This is my first post on LeoFinance; I'm just so excited about CubFi that I wanted to post what I learned! So please forgive me if any of the analysis is incorrect.
Wow, I thought, what an insane APR! Beats my 0.05 in Ally Bank. I see these Dens: Why would I want to settle for only 1000% when I could have 2500?!
I had heard about impermanent loss and thought "how bad can it be? It's like, impermanent". So I threw my money into the Farm and was super excited about the CUB I racked up.
However, I started reading that people were only staking because it's safer. I read about impermanent loss and saw the chart below, which I thought meant that even a 500% gain would only cause a 25% loss, and the over 2x APR must be greater than that, right?!
But is it?
After some more Discord chats with people having more experience than I, I thought I should just see what my gains were doing. So I used the new CUB finance monitoring bot by @deathwing and @rishi556, recorded all the values for an hour, and put them in the spreadsheet. Not very long, but it caught the price of CUB rising and falling, and that's interesting.
My Pool is the CUB-BUSD pool valued at $1,121.
My Den is the CUB valued at $667 š nearly half the size!
Sorry about not having the same size; I didn't plan on doing the calculation until after I created the accounts. My calculations were based on percentages, so it shouldn't really matter.
You can see all the data here: https://docs.google.com/spreadsheets/d/1isCxonvExIturEedZwNN6RL1fWcWEu6Hr1pJhRamIeo/edit#gid=0
Please keep in mind this is over a small period with small amounts, but can be extrapolated to larger sets.
Analysis
I expected that when CUB went up in large amounts that it would negatively impact performance. But for small amounts, I expected that this would be offset by the >2x APR.
Here are the key columns:
The first column shows the difference between the the profit I made with the Farm vs the profit I made in the Den. The second two are obvious
You see on line 3 with the same CUB price that the Farm outperformed the Den. But then you see between 3 and 4, that only a 2 cent increase in CUB caused a significant difference in the gain. Then from 4 to 5 the near 4 cent increase. Only when the price stays the same or goes down, then I began to see a small improvement in the LP vs the Den.
This only struck home when I looked at the totals without percentages:
So Farm slightly outpaced Den. Which is crazy because Farm was nearly 2x the size of Den!
Beware of simple comparisons
That's when I realized that with only small CUB increases (this was less than a 1% increase) would make a big difference in the return.
The 2500% APR is confusing, as it seems to be based on how much CUB you've invested in the LP, not the total value you have invested. And since you must invest 50% CUB and 50% BUSD. So you have to invest twice as much into Farm as the Den.
So it really only makes sense if you desire the hedge of BUSD in your portfolio. And even then, it's likely better to put that in to a separate BUSD den.
Or of course if you think CUB is going to go down or stay the same. But if that's the case, you should question whether investing in a product which pays out in CUB is the best choice for you.
Thanks to the great people at the LeoFinance discord server and CubDeFi telegram channel who tried to explain this to me, but I needed to learn the hard way.
ā„ļø shawn.