Clipper's Benchmark: No Impermanent Loss
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Clipper's pools act like a daily rebalancing portfolio composed of roughly (with zero transaction costs for rebalancing). This rebalancing strategy results in no impermanent loss for LPs.
Clipper's benchmark is no impermanent loss. It achieves this through tracking a theoretical costless DRP.
If we look at a sample of Clipper's performance from September 11, 2022 through October 10, 2022, we see that it closely tracks the DRP while staying slightly ahead of it--finishing the interval almost 40 basis points ahead.
Clipper was within 1 bps of the DRP for more than three-quarters of the days in the period. For those days where Clipper and the DRP diverged by more than 1 bps, Clipper was in the leading position more than two-thirds of the time (23% vs. 10% of days).
Clipper's close tracking of the DRP is what enables it to hit its no impermanent loss benchmark.
The reason for return divergence is that Clipper’s will make trades continuously with traders over the course of a day, while the theoretical DRP is simulated to costlessly rebalance once per day. Despite the divergences, the daily correlation of percent returns to the returns of the DRP was extremely high at ρ = 0.9996.
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