stETHvv Backtest

How would this strategy perform if it had been live for the last seven years?

TL;DR

• Pods Yield's first strategy was backtested against the other two strategies with similar risks.
• Zoom in on weeks where the options ended in-the-money to understand the strategy’s risk-return profile.
• A brief review of risks.

Introduction

Pods Yield’s first vault is an investment product that applies a low risk strategy to ETH on Mainnet. It relies on Lido (the largest staking service in DeFi with billions in volume) for the base yield source and uses part of the yield to buy weekly call options, increasing the depositors’ exposure to ETH’s upside and preserving the principal.

This product is perfect for ETH long-term holders that want to increase their current ETH holdings without putting their principal at market risk.

Strategies comparison

Consider that the following three strategies were available seven years ago:

• Deposit on stETHvv,
• Investing ETH in a lending pool with 3.9% APY,
• Just hold 100 ETH.

This graph shows the result of a backtested strategy for each strategy for seven years:
- Pods stETHvv vault,
- ETH invested at 3.9% a year,
- and just holding ETH.

On stETHvv strangle set up, we’re estimating the purchase of call and put options using 50% of the weekly yield to happen on Mondays in this simulation. This also considers weekly 20% OTM options, priced with regular Black Scholes and assuming 90% implied volatility. This backtest also assumes stETH is always equal to one ETH.

This graph shows how the vault performs whenever there’s an exercise. The exercise profit amount gets incorporated into the initial deposit, and the following week will compound the yield on top of that newly incorporated sum.

You can identify exercises on the graph by checking when the balance goes up a level or step.

Please note that past returns are NOT a guarantee of future returns.

A shorter backtest period

How would the vault perform on a shorter backtest period such as the last 12 months?

On a shorter timeframe, this is how the strategy would have performed considering the same set up parameters as the previous simulation.

Zoom-in on in-the-money weeks

Out of 361 weeks, options ended in the money 74 times (20% of the time).

This graph shows a backtest of this strategy, with a zoom in the weeks where the options ended in the money.

Important: It is organized by ROI and not date.

This graph aims to expose the relationship between risk (amount spent on the options) versus the potential return they can yield if or when they e in the money.

The graph is purposefully organized from the option that returned the most to the one that returned the least. The option that returned the most shows a more than 150x return on the investment (meaning, it returned 150x more than the premium paid).

This strategy positions ETH holders to benefit the most when ETH price goes up or down significantly, without risking their principal.

Risks Review

stETHvv uses Lido as a primary yield source. Lido is a decentralized staking protocol that allows users to stake their ETH and receive ETH 2 rewards.

Lido has a wide use among the DeFi community, with a TVL of more than 4.9 billion USD. And just like any other DeFi protocol, it is not free of risks.

Our understanding of Lido’s risks are:

• Exposure to any shortcomings with Ethereum PoS merge
• Governance attack
• Protocol level risk
• Smart contract exploit or bug
• ETH and stETH market’s illiquidity could trigger a wide depegging

Using Pods ETH Vault entails that users understand and agree with the risks of Pods as a protocol and all the underlying protocols.

In addition to Lido’s risks, there are risks related to Pods protocol that could affect the vault’s funds. Our understanding of the current risks on Pods are:

• Centralization risk
• Protocol level risk
• Smart contract exploit or bug

This vault is in its first version, which means we’re going to continue improving the vault’s functionalities as we evolve. Currently, there are manual parts to its functioning, and we’ve been making decisions to limit our access to the funds within the vault. The actions are:

• The investor contract can only interact with 50% of the yield generated by the vault per week;
• The investor contract is held in a 2/5 multisig.
• The withdrawal fee is currently 0.1% and is limited to 10% at max;
• The admin keys do not have access to users’ funds however it can pause the system, preventing users from withdrawing during that period.

Live on Mainnet

The stETHvv vault is live on Ethereum Mainnet 🎉

https://app.yield.pods.finance/

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