In the short-term if ETH spikes (increase in price) then this strategy may not be worth it. However, this strategy is sacrificing the ETH bull case for that of the Compound Interest case. If you do the math on compound interest over 5/10 years, this beats - by far - even the most bullish of ETH cases.

Main Disadvantage

A short term ETH bull run, you’ll lose on Impermanent Loss. There is no escaping this.

Main Advantage

Long Term no matter the ETH case; COLLECT FEES AND COMPOUND IT (COMPOUND INTEREST) because:

ETH Bear case - collect fees

ETH Sideway case - collect fees

ETH Bull case - collect fees

In essences, you are trading uncertainty of the ETH case for certainty in math (compound interest).

‘Prove it to me with math, please!’

Alright, Nerd. You see the picture at the top. We are going to use this formula for compound interest along with some assumptions to calculate your future treasures.

A simple picture of future loot.

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‘What??!! I can make $69M? No way.’

Well, yes you can with some Assumptions.

Initial capital in Liquidity Pool - $200,000

APR - 60%

Compound frequency - Monthly

Projected years - 10 years

Projections - @1 year and @5 years

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Projections - @10 years and @20 Years

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‘Great dude; but I only have X amount.’

Plug in your amount here:

Compound Interest Calculator⁠

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‘What should I do in various market conditions?’

The easiest way to mitigate Impermanent loss during an ETH bull case, is to reposition your liquidity pool as necessary.

Bull Case: Volatility on the upside requires you to monitor and reposition your pool.

a. Action: ATTENTION REQUIRED - you need to reposition as necessary. Otherwise, you are holding USDC while ETH moons.

Bear Case: Volatility on downside

Action: DO NOTHING - just HODL ETH and earn fees

Sideways Case:

Action: DO NOTHING - just HODL ETH and earn fees

For more information view

Thought Experiment on Market Conditions⁠

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‘Hmmm, What’s the catch?’

There is always a catch! Everything discussed prior is still valid. Please, not only review but understand them.

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`WHAT ARE THE RISKS?`⁠
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`WHAT ARE THE OPEN QUESTIONS?`⁠
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In addition, this strategy may only be viable if you are putting in a significant amount of capital. This ensures that the collected fees outpace the fees you pay in repositioning and compounding. Generally, a $20K liquidity pool is a good starting point.

UPDATE 9/28/2021: IMPORTANT NOTE

The fees on Layer 1 (this strategy) has become a significant barrier to entry due to the congestion of the Ethereum Network. As more and more Layer 2 solutions come into maturity, we may want to move our capital to these pools - THIS IS STILL IN RESEARCH

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Next Section

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SUMMARY⁠

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WHY DON'T I JUST HOLD ETH?

Q. ‘Why don’t I just hold ETH?“

A. Because of Compound Interest!

‘I don’t believe you, I need more info!’