This case study examines how Labs performs when there is a significant AVAX price drop, as seen from the weekend of 3rd to 5th December 2021.
Gro team had put their own funds into Labs to test the strategy before Labs launched on 8th December 2021. The weekend before launch happened to see a significant price drop for AVAX - let's see Labs performs relative to traditional yield farming.
AVAX price dropped from $104.14 to $83.21 between 8pm on 3rd December and 12am on 6th December, resulting in a 20.1% loss.
Holding $1000 USDC.e and $1000 worth of AVAX during this period of time would result in a 10.05% loss (20.1% divided by 2).
If the tokens were put into yield farming in Trader Joe, there would have been an extra 0.63% loss from impermanent loss while earning farming rewards in JOE (~20% APY). This would result in a 10.5% loss.
If the tokens were put into leveraged yield farming, users would be exposed to impermanent loss (0.63%) and the cost of borrowing AVAX that is at about 8% APY at the time of writing.
In that weekend, the GRO/USDC.e Labs started with $5,010 at 7:45pm on 3rd December and ended with $5,029.31 at 00:28am on 6th December, representing a 0.5% gain in a weekend where AVAX dropped one-fifth of its value.
The reason why Labs can deliver a better outcome is due to its automated management of leveraged yield farming positions. Instead of holding the position through the weekend (as it might be the case for those who take a more hands-off approach or lack the skills to manage their positions), Labs opened and closed positions 13 times to manage the losses owing to a one-sided AVAX price drop.
DeFi is still a very new space, and while that’s exciting, it comes with risk. Make sure you do your own research and invest responsibly to avoid severe losses. Always exercise best security practices when it comes to wallet and private key management.