Transcription
In today's video, I want to talk you through what to do when you are out of range on your LP, both to the downside and to the upside. If you're bullish, bearish, we're going to walk through every scenario. And as always, we wanted to provide even more value, so we did create a free tool. This is available to you. Just let me know if you want the LP out of range playbook below. Just say "free tool," we'll send it to you. But it's going to walk you through every potential scenario.
There are six potential moves you can make when you are out of range, and which move you make will depend on many factors. Some being, are you out of range on the upside, on the downside? Are you bullish, bearish? Are things moving sideways? Are you uncertain? You don't have much conviction? Are you a short-term, mid-term, long-term investor? And what's cool is as you click through this, you will get a recommended strategy. But I want to go just beyond that, because using the tool and just doing whatever it says, sometimes there's nuance missing, and I do want you to understand all these six moves so you can make your move accordingly.
By the way, most investors have no idea what to do when they are out of range, and they lock in a ton of impermanent loss. They don't actually get ahead. And what's even worse is they don't have a strategy when they enter their position. Again, I want to talk about all of that in today's video. I do want you to grab this free tool. In fact, not only are you going to get that tool, but you're going to get a ton of our free tools from actually how to build out your agents and use AI for your portfolio, what to do before you enter a liquidity pool, which again is just as important, if not more important, as [snorts] what you actually do when you need to rebalance. You have to have a plan before you get into an LP. You're also going to get the portfolio growth calculator and the crypto bottom predictor. This is one of my favorite tools. Please use it. It's free.
Also, within the UIG, there have been some updates. We're always adding these strategy playbooks. Please study this, because depending where the market is at, your strategy changes. There are bullish strategies: provide liquidity, the bull spread, treasury flywheel, snuggle entry, the alligator. There are bearish strategies: get credit insurance policy, you can open a perp short or bear spread, there's a sentinel. And if you go into these, there's going to be step-by-steps on how to actually deploy the strategy. And then there's stablecoin strategies, which, um, during the crashes and during the volatility when no one knows what's next, these are great strategies to deploy. You'll still be earning through looping, interest rate arbitrage, lending and stable LPs, Pendle, etc. So please check it out.
And just wanted to update y'alls, the AI lab is live. Build out your own research agent, portfolio manager, build out AI tools for yourself that just help you manage your portfolio and make decisions quicker. Spend an hour or two in here, and I can guarantee you that you will instantly be a better investor for it.
All right, let's get into it. There are really six options. I'm going to rip through these. Option one, you can wait it out. We do have a 24-to-48-hour rule. Now, we don't always follow that rule, but if you're in an LP and the market quickly spikes in a direction and there was no real reason for it except for just the market got spooked, etc., etc., we follow the 24-to-48-hour rule. It's like 60 or 70% of the time. Literally, we have stats on this. We've helped deploy over $25 million into DeFi. We've worked with over 6,000 UIG members, 500 faster clients. We know what works, we know what doesn't. And the 24-to-48-hour rule is most of the time the right thing to do right off the bat. But you do have the option of waiting it out. So if you'd want to hold that token no matter what, you have extra capital to deploy to open up new LPs, and you're okay being out of range on the downside holding 100% of, let's just say in a BTC-USDC pair, you'd be holding 100% BTC. I'm cool with that personally.
Option two, you can rebalance. You can close the position, rebalance your assets, open a new position at the current price. And there's pros and cons to that. And I lend assets on platforms like Aave as collateral, I borrow against them, and my LPs are purely cash flow plays. So if the price of that asset goes up to the upside, I'm okay to rebalance. It doesn't really matter. That's not a price appreciation play. It is a cash flow play. But what if price moves to the downside? We'll have that conversation in a minute.
Option three and four, we have a snuggle. I'm going to talk about that in a second. And then we have a widen your range. So maybe you're in a position, the price moves out of range, and you choose to, you know what, I was in a 20% wide range, I'm going to open it up to a 30% wide range and add 5% on either end, or I'm going to snuggle it. Option five is you exit completely, and there is an option six, which sometimes we're opening a hedge before we enter a position. Big fan of that. By the way, you can use DeFi Buddy to calculate your hedge. And and we have a ton of video on YouTube. Just check out our YouTube channel, go to playlists, and check out our hedging playlist.
But you can hedge your position right when you enter, especially if you're a bit bearish and you want to protect the downside. You can open an insurance policy, which means at the bottom of your range, your insurance policy hits. Or there is another option. You might decide to open an insurance policy because you're okay to stay out of range. You don't want to exit your position. You don't want to lock in any impermanent loss. But you also don't want to bleed all the way down if prices keep slipping. When you're in that kind of indecision there, a really easy option is you just open an insurance policy, you open a hedge, which is really easy to do because you'll be 100% in said asset. And again, you're not being very capital efficient at that point, but if it's for a short-term, but you just want to hedge, you just say, "Hey, I'm cool to stay out of range, but just in case I'm wrong and prices keep sliding. If we don't see a re-entry in the next 7 days, then cool, I'll wait 7 days, but I do want to open a hedge."
