# Backtest

Backtesting validates the USDC Vault's strategy using historical market data before deploying real capital.

## Methodology

* **Data**: Binance SOL-PERP 8-hour funding rates + OHLCV
* **Period**: January 2024 — April 2026 (821 days)
* **Initial Capital**: $10,000
* **Assumptions**: Multiply and Lending APYs are held constant (see [Limitations](#limitations)). DN entry/exit uses the same parameters as the live bot.

### Parameters

| Parameter           | Value                       |
| ------------------- | --------------------------- |
| Multiply APY        | 13% (fixed)                 |
| Lending APY         | 5% (fixed)                  |
| dawnSOL Staking APY | 6.8%                        |
| DN Allocation Cap   | 70% of NAV                  |
| FR Entry Threshold  | > 10% annualized for 3 days |
| FR Exit Threshold   | < 0% annualized for 3 days  |
| FR Emergency Exit   | < -10% annualized           |

## Results: Current Strategy

Multiply-first + Lending overflow + conditional DN — the live production configuration.

| Metric                | Value      |
| --------------------- | ---------- |
| **Final NAV**         | $13,439.01 |
| **Total Return**      | 34.39%     |
| **Annualized Return** | 14.04%     |
| **Sharpe Ratio**      | 27.01      |
| **Max Drawdown**      | 0.23%      |
| Days in BASE\_ONLY    | 584        |
| Days in BASE\_DN      | 237        |
| DN Entries / Exits    | 3 / 3      |

### Yield Breakdown

| Source              |        Amount |    Share |
| ------------------- | ------------: | -------: |
| Multiply Yield      |     $2,784.87 |    79.1% |
| Funding Rate Income |       $535.38 |    15.2% |
| dawnSOL Staking     |       $200.22 |     5.7% |
| **Total Gross**     | **$3,520.47** | **100%** |
| Fees (deducted)     |       -$69.86 |          |
| **Net Profit**      | **$3,439.01** |          |

Multiply generates the vast majority of returns. The DN layer contributes a smaller but consistent positive amount across 3 entry/exit cycles ($736 gross from funding + staking).

### DN Active Periods

| #         | Period                  |            Days | Avg FR (annualized) |
| --------- | ----------------------- | --------------: | ------------------: |
| 1         | 2024-01-03 — 2024-07-05 |             185 |               18.4% |
| 2         | 2024-11-11 — 2024-12-20 |              40 |               20.0% |
| 3         | 2025-07-22 — 2025-08-02 |              12 |                6.4% |
| **Total** |                         | **237 (28.9%)** |           **18.0%** |

### Benchmarks

| Strategy                              | Total Return |
| ------------------------------------- | -----------: |
| **Current (Multiply + Lending + DN)** |   **34.39%** |
| Multiply Only                         |       31.64% |
| Lending Only                          |       11.60% |
| SOL Buy & Hold                        |      -18.31% |

## Known Limitations

### 1. Fixed Multiply / Lending APY

The largest constraint. Multiply (13%) and Lending (5%) are held constant for the entire period. In practice, rates fluctuate significantly (Multiply: 8-20%, Lending: 2-8%). This means:

* **Sharpe Ratio is overstated** — volatility comes only from fee events, not from APY fluctuations
* **Max Drawdown is understated** — Multiply APY drops and depeg-driven drawdowns are not modeled
* **DN's relative value is hidden** — DN becomes more valuable when Multiply APY drops, but this flexibility cannot be evaluated under fixed assumptions

Improvement: ingest historical APY time-series from Kamino/Jupiter APIs and apply variable rates per tick.

### 2. Multiply Risk Not Modeled

* **Depeg risk**: No NAV loss if ONyc depegs from USDC
* **Liquidity risk**: Exit slippage during forced withdrawals not reflected
* **Liquidation risk**: Deleverage costs from Health Rate drops not included
* **Pool capacity**: Assumed unlimited, but real capacity depends on TVL

With these factors, Max Drawdown would likely be materially higher than 0.23%.

### 3. Short Data Period (2 years)

Only data from January 2024 onward is used. Different market cycles (bear markets, low-volatility regimes) are not tested. Binance FR data is available from 2021, but Kamino Multiply only launched in 2024 — longer backtests would require stronger APY assumptions.

### 4. Instant DN Transitions

In production, DN entry/exit involves multiple steps (lending withdrawal → CEX transfer → position construction) taking minutes to tens of minutes. The backtest assumes instant transitions, ignoring price movement risk during execution.

### 5. Static Fee Model

* Swap slippage is fixed at 0.1%, but actual slippage depends on pool liquidity and trade size
* Binance fees vary by tier (down to 0.02% at VIP levels)
* Solana priority fees spike during congestion

### 6. Only FR Uses Real Data

Funding rates are the only real market data driving both DN entry/exit decisions and DN revenue. Base Layer yield (Multiply/Lending) uses fixed assumptions. This creates uneven simulation fidelity across the portfolio — the backtest is most reliable for evaluating DN signal quality, less so for absolute return projections.

{% hint style="warning" %}
Backtest results do not guarantee future performance. Past market conditions may not repeat. See [Risk & Security](/dawn-vault/risk-and-security.md) and [Disclaimer](/legal/disclaimer.md).
{% endhint %}

## Run It Yourself

The backtest engine is open source. You can reproduce these results or test your own parameters.

### Setup

```bash
git clone https://github.com/DawnLabsTech/vault.git
cd vault/backtest
npm install
```

### Basic Usage

```bash
# Run with default parameters (matches live bot config)
npm run backtest

# Show all available options
npm run backtest -- --help
```

### CLI Options

| Flag             | Description                             | Default    |
| ---------------- | --------------------------------------- | ---------- |
| `--start`        | Start date                              | 2021-01-01 |
| `--end`          | End date                                | 2026-03-01 |
| `--capital`      | Initial capital (USDC)                  | 10000      |
| `--multiply-apy` | Fixed Multiply APY (%)                  | 13         |
| `--multiply-cap` | Max USDC in Multiply                    | unlimited  |
| `--lending-apy`  | Fixed Lending APY (%)                   | 5          |
| `--dawnsol-apy`  | Fixed dawnSOL APY (%)                   | 6.8        |
| `--entry-fr`     | FR entry threshold (%)                  | 10         |
| `--exit-fr`      | FR exit threshold (%)                   | 0          |
| `--emergency-fr` | Emergency exit threshold (%)            | -10        |
| `--confirm-days` | Confirmation days                       | 3          |
| `--dn-alloc`     | DN allocation ratio                     | 0.7        |
| `--output`       | Output format: `table` / `csv` / `json` | table      |
| `--fetch-only`   | Fetch data only, skip simulation        | —          |

### Examples

```bash
# Reproduce the published results
npm run backtest -- --start 2024-01-01 --end 2026-04-01

# Export as JSON for further analysis
npm run backtest -- --output json

# Fetch funding rate data without running simulation
npm run backtest -- --fetch-only --start 2020-01-01 --end 2026-04-01
```

Funding rate data is fetched from Binance on the first run and cached locally in SQLite. Subsequent runs reuse the cache.


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