Position Sizing

The key question for our protocol is finding the sweet spot between performance and TVL, this is what’s called Position Sizing.

In our weighted strategies, the average performance stands at 108.75%. However, if only 10% is utilized at 1 billion TVL, this would result in a 10.875% APY on the total TVL.

On the other hand, targeting 250 million TVL would lead to approximately 40% utilization and a 43.5% performance. With a 500 million TVL, the overall performance would be 21.75%.

The critical question is determining the necessary performance number to maintain the sustainability of our ecosystem and structure. Currently, our average utilization aims at 46.67%, resulting in a balanced annual performance of 50.75%.

Our average Annual Percentage Yield (APY) to manage the LPs and back the yield from the LSTs ranges from approximately 12.5% to 15%. Out of this, 50% is allocated to buy-backs (18.75%) and 50% to the treasury + ELIF (18.75%). This arrangement offers a compelling proposition for token holders, including LST token holders, AQTIS tokenholders, and provides sufficient performance to support the ELIF fund.

If we aim for higher TVL, which leads to reduced utilization and results in a 30% performance, the breakdown would be as follows:

30% - 12.5% = 17.5% / 2 = 8.75% APY for buy-backs and approximately 8.75% for the treasury and ELIF.

This is considered a basic minimum for our standards. Performance below 30% would indicate that yield is backed, but building an insurance fund or growing our reserves becomes challenging. Hence we must optimize the TVL:Performance ratio.

In summary

• 10% utilization results in only 10% effective performance relative to total performance.

• 20% utilization results in only 20% effective performance relative to total performance.

• 30% utilization results in only 30% effective performance relative to total performance, and so on.