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Allison Lu
@allilulllc
finance 🤓 - time to do some yield math! Market is currently 1.15 yCOMP-AUG20 for 1 $COMP. This means that you’d earn 15% “yield” by owning yCOMP vs. real $COMP over 37d until expiry. If this were consistently available over a year, this would annualize to a 297% return.
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UMA
@UMAprotocol
4/ When you sell yCOMP, you will notice that the price is less than the price of COMP. Why? Shouldn’t the synthetic be the same price as the reference asset? Not always. It is effectively the “funding rate” you are paying to short COMP.
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Allison Lu
@allilulllc
The yield comes from ppl who pay to get short. In FTX COMP-perp, users are paying ~0.2%/hour for the pleasure of being short. That’s 4.8%/day (ie $COMP prices need to drop 4.8%/d for you to breakeven). For yCOMP, you'd need the COMP price to drop by 15% over 37 days to breakeven.
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Allison Lu
@allilulllc
a nerdy basis trade: if you believe FTX funding will remain negative (ie more shorts than longs), you could long comp-perp, short yCOMP, and profit the funding rate diff (currently 0.017%*24*37-15% = 136%). 🚨 this is very risky and capital intensive. not investment advice.
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Allison Lu
@allilulllc
a highlight to how risky this trade was: FTX funding rates have gone to -3bps, so the implied funding rate difference is now only -0.036%*24*33-14% = 14.5% to expiry. If you put the basis trade on last week, you would have LOST money in marking to market.
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SBF
@SBF_FTX
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@allilulllc
Also look at the FTX quarterly futures, maybe a better match--they're trading about 30% under for 3 months, vs 15% for 1 month on UMA. Does that mean you should buy UMA and sell FTX quarterly? Maybe not--best guess is that the interest rates are pretty front-heavy...
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