome. Okay, so yeah, that’s great. So on both sides of the equation, when UST is down, if you manage it at a reasonable LTV, you’ll never get to that 50% loss where the curve steepens and you lose your UST. So the downside is kind of drisk if you manage your LTV. And then on the upside, you’re going to be managing it way before a 2x because your LTV would have dropped. I assume that most people will be taking… They’re not going to let their LTV drop that much before redeploying it. And then essentially… So both on the upside and on the downside, your risk to impermanent loss on the upside, and then your risk of losing your UST to the downside, is pretty mitigated if you just manage your LTV responsibly. Would you agree with that?

Patryk 39:26
Yeah, I find it kind of amusing that the very LTV that can potentially keep us awake at night, potentially fearing, being anxious about the liquidation, provides us with the very information we need to manage the position. And either protect our position by repaying the loan partially, or taking a bit of profit and extending the loan and to increase the pace at which we accumulate LUNA. It’s kind of funny when I think about it this way.

LUNAomics 39:59
Yeah, it is. And it kind of takes the whole fear of impermanent loss out of the window when you know what it is and know how it can actually help you on the downside to pick up more LUNA, and then give you specific points of rebalancing on the top end as well. Well, so that’s really great. I don’t have any more questions. I think that was awesome. I have a better understanding of impermanent loss, what my risk is to the downside, where I would manage at the top end. Thank you so much. I really appreciate your time. That was… I’m sure this Space is going to be listened to many times by tons of people in the community. And you’ve given us a huge gift. Thanks for jumping on.

Patryk 40:55
My pleasure.

LUNAomics 40:55
Do you want to go to questions?

Patryk 40:57
Yeah, sure.

Jaser 40:58
Great. Let’s do that. I’ll bring on some folks first. We also have a question… Pinned the question thread up at the top. First question that we have on our Twitter through the thread is, what’s your take on using Anchor Borrow and using it in nLUNA-Psi LP, or any other LUNA alternative?

Hutch 41:17
Hey, do you guys mind if I weigh in on the alpha that Patryk just shared in the context of the LUNA pool before we jump into that?

Patryk 41:24
No, go ahead.

Jaser 41:25
Yeah, sure.

Hutch 41:26
Thanks, Patryk. This is awesome. I’ve been listening in earbuds, playing a little pickleball with the price reprieve. So everything you just said, I am 100% with. I have not been using the LUNA-UST pool. But I have been using the LUNA and bLUNA pool. And on December 3, I waited until literally, the sky was falling, to withdraw my LUNA-bLUNA pool, and when I swapped a LUNA, I got 4.7%. But then Phildeez alerted me to the fact that I probably had some skew and perhaps took a little bit of a loss for waiting that long. And so this time, I think I pulled it in the low $80s or high $70s, just realizing, okay, the crap’s about to hit the fan. So I’m just going to pull it out now, and post my bLUNA to give me a little bit of room. And then now I’m going to try and snipe swaps, because I realized it’s correlated. The reason we get good swaps during volatility is exactly the reason you talked about, because that’s when there’s going to be the most skew when so much liquidity has already left the pool. So I tried to front run it in getting my liquidity out since really, if I’m wrong, I’m talking about like, a day, or maybe a few days worth of opportunity cost from earning whatever fees in the teens annualized, maybe 20%, best case scenario, and it costs, whatever it costs, like cents, or maybe $1, it costs a bus fare to get it out and to get it back in. So I was really careful to get that out early. And then to have that LUNA on the sidelines, sit aside whether or not I wanted to swap it or sell it depending on how big the dip was.

Hutch 43:22
But yeah, I just wanted to share because I know so far all the talk has been in the context of the LUNA-UST pool. And that’s great. But I just wanted to share for those of us that are heavy in the LUNA-bLUNA. My only other observation is, and maybe you can clear this up, Patryk, LUNAomics shared, and it seemed like a big aha to me that wow, it’s kind of awesome when price gets hammered, because I actually end up… And this in the LUNA-UST pool, because I end up with a disproportionate amount of LUNA, which is what we all want. And so who cares if the price has gone down and I lose a little bit of UST, and that’s what I’m not clear about. Is it better to withdraw early and preserve as much UST as possible, because obviously the value of the whole pool goes down when price goes down, or is it better to ride that one a little further down to get more skew? And this I just don’t have the answer to. And somebody came on the call the other day, and he said he did the math and I don’t know if he did it right or wrong, but said he kind of did the math, which with how much UST he lost when he originally put in the pool and it basically worked out to him dollar cost averaging into $150 LUNA, who knows what his calculation were. But I’m wondering if this is maybe right to a degree since the pool is going down, yes, you end up with a more stacked LUNA position, but at the expense of losing total value of the pool. Is it better just to take it early if you sense volatility and you may need to manage? Do you have any idea about this?

Patryk 44:58
Honestly, I think there’s a factor in place to be growing this one, which is risk appetite, or how much risk averse you are.

Hutch 45:10
Well, we’re all degens. [chuckle] So obviously we’re not totally risk averse. I’m just wondering about optimization.

Patryk 45:18
I mean, between -50% and +100%, whether you keep LUNA and UST separately or in the pool, there’s not going to be that much of a difference, to be honest. To the extent that it might be actually worthwhile keeping them in the LP for those extra rewards coming out of trading fees, or LP incentives, like in Astroport. It is a very unusual way to look at LP, and I haven’t seen that too often on Twitter, actually. I think that strategy of yours, LUNAomics is probably the first one, where I see the LP position on the downside as kind of dollar cost averaged buying of LUNA, because our liquidity pool stands on the other side of every single cell that takes place in the market and drives the price down. And on the other hand side, it’s a profit taking mechanism on the upside. Maybe not the best one, maybe not the best approach to do dollar cost average purchasing or profit taking, but still, it is a way to do it.

