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The DEX Brief No. 16

New concepts for DEX return benchmarking + more

Written by

Mark Lurie

Published on

January 16, 2023

Top of Mind at Shipyard

In response to today’s broken paradigm for evaluating LP returns, a16z’s Head of Research has introduced a new concept called loss-versus-rebalancing (LVR). LVR measures the shortfall in the value of CFMM DEX reserves (excluding tx fees) relative to the value achieved by a dynamic rebalancing strategy with the same set of assets. In short, this approach is all about benchmarking LP returns relative to a rebalanced portfolio instead of simply comparing nominal yield figures–which is exactly what Clipper does!

a16z’s LVR concept mirrors Shipyard’s Daily Rebalanced Portfolio (DRP) method, both in terms of why DEX return benchmarking is essential and how the industry should put this into practice. More specifically, both Shipyard and a16z have explicitly called out the fact that CFMM LPs (e.g., Uniswap) generally lose money in the long run because they are constantly on the wrong end of trades.

The DRP benchmarking method used by Clipper and the LVR method by a16z avoid this hidden erosion of LP returns by capturing the whole picture when comparing the performance of different DEXs. If more DEXs adopt this standard then there will be nothing but more upside for DeFi users across the space.

Other Thoughts 

DEX Headlines That Caught our Attention

  • DEX aggregator OpenOcean announces a new interoperable cross-chain swap platform that enables swapping and bridging assets across Ethereum, BNB Chain, Polygon, Arbitrum, Avalanche, and Fantom. 
  • Avalanche-based DEX Trader Joe, and its associated NFT marketplace, to expand to BNB Chain by the end of March. 
  • Collection launches an NFT DEX that enables users to instantly buy and sell NFTs and create liquidity pools for NFTs that target specific criteria.

What’s New at Shipyard

Clipper 

The DEX built to give self-made crypto traders the best possible prices on small trades

  • Clipper Adventure Design Principles with Drew & Tezii: Love Clipper Adventures and curious about what goes into designing them? Shipyard’s design savants Drew and Tezii explain the principles and decisions that go into creating, maintaining, and executing Clipper Adventures.
  • Intro to Clipper course: For anyone looking to brush up on Clipper knowledge, or learn more about how Clipper’s novel FMM design and superior LP yields work, we’ve launched a course on 101.xyz. The course takes about 3 minutes to complete and graduates earn a Clipper Captain NFT badge! 

WTF, Crypto 

A Shipyard Software Production, hosted by CEO Mark Lurie

  • The Evolution of DAOs: We talk a lot about DAOs on this podcast, yet we still regularly get questions about what they are and why they matter. In this episode, Mark shares a conference talk he recently gave on the importance of DAOs, why they’re likely the most game-changing innovation to come out of blockchain, and why they probably won't evolve in the way most people are expecting. 
  • How to Incorporate a DAO: If you do any trading or HODLing of DAO governance tokens, you’ll want to fully understand what you're signing up for in doing so. In this episode, we’re joined by David Kerr, principal of Cowrie LLC and a writer for Andreessen Horowitz, to discuss DAOs and their legal framework.
  • How Developer Marketing Works on the Blockchain: How can Web3 projects attract more devs to the space? Which projects have great dev communities and what can we learn from them? Chainlink Labs’ Chief Ecosystem Growth Officer, Adelyn Zhou gives us the lowdown. 

AdmiralDAO

AdmiralDAO governs the DEXs developed by Shipyard Software

In the Works & Other Updates

  • We launched a 101.xyz course on Longship, Shipyard’s upcoming derivatives DEX. Learn how an AMM derivatives DEX works and earn a Longship Captain NFT badge upon completion.

What We're Reading 

Ever wonder what a Uniswap impermanent loss analysis using real data would produce? Well, look no further. This piece from Flipside Crypto deep dives into profitability rates, position characteristics by profitability, and elite positions to uncover any patterns in Uniswap v3 positions profitability. This includes a look at every closed position from inception to September 20, 2022, block level market price for ETH & BTC, calculated PnL, HODL value, and strategy value of every closed position. If you’re looking for alpha, this is it.

Written by

Mark Lurie

Published on

January 16, 2023

January 13, 2023

New concepts for DEX return benchmarking + more

December 12, 2022

What's in store for DEXs and DeFi following the FTX fiasco?

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