Many of our users have asked us how well our strategies perform. For this reason we decided to conduct a backtest across all our strategies and want to share with you the results.
What is the approach to calculating historic performance of Cega (including backtest)?
To accurately evaluate the performance of any systematic strategy, you need to look at a longer, extended time period. Given our strategies have only been running since March 2022, we additionally replicated our Cega vaults in past dates starting from April 2021 to also backtest the strategies over the time horizon from April 2021 to August 2022. This includes the negative macro-events such as the recent bear market downturn during the Terra/Celcius crisis.
When comparing our returns to the benchmark return comparison, we used equally-weighted baskets of the underlying assets. This comes closest to a buy-and-hold strategy that our users may be alternatively considering, which would expose them to live market movements.
All backtest results are net of fees and show the real end-user performance. This is critical for a real yield protocol and for users to assess their actual ROI opportunity.
1. Cega’s Historic Performance
Cega vaults outperformed all benchmarks in our 18-months backtest. Benchmarks are computed as equally-weighted baskets of the underlying assets.
The backtested results show a strong positive performance across all our strategies. Neither the Cruise Control, nor the Genesis Basket have seen any Knock-In events and our users would have grown their staked assets by approx. 7% p.a. and 8% p.a. without losing any capital. Our two other vaults, Gotta Go Fast and Insanic, achieved even higher returns, even though users have experienced Knock-In events during the volatile weeks of May 2022. Gotta Go Fast returned 35% p.a., while Insanic returned 25% p.a. to our users. The downside protection of 50% really paid off for those strategies, especially when you compare it to other vanilla put-selling strategies or to simple buy-and-hold strategies which only yielded 1.9% and 13% respectively.
All our strategies show strong positive performances. The Cruise Control and Genesis Basket have not had any Knock-in events.
2. Cega vs. Buy-and-Hold
Let’s compare the backtest with a simple buy-and-hold strategy. The main differences are that:
(a) users earn a USDC yield with Cega by staking USDC. This contrasts with a simple buy-and-hold strategy where you don’t earn any yield and only make money if the market goes up.
(b) users can reduce the volatility of their crypto portfolio because of the downside protection. As seen in the backtest, only during knock-in events will users see impairment of their capital.
Superior returns due to downside protection and early-redemption feature
Exotic options strategies work very well in sideways or slightly moving markets due to the yield and the downside protection.
3. Cega vs. Vanilla Option Strategies
There are three main features that users are only getting with Cega:
(a) Superior Yields through Exotic Options
(b) Downside protection
(c) Early Redemption when market rallies
A covered call strategy produces significantly less yield and users will lose money on any downward move. Compare this to a Cega strategy that generates superior yields due to exotic options and protects users from price decreases of 50% or more.
What’s Next?
Our team at Cega are always committed to deliver the best strategies in the best possible way. Although our backtest shows superior performance, we are currently looking at ways to enhance our products even further. Statistical analysis and probability models are just a few of the tools we are engaging to reduce knock-in events and improve strategy performance. For example, we found that Gotta Go Fast with a barrier level of 30% would have increased the strategy performance, and decreased the chance of a knock-in event. We are excited to bring safer yields during this market environment to you.
Our Gotta Go Fast vault achieves higher returns with a 30% Knock-in level.
Please follow us on Twitter and Discord to get the latest news on Cega and our vaults. We are continuously expanding our offering and are actively engaging with our community, listening carefully to your feedback. We look forward to launching new vaults soon.
How do Cega yields work?
Simply put, Cega vaults are systematic option strategies which are selling exotic options to produce the yield. We are the first protocol that uses Worst-of Options which offer superior returns compared to vanilla strategies. The main benefits of such exotic options are:
(a) Downside Protection: Our vaults protect users of price drops of -50% or more. Thanks to the downside protection, the backtested results are very solid compared to pure buy-and-hold strategies.
(b) Superior Yields: We use exotic Worst-of options in our systematic option-selling strategies, and are therefore adding an additional yield component compared to vanilla option strategies.
(c) Early Redemption: All our vaults have a Knock-out at 130%. If the crypto market experiences a bull-run and one of the assets reaches that level during the observation period, the product redeems early and the user can use their funds to re-stake or participate in the bull-run. The user therefore reduces bull-market FOMO and additionally receives their accrued interest.