Hutch 46:42
I agree with you long term. I’m sorry, go ahead, LUNAomics.

Patryk 46:47
Yeah, I sorry, I just wanted to finish the thought. So I think in essence, if you have to decide between eating a whole cookie and having a cookie, which is either exiting LP position, or staying in it, it’s not black and white. Here you can exit partially as well. And maybe in many scenarios, probably that would be the wise thing to do. Don’t exit entirely, let it drive a little bit, but already secure some UST in case it drops more than you had originally anticipated.

LUNAomics 47:26
Thank you. Hutch, to the person who said that they ended up averaging in and paying $150 per LUNA, I can guarantee you that that’s not the case.

Hutch 47:38
It seemed a little off to me too.

LUNAomics 47:40
It’s way off. And I’m in the process of actually putting numbers behind it. And I have to put the numbers behind it, but I actually did the numbers and the numbers that I came up with was like a 12% discount on the LUNA that I got. I look at that as too good to be true, so I don’t want to say that publicly that that’s what the discount is. I’m gonna go back and redo it, and do it a couple more times. But I know for sure that you’re not overpaying for the LUNA that you’re picking up on the bottom. If anything, you’re getting a discount, and I think it’s pretty significant. I think it’s more than Kujira. When I say Kujira, the majority of the bids that get filled on Kujira is 4% and below. And I don’t have the numbers to back that up, but I’m going to… And if anybody in the community wants to do it as well, I throw that out to the community to look at your numbers. And when you when you take your numbers, when you enter the pool, take the amount of LUNA that you have, the amount of UST that you have, and then when it drops, take the amount of LUNA that you have, and then minus the amount of LUNA that you had to begin with, so you just have the extra LUNA, and then match it with how much UST it costs to acquire that LUNA, because your UST is going to go down. And then when you figure that out, you can get the dollar amount for how much you paid per LUNA. And then compare that to the market price. And when you compare that to the market price, you’ll get your discount of how much LUNA you picked up and at what cost. I think that that’s a part of the equation that we’re still working out, or I’m still working out. But I’m pretty confident that you’re getting a good deal on the LUNA that you’re picking up on the bottom end.

Hutch 49:45
I think for most people who aren’t going to manage it so precisely, it probably is a good thing. But I think that’s the question I’m asking, for those of us looking to optimize, and this kind of goes into the definition of impermanent loss is, would it have been better just to have UST in Earn, and LUNA on the side that you can swap or sell or whatever, would that have been better than keeping it in the pool. And so I think it’s important to know kind of the starting number. And obviously, it’s gonna depend on how many days because 40% to 100% fees, and we don’t know what it is all the time, we always see these averages, and they’re different on ALPAC and Coinhall. But I think what I’m talking about is a short term situation like we had, call it, starting less than a week ago, when you sense that there’s going to be volatility, is it better just to exit the pool, even if, as Patryk said, incrementally, and then just keep it out of the pool and keep it in the pool when things are going well? I’m pretty sure that’s the case with bLUNA. In fact, I’m almost 100% that’s optimal with bLUNA, is like at the first sign of kind of sketchiness, I’m out. And I want all my bullets ready to go. But I don’t know the case with the LUNA-UST, but I think we can move on to other questions. And if you guys need to remove me, that’s cool, too. Thanks

LUNAomics 51:08
Awesome. Thanks, Hutch. Great input.

Patryk 51:10
I feel like I need the reminder of that question, which was asked before we went on a tangent.

LUNAomics 51:14
Ryan, did you want to ask a question? RyanLion?

Jaser 51:17
I think he’s getting connected. That question that I had asked right before was, what’s your take on using Anchor Borrow and using it in a nLUNA-Psi LP, or any other LUNA alternative?

Patryk 51:29
So in my eyes, LUNA is pretty much an apex asset. And I am really, really bullish on LUNA and I’m… Surprise, surprise. [chuckle]

LUNAomics 51:43
You’re in the right place. [chuckle]

Patryk 51:47
I I’m very hesitant about LP-ing with LUNA unless there’s another asset that I’m really bullish on. It’s probably going to be difficult to find something I’m as bullish on as I am on LUNA. But if it gets, say, close, I would consider that. Otherwise, if LUNA does a 10x and the other asset does a 2x, then essentially, it’s like… Quick math, it’s like 2.5 factor down, so like -66% on the chart, which means a terrible dilution of LUNA and anyone who entered nLUNA-Psi when the Psi was around 45 cents, and stay there for a longer period of time knows that well, they have significantly less LUNA now than they had originally. So I probably wouldn’t do that, to be honest. I’m not sure if I can see, right now, an asset I would… In Terra blockchain that I would pair LUNA with. I’m pairing it, personally, with JEWEL in DeFi Kingdoms. So far so good, I’d say. But my history of doing this isn’t exactly super long. So let’s see where it takes me.

Jaser 53:15
Cool. Thank you. Next, Ryan, it didn’t seem like you were able to get on. We’ll go ahead and go with Crypto Moon. Crypto… Or CryptoMoneyLife, sorry.

