In this post we will use data from two previous rebalancing cycles to showcase the improvement that our new exchange architecture has on PDI’s returns.
An index’s rebalancing costs negatively impacts the annual return that investors will receive. Rebalancing costs come in two forms: trade related costs which include price impact, slippage and fees and Ethereum related costs. Phuture and the other third party operators that execute trades each month for PDI, fully cover the Ethereum related costs so investors receive the full benefit of not having to pay for those. Therefore, the remainder of this post will focus on the trade related costs and the improvements we have made to reduce them.
The key advancement that we have made is moving our entire trade execution for rebalancing onto 0x. You can learn more about that here. Executing through 0x allows us to tap into the liquidity on any Ethereum based DEX, as well as split a single trade across multiple exchanges in order to get the best price.
Other developments were made to the way our API calculates the order size for rebalancing trades. These refinements should culminate in fewer trades and the size of each trade increasing, whilst remaining within the acceptable price impact limit.
The results are quite remarkable, with the total cost of rebalancing PDI with 0x coming in $72.34 cheaper than without 0x, despite the fact that the trade volume was 2.1 times larger. Compounding this, the average cost of trading with 0x is a mere 15% of the cost without 0x. This is largely due to the fact that routing the trades through 0x produced more positive slippage scenarios, where the value post trade was actually higher than the value pre-trade. Further, our integration with keep3r network’s CLI has meant that 2 of the trades in August’s rebalancing were executed through flasbots private mem-pool. The result of this is reduced negative slippage, due to our trades not being sandwiched or front run by arbitrageurs.
The number of trades decreased by 36% despite the large increase in traded volume. This shows that the changes made to our rebalancing API are having the desired effect. Reducing the number of trades lowers the total gas fees that are paid to manage the index.
The improvements we have made to our exchange architecture has lowered rebalancing costs, reduced the number of trades required, massively increased our asset universe and builds the foundations for PDI and our other index products to reach massive scale. We expect these results to improve as more of our trades get routed through flashbot’s private mem-pool. All of these benefits are passed onto investors in the form of higher index performance and lower fees. Investors can check out our index products here.