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Monteluna
@monteluna
Spending some time revisiting the LVR paper, and it does provide a nice framework for hedging concentrated liquidity positions and valuing performance of an LP position. My only issue is, for the majority of crypto users, I don't think they should hedge their positions or use LVR! The paper does discuss this in the Loss-Versus-Benchmark section, I just think the benchmark should be the dollar amount in all of the non-USD token. People should be using Uniswap range orders when they want to go long a token without hedging. - If you want to buy $1000 of a token spot, make a range order with an appropriate range depending on the volatility. 15-25% on both sides of the current price could be an option. - If the position moves up and out of range, you made some money in fees and would be selling as the token moves up. - If the position moves down and out of range, you lost some money, but you lost less than you would have holding the $1000 spot. https://arxiv.org/abs/2208.06046
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Monteluna
@monteluna
Granted this is not financial advice and I'm not one to say I'm right here. I just believe many of the metrics for Uniswap range orders should start with answering the question, "compared to what"? If you're judging your Uniswap position against LVR, you are by definition linking your profits to volatility. The paper shows LVR is linked to volatility, so at that point, just trade standard European options!
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Jordan
@jordansaping
Yep, LVR discussions are much more interesting than a lot of other defi discourse imo. It’s an actual problem—money left on the table— that theoretically has a solution, unlike IL which has neither. But where a lot of of LVR chads go wrong is assuming all onchain LPs think about LPing as some professional HFT market maker. Most LPs would be very happy with automatically executing/conditional range orders. The FLAIR paper is a great read as well!
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