CryptoML 53:25
Yeah, hey. Yeah, just a comment on that $150 LUNA price, that’s definitely wrong. Your entry price for your LUNA would work out to be from where you got in… In between where you got in and whatever the price is now, just because every single time someone’s selling LUNA into the pool, you’re buying it from them being in the pool. So there’s no way you could have $150 LUNA entry price on that. And secondly, a little bit off-topic, but it goes to the impermanent loss thing. I tweeted out a little bit of a covered call strategy a week or so ago, and LUNAomics, you didn’t sound like you liked it that much. But you know, if you think about it, all the covered call is is a single sided LP that only suffers and permanent loss if the price goes up too fast, too quickly. And I just wanted to get people’s thoughts on that, because with a regular LP, every single tick the price goes up, you’re losing LUNA, you’re selling LUNA because someone’s buying it in the pool. Whereas with a covered call strategy, you’re only suffering that impermanent loss if it goes up too fast too quickly. In this case, their weekly calls spread out in between… It’s like a 1.5 standard deviations to 2 standard deviations, it’s working out to be about 20%-30% above the price of LUNA when the call gets put on. So I don’t know if you have any thoughts on that or not.

LUNAomics 54:54
Yeah, so the covered call. I’m not super familiar with it. I’m looking at it through the context of what I understand in traditional markets of a covered call. So in a covered call, you’re holding the underlying and you have a strike price above the market that you’re willing to let go of your underlying for, and you’re selling a premium against the underlying that you’re holding, that if it gets to that certain price that you’ll sell it at that certain price. So the premium that you give has to match the volatility of the underlying. So when I looked at the covered calls that were being sold, there wasn’t a definite strike price that I saw that was above the market, there also wasn’t a timeframe of how long that covered call could be exercised. And then the APR on the covered call was only like 120 something percent. So without knowing the expiration of the covered call, when it could get exercised, or if it could get exercised at anytime, without knowing when it would expire, or what the strike price was, all I saw was like 120 something percent APR. What you’re basically doing, if it’s a covered call, is I’m holding LUNA, and I’m taking in 127% APR premium for an underlying asset that has 1,000% potential. So when I look at the risk reward on that, it’s just… I’m gonna take in premium, which is great. But the premium’s not that great compared to the volatility of the asset. So I would be letting go of my LUNA if somebody could exercise their covered call option that I’m selling it to. Say, LUNA goes up in a month… Say, I’m taking 120% APR premium on my position. And in a month, it goes up 200%, which it’s done six months out of the year last year, I would have to let my LUNA go. And even though I keep that 120% premium, I’m losing out because the person is cashing it in and they’re getting the 2x return during that month. So in the context of traditional markets, it’s not a good idea. But I don’t know enough about how those covered calls are executed, what the timeframes are, all of those things. And so for that purpose, I’m not going to get involved in it until I know more about it.

CryptoML 57:56
Okay, yeah. They’re all weekly. It’s all one week calls that… Prices adjusted every week. And they’d never been called or anything but just going… For me comparing it to a 50:50 LP, where in the LP you’re guaranteed as soon as the price goes up one cent, you’re losing LUNA. And then every cent above that you’re losing LUNA. With a covered call strategy, there is none of that impermanent loss until you get a standard deviation… Until you get 20%-30% above that strike price where you entered at. I compare it more to instead of doing a 50:50 LP, where if you do think LUNA is going to go up, with a 50:50 LP every cent it goes up you’re losing LUNA. Yes, you’re gaining UST, but you’re selling LUNA at every tick on the way up. Where with a weekly expiring covered call, you only suffer impermanent loss if it reaches your strike price in that expiration, that weekly expiration, which you have a buffer above that anyway with the premium you’re collecting as well.

LUNAomics 59:06
So I think you have to look at it in terms of side by side, because according to what Patryk told us today, the difference between holding LUNA and UST in your wallet and holding LUNA-UST in an LP, it won’t suffer impermanent loss where it actually matters until after 2x. So the thought that you’re going to be losing tons of LUNA on the way up for every single tick, I don’t think is accurate. You will lose LUNA if there’s a massive rally. If there’s a massive rally and and it goes up maybe even 100%, you’re gonna lose LUNA on the way up. But in the same vein, if you had a covered call and it went up 100%, you would lose all of your LUNA that is under contract of that covered call, and you’d lose it at a much bigger discount. So even if it is a weekly. I mean, we’ve seen moves within a week that have been substantial, where it would make sense for somebody who has paid for the covered call to exercise it. And then you would suffer a big loss. So there’s rewards and risks on both sides. I’m not saying one is better than the other, but you just have to look at the whole picture and the risk on both sides. Yeah.

CryptoML 1:00:40
Yeah. Okay, one final point, once we do see certain upside movement in a specific direction, being that it is only weekly calls, those premiums will get juicier, and you will be able to move the strike out even further. Because the whole idea of these vaults is to never get them called, which they haven’t ever been called, and just collect the premiums. So when we do start seeing, once we do start seeing big volatility to the upside, the people buying these calls are going to… The premium is going to be juicier. And you can move the strike price even further.

LUNAomics 1:01:11
I would be much more interested in selling naked puts, not selling covered calls, because selling covered calls is actually a bearish strategy. Because you’re banking on it not going up through your strike on the upside. So, if there was any kind of option strategy that would attract me, especially with LUNA, it would be to sell puts on the downside so that if it goes down, I’ll exercise them and get them at a discount.

CryptoML 1:01:43
Yeah, true. I mean, but it’s crypto, with a high implied volatility, for me, it’s just about juicing those premiums.

LUNAomics 1:01:52
Yeah, and it’s cool that there’s more and more of this stuff coming in. I’m actually super excited about an options market in LUNA. It just hasn’t developed to a place where I’m super interested yet.

CryptoML 1:02:04
Yeah. And I will say if they ever offered a put vault that used aUST as collateral, I’d be all over that.

