Hello everyone.
I see that something is happening with the two updated AV. The charts show that the positions have stopped balancing.
BNB Savings (3x): Alpaca Finance Interface
Market Neutral (3x): Alpaca Finance Interface
AV broke down? Dear team, please comment.
Hi Zaza.
It’s not broken down. The lack of repurchasing is intentional. I will get our hedging operations team to reply with more details.
Thank you,
I would like an explanation from the hedging operations team also, now is recovered but I continuo not understanding why
Everything is done through code; code that is being rapidly improved to benefit performance metrics. Current code is intentionally hard to predict and has probabilistic components which makes it nearly impossible to front run.
We discussed internally and Hedging Team will be protected from either answering questions directly or being impacted directly by discussion. This is done for the benefit of AV holders so that Hedging Team can remain with the cold and clear head. Statements regarding operation will be answered but do not expect immediate responses. We understand it is difficult sometimes, but it is done in the interest of AV holders. Deep thought will be given to the sentiment of AV holders and Alpaca users and new metrics added into consideration.
We prepare a more thorough statement, that HC will release by Monday. AVs code is in good and experienced hands. HC can attest that much of what was predicted did happen.
Some minor typos fixed
Some additional explanation re. Repurchasing:
While the fine details of the algorithm within the Repurchasing system are kept private to prevent any front-running or manipulation, we will explain some of the components and how they differ from the original Rebalancing system.
In the old Rebalancing system, the rule for rebalancing was very simple and straightforward. If the debt ratio > threshold, a rebalance was triggered. This is ok. But because it’s relatively inflexible and only backwards looking, it can’t keep up with major market changes like major liquidity shifts as a result of the FTX collapse, and cannot adjust for them in advance.
In the current Repurchasing system, we added more intelligence factors into the system to determine when and how to do repurchasing, which increases aggregate long-term profitability. Just like the Alpaca Guard for Alpaca LYF and AVs, repurchasing also has a kind of guard that activates when price is expected to revert. Repurchasing Guard has a longer time frame and more complex logic compared to Alpaca Guard, but the overall effects are similar.
In recent months, it activated several times, including when BNB price spiked to 400 and afterwards when BNB price sharply declined. All this can be simplified into: our algorithm had a high degree of confidence that price would mean revert and thus held off on repurchasing. Through this approach, the result was that the vault became very profitable after price mean reverted.
Having said that, with the goal of minimizing volatility, going forward, we will tweak the parameters so that repurchasing happens more gradually, so you can expect the Vault’s performance to be smoother in the future compared to the past few weeks. As we continue to improve the algorithm and methods, risk-adjusted profitability will also continue to improve, so you can sit back and enjoy the passive returns.
