Solana

Time to focus on $JLP - the $JUP perpetual liquidity token. I think it is truly a situation of "few understand".

It is a better opportunity than $GMX or $GLP rn and people who were early to these did really well…

So, a short 🧵on @JupiterExchange perp liquidity provider token $JLP.  Not advice.👇

1/ What is $JLP token?

$JLP is the liquidity provider token for the @JupiterExchange perpetual exchange. It is a participation in the liquidity pool that is used for people to trade perps. You can find it going to jup.ag, then perpetuals, then "Earn".

Entrepreneur, Investor & Hockey Player. #bitcoin & #crypto since '13. Opinions, never investment advice. Beat Wizardry 7 before you were born. 🏳️‍🌈

You will see the pool and a (high!) APY of around 140% shown. Each $JLP token is a pro-rated portion of the assets you see on this page. So atm, 1 $JLP = approx. 40% $SOL, 8% $ETH, 7% $BTC and 45% $USDC & $USDT. That is exactly what you are holding if you buy $JLP.

However, it does not end there. Holding $JLP can pretty much be compared to actually "running" the main part of the @JupiterExchange perp exchange. The $JLP token receives 70% of all perp fees generated automatically, without staking or locking, just by buying the token & holding

2/ How does $JLP token work?

The fees are compounded back into the token. And token price is TVL / all token in issue. At least that is the intrinsic value of the token. So if $100k fees are re-invested into the pool, the TVL rises and so every individual token rises in price.

This is called the "virtual" price. I think "intrinsic" price is a better name. It is the price that is fundamentally backed by all the assets in the pool. However, because the jup team imposes a TVL limit, once the limit is reached, $JLP token can trade at a premium.

Because $JLP are freely tradable, if more people want to be liquidity providers than the current cap allows for, the token will trade at a premium. The jup team checks TVL weekly, so if the premia are high they will increase TVL limit. This collapses the discount.

So the best time to become a $JLP holder is when the limit is raised, as the premium will then be zero-ish. Every week, 70% of the fees earned by the protocol go back into the pool and the price of $JLP increases. Perp exchanges are some the most profitable businesses in crypto.

3/ What is the potential benefit of holding $JLP token?

You would essentially be participant in 70% of the revenues of one of these profitable businesses, comparable to being early in $GMX. In the case of Jupiter Perps, its truly a crazy opportunity atm.  Let's look at the fees.

Jupiter perps generate approximately $350m in daily volume (crazy!). It charges 0.1% of the notional position on opening AND closing, plus usual perpetual funding fees (typically 0.01% per HOUR). 70% of these fees go to $JLP holders. At the current volume that is c $800k daily.

Those $800k can vary based on whether people hold positions long (I assumed 24 hours) and where funding goes. But that is a revenue income of $292m (‼️) annually going into the $JLP pool and therefore increasing token value. Now this isn't where the story ends though.

In addition to receiving fees, the $JLP token also absorbs trader's gains (=losses to the pool) and losses (=gains to the pool) and incurs impermanent loss (ie today the pool holds 40% $SOL, but if the price of $SOL goes up 100% AND traders took advantage of it, it falls to 20%).

The net effect of all this is calculated based on the last week of trading by the team and results in the APY number you see on the page. Currently it is 140%. Let me spell that out: You put money in an essential index fund of crypto and get paid 140% per year for doing it.

4/ What are the risks to holding $JLP?

You assume the risks of running a decentralized exchange. Main risks:
- outsized trader gains
- Smart contract risk means you could lose everything
- impermanent loss as assets backing $JLP change
- $USDT implosion to zero

TL,DR: 
$JLP is comparable to buying an index fund of $SOL, $ETH, $BTC, $USDC & $USDT (with potential assets shift weight, so you will not get the full performance over time) plus running a decentralized perp exchange that yields 140% pa. Best such opportunity in the space atm.

Addendum: you can definitely look at hedging the impermanent loss risk by shorting $SOL, $ETH, $BTC in their held proportions on leverage, making this a pure $USDC/$USDT yield of over 100%. The hedging costs are lower than the yield (by far).

Finally: all of this is my personal opinion. None of it is advice. Yes, I am talking my bags.

If this was helpful, please give it a re-cast 👉👈

$JUP $JPL #jupiter #DeFi