LUNAomics 1:02:11
Yeah. Yeah, that would be interesting. That’d be cool.

Jaser 1:02:14
Great. Thank you so much. Let’s go ahead and move to the next speaker that we have, ryanmalia.

ryanmalia 1:02:20
Yeah, hey. So I guess the moment has kind of past a little bit, but I guess my question or comment was around LUNAomics when you were doing your calculation, assuming a downturn in price and calculating your gain in the LUNA LP. The one thing I wanted to point out was that you weren’t factoring in your reduction in UST in that example. I don’t think it offsets the gains in the LP you get on the way down, but I think that should be added into your calculation cost that I think you were quoting potentially 12%. Just wanted to throw that in there.

LUNAomics 1:03:01
Yeah. No, that was in the calculation. Yeah. Because you take the UST that you lost, compared to the LUNA that you gained. And that’s the price that you’re paying for the LUNA.

ryanmalia 1:03:15
Gotcha. Yeah.

Jaser 1:03:16
Great. Next speaker D.UST, EndUpBallin.

D 1:03:20
Hey, guys, I appreciate the Space. Super interesting conversation. Just have a quick question. So it makes a lot of sense that you’ll never… The LP position will never reach that 50% mark because you’re adjusting based on the LTV. But the quick question that I have is, yeah, when the price of LUNA is going down, I understand you’re gonna withdraw from the LP maybe when the price drops around 40%, whatever you want, right. But when the price of LUNA is going up, are we now going to withdraw when it starts to exceed too much? Or are we just going to simply provide more, and that resets the price? How does that work?

LUNAomics 1:04:12
I’ll let Patryk answer that. Patryk, if you wanna say something about that.

Patryk 1:04:17
Sure. So you would probably… When the price does a 2x, let’s say, then you would be able to borrow that much more UST essentially, which partially you probably want to put into LUNA position, liquid LUNA, not in the LP, and put quite a bit into the LP position just as well. Because the balance between LUNA just kept in the wallet and LUNA in LP, that will get out of sync versus what you started with. The value of LUNA will increase at a linear pace, and the value of LP at the square root. So to balance it out again, you need to put more of that extra borrowed UST into LP. So essentially, when the… It’s a bit of a paradox, I guess, when the price moves up, you’d actually put more into LP on the way up, funnily enough, I guess.

D 1:05:30
Okay, and when you do that, and let’s say you do provide more into the LP, at the time that you provide is that now your new price that you use as a standard for waiting for the price to increase to another 40%?

Patryk 1:05:50
My take on it, and I’ll let you chime in as well, LUNAomics, my take on it is when the price moves up, I would do a full reset. So I would essentially, go with LTV all the way up to 40%, 45%, whatever your target would be, and then readjust the balancing in the wallet between liquid LUNA and LUNA-UST LP, and consider that my new starting point to manage things, and to do the calculations of where do I consider a price movement to be too big to stay in LP, or too small, or whatever makes me manage my LTV.

LUNAomics 1:06:36
Yeah, and was the last question that I had. But you answered it when we were talking about everybody’s entry point being a different curve. And so on the upside, the way that I would manage is, I don’t think I would wait to 2x, I’d probably… As its going up. And it makes sense. So to me, it would be anything above, I don’t know, 100-200 LUNA that is above the value of my loan, I would just withdraw it, convert it to bLUNA, provide it, and rebalance everything with a new LP position. And that would be my starting point, to keep me from getting to that 2x place, the curve kind of flattens out, and I’m losing a lot of LUNA. And then on top of that, you’re also getting the rewards from the LP that is lowering your cost basis. So it’s a buffer on both sides of the market, which is nice.

D 1:07:45
Yeah. Okay. No, that makes sense. Thank you.

LUNAomics 1:07:48
Yeah, thanks for the question.

Jaser 1:07:49
Great. Thank you so much. Next question, next speaker we have is Nicasio Covija.

Nikunja bd 1:07:55
Hello, good afternoon. Thank you, LUNAomics and Patryk, for the explanation. It’s very clear. After 50%, you withdraw, you manage your position to not lose so much UST, but I still don’t get the upward position. If you can make an example, Patryk or LUNAomics, like explain in a different way, because I don’t finally understand whether if LUNA goes 2x, Patryk say that he only will have liquid LUNA and make a little position in LP, but you, LUNAomics, say a different thing. So if you can further explain the upward position strategy when LUNA goes up.

LUNAomics 1:08:47
I think it gets down to the LTV. And Patryk, if you have something else to say you can go ahead and answer. But for me I manage everything off the LTV. So as LUNA is going up in price, and say, my wheelhouse and where I feel comfortable is like a 40%-45% LTV, and LUNA is going up in price, and I’m not going to wait for it to 2x, because at 2x, if I’m at a 40% LTV, it’s going to go all the way down to 20%. And that’s a lot of capital that I’m just letting sit on the table. So for myself, if LUNA went up 1x and the LTV dropped to 30%, I would already be pushing that 30% back up to 40%, withdrawing some UST and LUNA, buying some LUNA, looking at what’s in my wallet, how much extra I have compared to my loan, withdrawing it, converting it to bLUNA, putting it in my bLUNA vault on Anchor, which will further decrease my LTV, and then rebalance at 40%. So for me, it’s not a price point, it’s just where I… Someone else could feel comfortable that 30%, or someone else could feel comfortable at 20%. That’s kind of the beauty of it, you can just look at the LTV and manage around that. And you’ll never get to that place of a 2x increase, where the impermanent loss levels out your capital gains on the LUNA side of the LP. So as long as you’re managing your LTV, and you’re making use of the borrowed capital in an efficient way, you’re never going to get to that place of impermanent loss on the upside. Would you agree at that, Patryk?

