JLP Portfolio Optimization Study and Borrow Fee Recommendations
Introduction & Portfolio Analysis
Gauntlet’s modeling framework examines optimal weights for Jupiter’s portfolio, incorporating JLP asset weights, perps trading fees, and trader PnL. The study evaluates five distinct portfolio configurations, progressively adjusting ETH weights and stablecoin allocations while maintaining BTC stability at 11%. Through careful analysis of 90-day statistics to eliminate short-term market noise, Index 5 emerges as the optimal configuration with 47% SOL, 11% BTC, and 10% ETH, reducing USDT by 3%. Updated weights can be seen below:
Performance Metrics
- JLP Price vs Index:
- Index 5 consistently shows a stronger alignment with JLP price appreciation than others. The increased SOL weight capitalizes on its market performance.
- Current JLP index underperforms compared to all the available options.
- Volatility Analysis:
- Current JLP weight composition demonstrates reduced 90-day volatility compared to other indexes, striking a balance between returns and stability.
- Indices with lower ETH weights exhibit better control over portfolio volatility due to their less exposure to the underlying ETH price movements.
- Sharpe Ratio:
- Indexes 3 and 2 maintain the highest Sharpe ratio over time, reflecting optimal risk-adjusted returns.
Performance Analysis and Recommendation
Analysis shows that increasing the SOL weight consistently improves risk-adjusted returns across all scenarios. While our models indicate that reducing ETH weight would optimize volatility reduction and increase JLP Sharpe ratios, we recognize Jupiter’s strategic focus on growing ETH and BTC trading volumes in the current market environment.
Given these considerations, we recommend a 3% increase in SOL weight, offset by a corresponding reduction in USDT weight. USDT’s relatively lower popularity as a stablecoin on Solana supports this recommendation. Furthermore, in light of the increasing SOL utilization and current market dynamics, we believe this measured risk-on approach could enhance JLP’s risk-adjusted returns.
Borrow Fee Recommendations
Based on current market dynamics and asset performance, we recommend the following adjustments to Jupiter’s borrowing rates:
- SOL: Increase from 0.008% to 0.01% per hour
- ETH, BTC, and USDC/USDT: Unchanged
Methodology Overview
Gauntlet determines recommendations using asset volatility measures, realized utilization, and a target utilization level of 80%.
Market Context
Our analysis indicates that Jupiter’s SOL trading has become comparatively cost-effective relative to competitors, primarily due to its more conservative funding mechanism. As previously detailed in our Jump Rate Model proposal (Gauntlet's Jupiter Perpetuals Borrowing Rate Mechanism - Jump Rate Model), we note that JLP holders could have potentially realized returns of up to 250% APR given the current volatility environment. The proposed model is specifically designed to adapt more dynamically to such market conditions.
While Gauntlet continues to provide the Jupiter team with daily risk recommendations, we acknowledge the operational complexity of implementing such frequent rate adjustments.
For additional market context, it’s worth noting that SOL funding rates on competing venues surpassed 100% on three distinct occasions last week, and the current rate is 97.34%.
