Executive Summary

Configuration:

• ETH Starting Price: $2,500
• ETH Price Range: $1,000 - $4,000 (constrained)
• dCDS Pool Growth Rate: 20% (restored from 10%)

Key Findings:

ETH Price Performance:

• Final Price Range: $1,018 - $3,937
• Mean Final Price: $2,371
• 42% of scenarios profitable for ETH holders
• Maximum drawdown limited to -60% ($2,500 → $1,000)

Realistic dCDS Yields:

• Mean APY: 161%
• Median APY: 169%
• 86% profitable dCDS scenarios
• APY Range: -29% to 381%

These yields seem high as the growth rate for users looking to hedge is higher than the growth rate of dCdS users i.e. anyone wanting to underwrite this risk. Thus, the option fees earned per dCdS user is high. Also, a 3% ETH price upside gains are also distributed to dCdS users. The reasoning behind taking this scenario is to stress test dCdS and see if a lower dCdS pool value can handle the ETH price variations and enable the hedge.

These are yearly APYs so in between, dCdS user values did go negative but over a 4 month - 12 month period, it did exceedingly well.

Risk Characteristics:

• Mean Volatility: 53.8% (30.8% - 79.2% range)
• Inverse relationship between ETH returns and dCDS APY (higher yields during market stress)