Volatile - Stable Strategies

Earn high yields by pairing a volatile asset to a stablecoin

This strategy allows you to facilitate liquidity for a pair with a volatile asset on one side, and a stablecoin on the other. As with Volatile - Volatile Strategies, this strategy would usually be found amongst Bluechip and Community Vaults.

  • Typically generates high yields, as fees tend to be higher, which can lead to higher % earnings per $ in volume

  • Can consist of any volatile token paired with any stablecoin

  • Earns yield in both tokens

  • Asset prices are not correlated, and position experiences impermanent loss when an asset moves in price

Optimal Market Conditions

Volatile - Stable strategies perform optimally when the pool experiences high volume, and the volatile asset remains stable, or trades in a small price range.

For as long as the volatile asset in the vault trades sideways with minor price changes, the vault can produce fees while incurring minimal impermanent loss. Periods of high volatility are often unsuitable for this vault strategy.

Range Overview

The ranges for this strategy are wider than for SOL-only or stable strategies. Due to the higher fee rates on the underlying pools, wider ranges do not necessarily entail less earnings. In addition, ranges need to be wide enough to allow for freedom of price movement, while earning continuous yield, and avoiding rebalancing. Kamino's quantitative model identifies the ideal deposit range for:

  • Optimal earnings

  • Price movement without insistent rebalancing

Strategy Risks

The primary risk of this strategy is impermanent loss, which occurs when the volatile asset experiences price movement. If the asset moves back to its initial price, or trades in a small price range, impermanent loss can be minimized, while depositors still benefit from the yield earned.

If the stablecoin in the pair experiences a depeg from the US Dollar, the position will also incur impermanent loss.

Should the price divergence grow too much, the vault can go out of range, which may require a rebalance. In this case, impermanent loss is realized.

Here is a closer look at how impermanent loss can work in this scenario.