Patryk 1:10:52
Yeah, that totally makes sense. And I assumed that was a good question to make it clarify. I will try something that probably shouldn’t be tried, but I’ll try it anyway. But kids, don’t do it at home. I’ll try crunching some numbers kind of on the go. So let’s imagine a simple example where we have $1,000, and we buy LUNA of that, we put it into Anchor as collateral, and we take a loan at 45% LTV. So we’re essentially borrowing $450. So, if I followed your strategy to the letter, LUNAomics, then I would buy $2,250 worth of LUNA, and I will keep $200 in UST, which means around 400 in LP and $50 worth of LUNA just sitting around in the wallet. So now if LUNA does a 2x, then $50 sitting in a wallet becomes $100. And as LP increases by a factor of square root of price change, from $400, I would go to… What is it, $560, give or take a little. So suddenly, my assets that I purchased with borrowed UST are not $450 anymore, they are sitting at $660. So I have extra $210 that I can use to buy LUNA, turn it into bLUNA, and provide it as collateral, further decreasing my LTV, and this is when we can max the LTV again at 45%, and put it into LUNA and LUNA-UST LP as needed to kind of reset at a new higher point. I guess this is how the execution would look like in practice. Is that right?

LUNAomics 1:12:56
That’s awesome. My brain doesn’t move that fast. I need a calculator. But that’s exactly what I would have done. Yeah.

Patryk 1:13:03
Okay. Yeah, I mean, guys, please check the math later, I might have made a mistake here, but I tried my best.

Nikunja bd 1:13:11
Thank you.

Jaser 1:13:11
Thank you. Cool, next speaker we have Frugal Lunatic.

Frugal Lunatic 1:13:16
Hey, guys. I am here just to confirm LUNAomics’ calculation. I think I also made roughly around 10%-12% discount on the LUNA that I made through the LP that I was providing. I just pulled out, so on average I paid around $57 for each LUNA, while it was going down. So I pulled out and I saw whatever the values were, and based on that I think it does add up to 10%-12% for me as well. That’s on average. Thank you.

LUNAomics 1:13:51
That’s awesome. Yeah, that’s the number that I came up with. When I was looking at how much LUNA I’m picking up and how much UST is disappearing from the wallet. It came out to between 10%-12%. So again, I’ll look at those numbers. But that’s cool that that’s what someone else is experiencing as well.

Jaser 1:14:16
All right, next speaker we have DefiZealot.

DefiZealot 1:14:20
Hey, thanks, guys. Are you able to hear me?

LUNAomics 1:14:23

DefiZealot 1:14:24
Great. Thanks for your service in terms of spreading the knowledge, LUNAomics. Really appreciate it. I have two related questions. One is, because I’m only six months in into DeFi. I’m always aping all in to strategies. And I’d love for you to kind of give some thoughts around do you diversify within multiple strategies and then kind of divide up your LUNA assets to be doing different strategies. It quickly gets out of hand in terms of how I’m breaking those up. So if you can speak to that a little bit. And then the other part is, for a newcomer to the trading and the market, I heard a lot of things that you guys talked about comes from the TradFi trading side of things, and I’m really new to that. So I’m wondering, do I need to learn technical analysis to be able to predict things to do these strategies? Or are you looking at the market after things have happened and reacting to them? And what resources would you recommend for learning this stuff?

LUNAomics 1:15:41
For traditional finance, the technical analysis and all of that, I wouldn’t get too… I mean, I’ve spent years and years doing technical analysis and all that kind of stuff. And it was never profitable to the point that the time going into it made it worth it. If you really want to learn traditional finance, the best thing is the tastytrade network, tastytrade, Tastyworks network. They give free information and the best thing that they do is provide information around understanding risk. In the options market, that’s where I learned everything and everything is completely free. It is kind of a steep learning curve. But the amount of money that you can make in crypto is just so much more than traditional finance. So it does provide a framework to use all of these tools in a really good way. But I think that you’ll just get the hang of it in doing it. To answer your first question, I don’t have a lot of strategies. It’s very simple, the way that I’m trading this year, I just have one goal and that’s to accumulate more LUNA on the upside and downside. And everything that I do maps to that goal. So I don’t have a lot of different strategies in place. It’s just the one that I outlined in that tweet 2022 Strategy for LUNA. And I kind of give a detailed explanation of why this is the only strategy that I’m doing this year.

DefiZealot 1:17:20
Thanks, that’s awesome.

Patryk 1:17:22
To build on that a little bit, maybe, not negating any part of it, this was awesome. I’m actually going to learn a little bit about options myself, I guess, in the next weeks or months. If you’re pretty new, what LUNAomics does might not be the best fit for you. What I mean by that is even the best strategy, if executed poorly won’t give you optimal results. So maybe it would be worthwhile to, I don’t know, set up a separate wallet, play around with what LUNAomics is suggesting, setup… Try a different one, maybe, in it another one, and then get a feel for what is it that you feel comfortable with, comfortable executing and comfortable following. So that you have confidence that, okay, this 10x assumption of LUNAomics really makes sense, or maybe doesn’t make you think it’s gonna 20x and then you would like a slightly different strategy, I guess, maybe not. So there’s many ways to skin a cat. And what is right for me doesn’t necessarily need to be right for you. That’s, I guess, one thing that I would add to that,

LUNAomics 1:18:41
Yeah, and another option, too, is to use this strategy according to your conviction. So the underlying assumption is that LUNA is going to 10x, if you have a 50% conviction in that, then just allocate an amount of capital that reflects that. And the other thing is, if you’re new, I wouldn’t… I don’t ever recommend people to avoid risk altogether, but to do smaller, to trade smaller. So, if you are new, it does make sense to try different strategies, this one could be one of them. And instead of going to 40% LTV, which is a lot, start off at 10%, or 5%, or whatever you’re comfortable with, and get familiar with the fluctuation of your LTV measured against the price of LUNA. And when you get more familiar with the fluctuations of price, and the fluctuations of LTV measured against the price, then you can see the profit coming in, you can see the amount of LUNA that you’re accumulating and then as you build confidence in the strategy, you can slowly up it to 15%, or 20%. So that’s the way that I look at everything, I kind of scale into different things. And when they work, then I just go all in and maximize. So that’s just the way that I do stuff.

