ETH Trend Growth Strategy Proposal
Goal
The goal of this forum post is to discuss the upcoming Cellar proposal asking Governance to accept the ETH Trend Growth Strategy.
Introduction
We’ve been very impressed with the existing Real Yield USD and ETH strategies and have been following their respective growth to over ~$18M in TVL. In parallel to this growth during this bear market, we’ve focused on optimizing our trend trading strategy that maximizes exposure to the upside volatility of ETH while exiting positions during downside volatility to minimize drawdowns. After discussions with the 7Seas team, we determined that it would be mutually beneficial to take advantage of the best-in-class yields from the real yield ETH and USD strategies while our strategy optimizes rebalancing between ETH and USD. This provides users with a very attractive long ETH trading strategy that significantly outperforms buy and hold based on our backtesting while ensuring that yield is earned when exposed to ETH or stablecoins. Additionally, this new trading strategy will help grow the funds allocated to Real Yield ETH and USD making this mutually beneficial for us, 7Seas and DeFine Logic Labs.
Sommelier’s Real Yield USD Cellar, operated by 7Seas Capital, is the final evolution of organic stablecoin yields in DeFi. By “organic yield” we mean yield that results from trading activity (fees) rather than resulting from rewards or incentives. The primary sources of organic yield exist on lending platforms like Aave and Compound, and decentralized exchanges like Uniswap. These protocols comprise both the largest source of locked liquidity (TVL) as well as user activity.
Real Yield ETH is poised to become a powerful vault for capturing organic yield across prominent ETH-denominated LSTs. With leveraged staking and liquidity provisioning, the vault maximizes yield while managing risk. As the LST market evolves, the vault will also evolve to capture new opportunities. All in all, we’re excited to make using LSTs more accessible and efficient for everyone.
For the ETH Trend Growth strategy, we use extensively backtested trend-following strategies and risk-management techniques to ensure that we are fully exposed to ETH during uptrends to maximize upside volatility while ensuring positions are fully allocated to stablecoins to avoid drawdowns. Using Real Yield USD and ETH we are able to always generate yield in any market environment while maximizing risk-adjusted returns.
How does the strategy work?
We have been optimizing our trend-following strategy with ETH over the past 2 years to identify the best indicators that determine when we should be fully exposed to ETH to maximize exposure to upside volatility while also setting a dynamic stop loss to minimize drawdowns. Since this strategy is focused on the daily timeframe, the trading costs are minimal to execute this strategy, and the yields from Real Yield ETH will be helpful to grow the ETH position since the average trade is held for 2-3 months based on the backtested data. When the trend-following strategy flips bearish and it is confirmed via a daily market close, the long ETH position is fully allocated to Real Yield USD so stablecoin yield is generated while the strategy is not exposed to ETH downside volatility which minimizes drawdowns.
Silver Sun Capital Investments Background
At Silver Sun Capital Investments, we are a team of two who are passionate about capital markets and broadening access to on-chain asset management via DeFi composability. We have academic backgrounds in applied mathematics and finance paired with more than a decade of combined trading experience in various capital markets.
Prior to Silver Sun Capital Investments, Kevin worked on buy and sell-side M&A where he completed 6 transactions totaling over $1B in enterprise value. In addition to his role at Silver Sun Capital Investments, he leads all capital market activities for Pocket Network where he engages with market makers, institutional investors, exchanges, and custodians across the ecosystem. In addition, he manages a family office portfolio that includes liquid tokens and public/private equity. Earlier in his career, he worked at DTCC in a strategy and operation role where he learned about capital market structure and how blockchain could upgrade our antiquated financial system. Mr. Jenkins holds a Bachelor of Science in mathematics and economics with a masters in Finance from the University of Tampa.
Before Joe entered the financial field, he spent four years in the United States Marine Corps as an Infantryman. During his time in the military, he learned the basics of retail trading. After the Marines, Joe is currently a swing trader specializing in FOREX and crypto markets with over ten years of experience. For the past three years, he has also been a successful prop firm trader. When he is not trading he is finishing his degree in Computational and Applied Mathematics from the University of South Florida.
How does the strategy perform?
We have run backtests of the strategy in TradingView and here is the summary across different trading pairs and hence timeframes on a historical basis. Since ETH has only been around since 2015, we also provided backtested data with other technology platform assets (e.g. Bitcoin and Apple) to show that this is a robust and highly tested way to outperform the market.
We also received market feedback that these timeframes go too far back and the outperformance has been associated with the massive gains realized over the various crypto cycles. Based on this feedback, we also included a tab that outlines the trades and daily performance from the prior two years from August 31, 2021, to August 31, 2023. The results are more of the same, this trading strategy significantly outperforms buying and holding the underlying asset and avoids the massive drawdowns which typically result in emotional/irrational decisions to sell at the lows. The buy and hold return over the prior 2 years was -57% with an 80% max drawdown vs. 37% and 35% respectively with our ETH trend growth strategy.
Note that backtesting performance is not necessarily indicative of future performance.
What are the risks?
Since we are leveraging the Real Yield USD and ETH strategies, this strategy inherits the risks associated with each of those respective strategies.
Additionally, past backtesting data does not guarantee future performance; it only outlines the probabilities of expected outcomes. This is especially true for crypto capital markets given the limited historical data due to the nascency of the asset class vs. traditional equity markets.
7Seas will be doing the development for this vault and given their success to date and familiarity there isn’t any new smart contract risk being introduced vs. what already exists.
Proposal for cellar authorization for strategy ETH Trend Growth
If approved, the chain will accept signed function calls submitted to the cellar contract from the strategy provider.
Name: ETH Trend Growth
Cellar share token: ETHGROWTH
Platform fee: 1% (.75% for strategy provider + 0.25% for protocol)
Performance fee: 20% (15% for strategy provider, 5% for protocol)
Strategy providers: Silver Sun Capital Investments and Seven Seas