I hope this is helping. Let's play with this tool, and just grab this tool and and spend 20-30 minutes on it. You'll get a really high-level education. And you can read all about the six plays here. So again, you can wait it out. Impermanent loss stays unrealized. You have not locked in impermanent loss. And if price returns, you're back in range earning, and you've locked in no impermanent loss. You can rebalance, you're basically closing your position and re-entering a new position in a new range. Remember that you are permanently locking in that impermanent loss. So you have to make some calculations on how much fees am I going to earn? We do have to zoom out and say, are you borrowing against some collateral? Did you hedge that position? We've got to run some numbers, etc., etc.
You can study this. So let's say you get knocked out of the bottom of your range, but you're bullish, you're a long-term investor. By the way, this is this is literally my situation on a couple of my LPs right now, especially on BTC and ETH. And I have some extra capital. You're going to get the recommendation to wait it out. I have conviction that price will come back. Waiting costs $0. My impermanent loss stays unrealized. It is recoverable when we come back into range, and I preserve my original position exactly as is. As the price returns to my original entry, impermanent loss disappears entirely as we move back into the range and move back to the point of where I entered. Now, the con of that is there's no fees while I'm waiting. And any exit, if I do change my mind or I do decide to exit, I will lock in that impermanent loss. And you just ask yourself this question, am I generally comfortable holding onto this volatile asset?
Now, what if I move out of range to the upside? So I'm converted fully into USDC, and I'm bullish. Now, I'm going to take for granted that you're not using your LP DeFi portfolio for appreciation, because that's never going to happen. That's why we borrow against, you know, assets like Bitcoin and ETH. We treat this for cash flow only. And so in that instance, I'm happy to snuggle, and I would just enter a new position. And especially if I'm bullish, I would enter that new position not at 50/50, but at the bottom of that range so I can keep collecting fees, and I'm also going to see the maximum amount of appreciation. Because if I enter a position, let me know if you're following along. I'm happy to do like a live in a part two, in a part three, in a part four on this. Just let me know. Grab this tool, it'll explain a lot. But if I enter the position at the bottom of my range, then I'm basically 100% in BTC, and I have all of this curve here. Remember, it is non-linear, so it does slow down, the appreciation slows down, but I have all of this range to be converting my BTC into USDC, seeing some appreciation. That is not the point of our LP. Our bull run bag is, but it's a hidden perk.
Now, I did put this uncertain {slash} no conviction in here. I really didn't want to, because I'm like, never enter an LP if you don't have conviction and if you're uncertain. But there are times where you may build a portfolio, and the market just does some wonky things. Maybe you're not tracking it accurately, you're not using defibuddy.io to track it. That is a free portfolio tracker, by the way. And things go out of range, and you're kind of like, I don't know what to do. Typically, I don't react. I'll either exit and wait, or I will wait and make sure I come up with a strategy. But I did my best to work in some logic of like, oh, if you go out below range, but you're uncertain, you don't have conviction, sometimes it's not best to just exit, maybe we widen the range a bit. So instead of locking that impermanent loss, you you kind of widen the range and you slow down the impermanent loss in a way. And you will notice that the scenarios change. If I'm out below range, bullish, but I'm a short-term investor versus if I am a medium-term or a long-term investor, which I see as weeks, months, and years, then your strategy may change.
So with that said, make sure you study up, grab this tool, and make sure you jump into the UIG, go to the strategies playbook. It's going to take you 10-15 minutes to study each strategy, but it will help you immensely in your journey, because remember, the money is made on the entry, the money is made on the buy. Have a strategy when you are entering a position. That's both for DeFi and LPs, and that's also for your crypto buy and hold bag. Have a strategy, have a ladder out plan. And make sure that you are deploying a strategy and then sticking to it.
So with that said, if you did like this video, make sure you like it, subscribe, help us share the word if this video was helpful or if this channel's ever been helpful to you. These videos are free. We try to pack them with as much value as we can. But if you've gotten value from these videos, all we ask is share this in a group, share this with other investors, share this with a friend. Use defibuddy.io. It is a free portfolio tracker, free LP finder, and LP simulator. If you create content, use DeFi Buddy in your content. Let the world know. Anyone who's really going all in right now, sowing the seeds and investing, 2-3 years from now, you can double, triple, quadruple, 10x your net worth if you play this right. For those who know, they know. And with that said, I'm going to get out of here. Happy investing. I'll see you in the next video. Peace.