DefiZealot 1:20:15
Thanks for that. I was just gonna say, might be too late for that I’m already aped in with most of my LUNA holdings with the strategy, hovering around 40% already, but really thank you both for your wisdom.

LUNAomics 1:20:31
So, ten more minutes. We can take a couple more questions.

Jaser 1:20:35
Sweet. We’ve got the next speaker, dirtylenses.

dirtylenses 1:20:40
Hey, guys, how are you? Can you hear me all good?

LUNAomics 1:20:44

dirtylenses 1:20:45
Okay. Thanks, guys, for coming and for the talks throughout the week. It’s been awesome to listen. So here’s the fun bit. I was the one that said the $150 last time, so don’t beat me when I’m down, all right. Basically, I was just trying to do some quick numbers while we were actually on the Space, listen to it, and I’m a man, I can’t multitask like most of us. But basically, I’m pretty sure, like I said, I’m not math. And so I’m pretty sure I did not get it right. But what I was saying is that it would be awesome if someone whose head is in that Space, to see if we can come up with a formula for that to find out, really, what we are getting. Because it’s interesting as the LP pool balances itself, it’s not necessarily a dollar cost averaging thing as I understand it. The dollar cost averaging would execute the moment that you pull the LP. So at that point, I guess maybe timing’s got something to do with it. So if we had a calculation, a number on seeing how much we are getting, are we getting a discount? Which would be awesome. But if we’re getting a discount on the way down? Are we getting the opposite on the way up? Or is the algorithm biased to give us more LUNA? Which would be awesome.

LUNAomics 1:22:13
Yeah, that’s a great point. Yeah. And that would be super valuable information.

Patryk 1:22:19
Actually, that kind of calculator is pretty straightforward to put together. I think I should be able to do it in the next day or two, and just add it to that spreadsheet with LP charts that I’ve put together already. So yeah, look forward to it.

Patryk 1:22:37
Awesome. That would be great.

dirtylenses 1:22:38
Awesome. Amazing. Thank you guys.

LUNAomics 1:22:41
Any other questions? We got 10 minutes.

E S 1:22:44
Yeah, I’ve got one. Can you hear me okay? I’m just out with my dog so I hope you can hear me alright, they’re a bit crazy. So what I find has worked this time for me is using the LPs. I’ve been doing similar thing to you for about six months, but just using Anchor Earn. Then having listened to you, I’ve moved over to the LPs. But what seems to work quite well this time around is that I kept a reasonable amount of UST in Anchor Earn, because I thought that we were going to dip quite deeply. And I’ve used that Earn UST to keep paying down my loan, whilst taking advantage of the LUNA price dipping with the LP and accruing more LUNA. I’ve not worked out the calculus on it as such, I don’t know if I’d have been better off doing it with a pure LP route. But I’m just wondering, there was a number of strategies or mini strategies that people have talked to on this call. And I think we’re missing a number of data points to work out whether they’re the right balance between complexity and optimization. Because I’m a simple guy, and I like to keep things simple. Because in a crisis, if you have multiple options you can easily screw them up. So I’m just wondering if there’s an option amongst us all to perhaps form little working groups or something to come up with models that we could share, to assist with the provision of these data points that could help perhaps augment your core approach. That was it. That’s just my thoughts.

LUNAomics 1:24:30
Yeah, I think Discord would be great for that. If you jump into the Discord and then maybe message some of the moderators, they could make channels for specific ideas that the community has. And then if any of those ideas excite any of the the people in the group, you can jump into those different channels and then work out a model that makes sense, but that’s a great idea. And I think that the Discord that Orbital Command put together for us would be a good venue for that to happen.

E S 1:25:10
Yeah, I mean, as I said said, I don’t know if the calculate… When I’ve done the calculations I don’t know if I’d have been better off keeping it all in the LP, but I didn’t want to break my LP because I was accruing a nice… It was about 8%, 9% discount on the LUNA I’ve got so far using the Anchor Earn UST to pay off the loan. That seems to work for me, but I don’t know if it’s the best way to do it.

LUNAomics 1:25:34
Cool. Yeah, jump into this Discord and see if there’s any interest, set up a channel and that would be a great contribution.

Jaser 1:25:45
I have the link pinned up to this Spaces. So if you guys want to join the Discord, that’d be there.

E S 1:25:53

Jaser 1:25:53
We’ve got one question on…

LUNAomics 1:25:54
Oh and by the way, while we’ve been talking, LUNA has gone from $62 to $68. So I think we’ve arrived to kind of like Cephii’s Spaces. The whole goal is to just talk until LUNA rallies. And so we’ve gotten to that point. We got eight points out of LUNA, so we can… When we wrap up, we’ve done our job. [chuckle]

Patryk 1:26:21
And by that time, LUNA will be over $70 again.

