Does Unipilot outperform HODLing and impermanent loss?
A common concern that users raise about liquidity provision — either directly on a DEX or via a liquidity manager such as Unipilot — is the potential for impermanent loss.
To demonstrate the effectiveness of Unipilot, which keeps your liquidity in an optimal range based on backtesting of multiple variables, we launched an ongoing study to look at the profitability of our newest type of vaults — narrow and wide — on our Polygon dApp. We added ~$100 to each vault and as 30 days have now passed, it’s time to have the first look at how they have performed.
You can see that both the narrow and wide positions have outperformed HODLing the assets due to earned liquidity fees surpassing any impermanent loss.
Note that the value of the position has fallen since the liquidity was added due to the decline in the price of ETH over the period.
Liquidity provision should be considered a long-term strategy, as over time the position gradually earns more fees to offset any negative impact of sporadic rebalances, yet it is of note that even over a relatively short period, Unipilot has outperformed hodling.
Whether you choose a narrow or a wide vault will depend on your preferences and expectations for market volatility. If the assets were to trade within a reasonably tight range, then during this period a narrow range would prove to be more profitable. Conversely, during periods of high volatility, a relatively wide range might be beneficial.