Instrumental Finance: LP Yield Optimization and Portfolio Management

LP Position Portfolio Management

Liquidity provisioning (LPing) is the act of providing liquidity to DeFi pools. In return for providing liquidity, LPs (we will call them users) receive yield from the trading activity that happens in the liquidity pool they deposit into. Due to the currently sharded nature of applications, similar pools may exist on different networks. For example, the tricrypto Curve pool may exist on both Arbitrum and Polygon.

Automated Portfolio Rebalancing

Our rebalancer checks for underlying changes in pool activities at a cadence of one hour and makes a set of transfer decisions based upon this. The cadence can be changed in case the transfer activity increases in frequency. The rebalancer continuously collects data and the current network snapshot is captured in a graph format which is stored to a database. The bridge aggregator computes how to best transfer funds between networks and actions are taken depending on those recommendations. Below is an overview plot of the rebalancing system.

More on the Portfolio Development Environment

In essence, this PDE is a state machine that is written in the Python programming language. It starts at a point in the past and sees the data in a point-in-time fashion to avoid any look-ahead bias. Then, the strategy evolves forward in time and updates as new data arrives.

Conclusion

Through our PDE built from scratch, we are able to present and execute an approach for developing alpha-generating strategies. Our yield-optimizing product leverages state-of-the-art technology under the hood while using new Mosaic-enabled methods for moving funds to where they will earn the most yield. All this is possible while abstracting away the complications of manually having to perform cross-chain and cross-layer yield optimization.

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0xbrainjar

0xbrainjar

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Composable Finance Founder & CEO. I write about R&D at Composable Finance. Physicist by training