LUNAomics 1:26:24
Yeah. [chuckle]

Jaser 1:26:26
All right. So we got a question online. Somebody wanted to clarify, is my own LP reconfigured once I added more to it? So if it’s in a rising market, I have LP, and LUNA goes up by 2x, does it remember the original position if I have made a additional deposit to my LP at, say, 1.5x?

LUNAomics 1:26:45
Patryk, you can go ahead and answer that. I think what he’s asking is, does it rebalance when you add? Or do you need to take it all out and reestablish it? I’m not positive, if that’s what he saying. It’s kind of the question that I picked up.

Patryk 1:27:00
Yeah, this is what I picked up as well. I’m just thinking about how to explain it, and what would be the good approach. So I don’t know, I guess it’s a matter of perspective, to a certain extent. LP doesn’t really have any memory of its own. So it can’t really store in any way, shape, or form what was your original entry point and original balance. And when you add to it, it won’t change the balance within LP either, because you add both LUNA and UST in equal amounts dollar wise. What it will do is it will move your overall LP curve upwards. So you could think of it as a reset, in essence, where you kind of decide to forget about, okay, what was a couple of weeks ago was a couple of weeks ago. Now I have a new position and LTV to manage, and this is what I’m going to work with. Or I don’t know, if you’re not at the point of managing LTV yet, then you could just let things go as they are and kind of look at the old points, data points.

Jaser 1:28:28
Great. Thank you. Thank you. All right. We’ll go ahead with another speaker. We’ve got danbryan80.

danb 1:28:34
Hey guys, how are you doing?

LUNAomics 1:28:36
Hey, Dan, how’s it going?

danb 1:28:37
Hey, I really appreciated your talk, both you and Patryk. I was hoping you could clarify two things for me. The first is going back to that kind of 50% rule you mentioned with the curves, does that only apply to pairs that are with stable coins? Or does that apply to LP in general, no matter if it’s two volatile assets, or a stable and volatile?

Patryk 1:29:02
When you have two assets that are volatile, it is slightly more complex in a sense that impermanent loss is… When you think about price movements with volatile vs stable asset, you think only about price action of the volatile asset. If both assets are volatile, you need to start thinking about relative price changes. So your impermanent loss would be would increase as the price of one asset versus the other volatile asset changes. If they both do 2x, you have zero impermanent loss, exactly zero, because they have both rallied. If they both go down -50%, -80%, same thing if they move in tandem, but if one rallies and the other stays, or one dumps and the other rallies, this is when you would experience significant impermanent loss and your position dollar wise would be much, much lower than if you just held two assets separately in your wallet.

danb 1:30:12
Gotcha. That makes sense, you almost really need to know which one is the stronger coin so that you can be kind of figuring out how to play it correctly.

Patryk 1:30:22
Yeah, that’s why I’m hesitant about pairing LUNA with anything, because I know LUNA will rally sooner or later. And if I can’t find anything that will rally as much as LUNA could, then I will expose myself to that impermanent loss. And if we’re talking just about LP positioning in a vacuum, right. In the strategy of LUNAomics, it kind of… We’re putting in a framework where it’s a part of the bigger equation, and it kind of makes more sense.

danb 1:30:58
Okay, I did have one more kind of question, statement thing. I was just curious if you guys had any thoughts on this. So in general, I’m new to using debt to try to increase my wealth. And right now, I’m not comfortable with going to 45% LTV. But my thought is, there’s got to be… If I go to a lower percent of LTV, I still have to put in more bLUNA, and now that bLUNA is now not working anymore, so it could have been sitting in my wallet earning LUNA staking rewards. So I imagine at some point, it wouldn’t even make sense to do something really low like 5% LTV, because you’re basically saying, “Hey, I’m gonna ignore 95% of my LUNA staking rewards, just so that I have a low LTV.” Is that correct thinking?

LUNAomics 1:31:48
Yeah, that is correct thinking. And that’s the reason why instead of just leaving it, I’ll put UST into Earn because then it’s very manageable. You don’t have to think about impermanent loss, you don’t have to think about liquidity pools. But then at same time, you don’t get that reward either. But the amount that you make when you do that is substantial, because you’re taking out a loan between -1% to 1%, fluctuates on Anchor, and then you’re putting it in Anchor Earn, and that’s making you 19%. So you’re netting that.

danb 1:32:35
But you’re only making that 19% on the 45% that you borrowed. Where if you kept it as bLUNA, you’d be making the 8% on the 100% of your bLUNA, right? Because of the LUNA staking rewards. And when I’ve calculated this out in the past, they’ve been very similar. And obviously one of them does not have the LTV management required. I don’t know if you have any thoughts on that?

LUNAomics 1:33:01
No. Yeah, I mean, that’s definitely legitimate. What I would say is, what has the maximum potential, right. So maximum potential is like a 45% LTV, and then using that to stack more LUNA. When you look at the spreadsheets, the difference between that and, say, a 12% return is just night and day. And I’ve personally experienced that going from $100,000 in the beginning of the year to $5 million. So the difference between the two strategies, yes, one is like way less risky and you do get 12%, the other’s more risky and you could get 3,000%. Do you really want to leave that 3,000% on the table is what I would question. And so if the answer is, “I’m willing to leave 3,000% on the table and not participate in this season of LUNA experiencing exponential growth,” then that’s fine, everybody… It’s still way better than traditional finance, where you’re getting 8% on the S&P. But if the answer is like, “I don’t want to leave that on the table, but I don’t want to take the risk,” there’s ways to do that as well. So, say, you had $10,000 and you don’t want to risk $10,000, maybe put $9,000 into nLUNA that’s generating that… I think it’s 8% on the entire amount of LUNA, and then take $1,000 and then just learn the mechanics of managing LTV. So there’s way less stress involved in managing… Because the price swings are way less but you’re building a skill set. that will allow you to make $3,000 in the future. So my mindset has always been, I never want to bet the whole farm on something that I don’t understand. But I constantly want to be growing and understanding how to maximize every single opportunity that’s there with just a small amount of money that gives me the skillset to mitigate the risk and expose myself to the reward.

