DCS Rotation
Last updated
Last updated
The DCS rotation strategy allows users to choose a follow-on vault for automatic rotation (re-allocation) when a DCS vault converts. It allows the user to continuously earn yield, execute the optimal "buy low, sell high" strategy, all without trying to time the market manually.
For new deposits, users will be able to choose the rotation path when they select a DCS vault and before they finalize the deposit. Or they can choose to opt-out of rotations when they make a deposit.
For existing DCS vaults, users will be able to choose the rotation path in their "Portfolio" page. Or they can choose to opt-out of rotations on the same "Portfolio" page.
User deposits ETH into the ETH Dragon vault.
The ETH is earning 76.46% fixed APY from options premiums.
When ETH price rises above 105% (the strike level), ETH is sold for profit to USDC.
DCS Rotation happens - the USDC received from selling ETH is now deposited into USDC Dragon.
USDC is earning 71.45% fixed APY from options premiums.
When ETH price drops below 95% (the strike level), ETH is purchased at a discount. (and another DCS Rotation happens, the ETH is re-deposited into ETH Dragon)
DCS Rotation automates this entire cycle of buying low and selling high. The most important thing to note during the entire cycle is that the yield never stops being generated and there was no user intervention required – making this a first-of-its-kind passive investment opportunity from Cega.
For DCS Rotation to be enabled, the rotating vault must accept a deposit asset that’s the same exact asset as the conversion asset. Right now there are 70+ different paths for rotation. Here are the top 5 rotations based on our most popular DCS vaults:
ETH Elephant <> USDC Elephant
ETH Whale <> USDC Whale
ETH Dragon <> USDC Dragon
USDC Mammoth <> ETH Whale
USDC Dragon <> ETH Dragon
Users can also choose to rotate to ETH Bull Shark (ETH or USDC) or even Cruise Control (USDC, USDT, USDe), to be shielded from market volatility. The new user interface will display the possible rotation paths when you choose to deposit or on the “Portfolio” page if it’s an active investment.
USDC Dragon/Elephant
ETH Dragon/Elephant/Whale
BTC Bull Shark
ETH Bull Shark
ETH Dragon/Elephant/Whale, which would make future applicable rotations the same as Route A2.
BTC Bull Shark
ETH Bull Shark
ETH Dragon/Elephant/Whale, which would make future applicable rotations the same as Route A2.
BTC Bull Shark
ETH Bull Shark
ETH Dragon/Elephant/Whale, which would make future applicable rotations the same as Route A2.
BTC Bull Shark
ETH Bull Shark
USDC Dragon/Elephant, which would make future applicable rotations the same as Route A1.
BTC Bull Shark - USDC
ETH Bull Shark - USDC
Cruise Control
USDC Dragon/Elephant, which would make future applicable rotations the same as Route A1.
BTC Bull Shark - USDC
ETH Bull Shark - USDC
Cruise Control
Pendle EtherFi-YT Tiger
Cannot rotate into any other vault.
We examine the historical performance of the DCS rotation strategy over various past periods and compared it to a simple Buy & Hold strategy. Our internal backtesting from a period of 2 years shows that DCS rotation strategies consistently outperform. In bear markets, DCS rotation outperforms buy & hold over 80% of the time, with an average excess return of approximately 15%. In sideways markets, DCS rotation outperforms buy & hold more than 65% of the time, delivering an average excess return of around 5%.
The following 4 charts show the Return On Investment of DCS Rotation vs. Buy & Hold over a longer period of time and in three different market conditions:
The following examples zoom in on some particular periods. They all use 27 day tenor trades as an illustration; the same observations hold qualitatively with shorter tenors.
A recent example of a bull market is a period starting late 2023 into the first quarter of 2024. Specifically over the period starting Nov 2023 until June 2024, just holding ETH would result in 70% appreciation, whereas a DCS rotation program using 27 day tenor trades would have yielded 33% for Dragons and 44% for Elephants.
Thus Dragons and Elephants rotation underperform Buy & Hold by 37% and 26% respectively. Why the underperformance of the DCS rotation? Cega’s current products (Dragons and Elephants DCS) have conversion thresholds set at 5% and 10% respectively away from the current price; hence being in a ETH Dragon DCS in a month where ETH gains 20%+ results in giving up 15% of upside. The yield from option premiums does not compensate for that.
A good part of 2023 was characterized as a sideways market. In particular after the agitation due to the demise of FTX subsided, the period from March 2023 to Nov 2023 saw ETH trading range bound. At the same time, volatilities from the options market were also relatively low.
In such market conditions, Buy & Hold is not very profitable and yielded just 10%. We see on the chart above that DCS rotation significantly outperformed, with Dragons yielding 18% and Elephants gaining 28%. This is due to a combination of accumulating yield from the options premiums, as well as conversion events occurring at opportune times.
We finish with a scenario of a bear market, as happened in 2022 in the period starting in April 2022 until the end of the year.
In that case, holding ETH led to large losses of 63%; the DCS rotation strategy had much smaller losses of 38% for both Dragons and Elephants.
While it doesn’t protect from losses, DCS rotation strategy in this case experiences limited losses, due to both collecting option premiums and the conversion events acting as opportunistic buy / sell, within the broader bear trend.
DCS rotation offers users a way to profit from cycles in the market by always buying low and selling high automatically, all while accruing yield continuously.
It's a good choice for users who want a hands-off approach to their crypto investments, but still want to profit from market cycles, especially in sideways or bear markets.
The following step-by-step guide + tutorial video will help you quickly get started with DCS Rotation.
Visit app.cega.fi.
Choose your network and connect your wallet.
Navigate to the “Portfolio” page.
Select the DCS vault you wish to enable Rotations for, and choose a vault from the dropdown.
Visit app.cega.fi.
Choose your network and connect your wallet.
Browse the Dual Currency products through the “Strategies” tab.
Choose the product that you want, choose the rotation path, and make a deposit.