danb 1:35:27
Yeah, that’s great advice, man. I definitely appreciate that. And I have been kind of following that. I started off just with a 20% LTV. And as the dip has been going down, I’ve been trying to slowly bring it up. And then I’ve been pairing it with things like taking that UST during the dip, and trying to bid on some LUNA on Kujira, and trying to do some other stuff. But yeah, I really appreciate your advice, man. Thanks.

LUNAomics 1:35:50
That’s really cool.

danb 1:35:51
You too, Patryk, thank you.

Hutch 1:35:53
Yeah, I was going to say, there’s a guy named danb who did a very intricate computation and DMed me with it showing that keeping bLUNA in your wallet and earning the Anchor rewards, basically the staking rewards on Anchor, is almost exactly the same as borrowing against your bLUNA and putting in an Anchor Earn. And then I realized that’s the same danb that’s asking the question. But I think LUNAomics…

danb 1:36:19
I was just about to say, that guy sounds amazing. Can you put me in touch? [chuckle]

Hutch 1:36:21
Yeah, just DM yourself. [chuckle] But you know what, I think this is great. Because there’s a lot of people on this call Dan… ‘Cause Dan’s been in this game a long time. And he’s he’s been doing it just with a totally different mindset. So Dan’s racked up some decent bags, he’s just looking at the strategy, and I think there’s a lot of people are that just… They understand staking, they don’t like debt. And I think that LUNAomics had a great… Yes, you already know, math wise, it’s exactly the same. So but there is additional complication in that you may have to manage. But let’s just say you did that during these most volatile times, and use it to pick up bLUNA at a discount that you can then reprovide as collateral to get you to a comfy LTV, the extra, call it, annoyance of managing gives you exposure to the upside, whether your thesis is 10x, or 5x, or whatever, 100x, whatever it is. And that’s really the trade off. And I think there’s a lot of people on these calls that maybe aren’t ready to just jump into 45%, and maybe aren’t ready to do LPs and all that, but maybe it’s just the Anchor Earn since there’s… You know, Dan, there’s no love lost. And it’d be great if you could share that calculation with everybody. That would be awesome.

danb 1:37:40
Oh, yeah, I can run through it real quick. And then I do have to jet. Basically, what I calculated was, I took like $1,000 of LUNA and I said, “Okay, if I just hold bLUNA in my wallet, what do I get?” I get 0.8%. So I would be getting $80 in the year right? Now I said, “Okay, now what if I took that same $1,000 of LUNA and borrowed against it?” So I borrowed against it at 0.45 I can borrow $450, and I can earn 20% on that… Or 0.195 on that. And it ended up being just slightly more. My math isn’t working right now. Because I’m trying to do this in a rush not prepared. But yeah. They’d end up being pretty similar.

Hutch 1:38:30
I think you can post them later.

danb 1:38:31
Oh yeah, sure. I’ll post it on Twitter.

Hutch 1:38:32
But I think that’ll help a lot of people on Twitter dip their toes in and get acquainted to whatever LTV level they’re comfortable with.

danb 1:38:39
Well, guys, I have to go. I really appreciate it. And thanks for letting me contribute.

LUNAomics 1:38:43
Awesome, thanks, Dan. Hutch, maybe you could… That calculation that Dan DMed you, maybe you could put that into… Maybe you could tweet it, or you could put it on the Discord in the resources or something so that everybody would have a chance to take a look at it. That’d be cool.

Hutch 1:39:00
Yeah, I’ll see if he kind of comes up with his own. He’s a big brain. So I’ll see if… I’ll dig it up, but I’ll give him a chance to kind of come up with a more polished version because it was like tweet, tweet… Or DM, DM, DM, DM. So I’ll see what he comes up with first.

LUNAomics 1:39:15
Cool. All right. Well, guys, thanks. It was a good discussion today. I hope everyone learns a little bit more about impermanent loss and how you can use it. What are the points where that curve can actually hurt us and how to stay away from it. Next week, Friday, we’re going to have a space with the Nexus team. And I think they’re going to give us an update on the vault that they’re creating in using LUNA to buy more LUNA. So I’ll be posting that Space and a reminder for that Space. And yeah, have a great week and hope you guys are all managing your LTV as well, and that the next time we get together LUNA is a whole lot higher than it is right now. Alright, have a good one. And Jaser, thanks for the great co-hosting and posting everything. Patryk, thank you so much for your time. That was that was amazing stuff. So guys follow Patryk. He has tons of other tweets that go into a whole bunch of other stuff. So yeah, he’s definitely worth to follow.

Patryk 1:40:18
Thanks a ton, that was a blast.

LUNAomics 1:40:20
Alright guys, take care.

Finn 1:40:21
Thanks for checking out another episode of The Ether. That was the LUNAomics MasterClass #5: Profit Using Impermanent Loss, brought to you by Luart. Luart is the first gamified NFT platform built on the Terra network. Luart provides a seamless minting and trading experience all while earning you rewards just for being a user. Be sure to follow them on Twitter and join the community in Discord. Are you ready to #PutYourHelmetOn and join the movement? Find out more as TerraSpaces appreciates their support. For, I’m Finn. Thanks for listening.