Following our recent Token Brief on Jupiter (JUP), it seemed only right that our next Token Brief takes a deeper dive into Jupiter Perps (JLP).

Being one of the few tokens that has continued on an uptrend since BTC’s top in March, let’s examine the mechanics behind JLP’s price action and determine if JLP is worth hodling!

Jupiter Perps <> JLP synergy

At present, Jupiter Perps DEX supports BTC, ETH, and SOL, and traders can leverage up to 100x while shorting/longing these assets!

To act as a counterparty for Jupiter Perps DEX, Jupiter Liquidity Provider (JLP) Pool was conceptualized. To put it simply, when traders seek to open leverage positions, they will borrow tokens from the JLP pool.

Now, imagine this pool has been divided into smaller, accessible components that users can own/hold. This is essentially what the JLP token represents - a share of the JLP Pool.

According to Jupiter, the JLP token derives its value from:

• An index fund of SOL, ETH, WBTC, USDC, USDT (Constituents of the JLP Pool).
• Trader's profit and loss.
• 75% of the generated fees from opening and closing fees, price impact, borrowing fees, and trading fees of the pool.

At present, JLP’s APY stands at 21.85%.

This APY is calculated based on 75% of fees generated from perps trading activities being redeposited into the pool to be distributed back to holders, and does not include asset appreciation and traders PnL.

Jupiter Perps outlook

While Jupiter Perps DEX is relatively new and is still in beta, it is responsible for a significant chunk of perps trading on Solana. During the recent market crash at the start of August, Jupiter was responsible for ~46% of Solana’s Perp DEX volume, and recorded over $1 billion in daily volume!

This volume led to Jupiter Perps generating nearly $2.5 million in daily fees.

While this level of volume and fees is anomalous due to the crash, I expect Jupiter Perps to remain lucrative moving forward, especially with Solana establishing itself as the go-to chain for retail degens.

JLP outlook

With this in mind, how will this affect the JLP token?

Let’s start by analyzing JLP’s price action around the time of the crash. As seen from the chart below, JLP staged a remarkably quick v-shaped recovery, with its price dropping from $3.30 at the start of August to $2.70 on Aug. 5, 2024, and immediately recouping all its losses by Aug. 9, 2024.

But how did this come about? After all, JLP is an index fund comprising stablecoins and the three majors – BTC, ETH, SOL, none of which recovered as splendidly as JLP.

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To answer this. recall that fees generated are also being distributed back to the JLP Pool, and that the JLP token represents a share of this pool.

Hence, with high trading volume engendered by the crash, and substantial fees being distributed back to the pool, the pool, and by extension, the JLP token was able to accrue in value, with the yield of JLP shooting up to an impressive 106% APY!

To sweeten the deal further, this yield only considers trading fees and does not include traders’ PnL.

Essentially, if a trader incurs a net positive PnL, the losses are sourced from the JLP pool to compensate the trader. Conversely, if a trader's PnL is a net negative, the gains are deposited into the JLP pool for LP holders.

And during periods of sudden and violent price movements like what we saw in August, traders tend to get caught off guard, and we can observe that their net realized PnL suffered a major drop.

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As such, these types of market movements are beneficial to JLP hodlers.

With a new-found appreciation of how JLP accrues in value, I’ve outlined several different scenarios and how they might affect the price of JLP:

Markets up only:

• Underlying assets appreciate so JLP appreciates. But since the basket includes stables, JLP will not appreciate as much as the underlying.
• As more users gain confidence in the market, perps trading volume may increase and more fees will be accrued to JLP.
• In the initial phase of an up-only market, bears shorting the market will be liquidated and if traders incur a net negative, JLP accrues in value. But across a longer time frame, if the market continues its up-only trend and everyone else is profiting while longing the markets, value of the JLP pool may drop.

Markets down only:

• As the prices of its underlying assets are dropping, JLP will fall in value as well, though the downside is more muted due to the presence of stables.
• Users rushing to short the market may precipitate larger perps trading volume, with more fees being accrued to JLP
• Bulls max longing the markets may be caught off-guard, with their losses contributing to the pool’s value accrual. But over a longer time frame, if everyone is profiting by shorting the market, JLP will suffer.

Sideways market:

• If the sideways market is volatile with violent moves to the upside/downside, JLP will benefit from higher trading volume and higher fees, as well as traders’ PnL.
• If the sideways market is not volatile, JLP will likely remain stagnant.

Action plan

Effectively, JLP can be interpreted to be a proxy bet not just on the three majors, but also on market volatility.

Volatile price action to either the upside or downside is beneficial to JLP, and even if the market finds its footing with the bull market resuming, appreciation of its underlying assets can sustain JLP’s uptrend.

In my opinion, the only scenario where JLP falls is when the market enters a prolonged bear market, with falling BTC/ETH/SOL prices, muted perps trading volume and traders profiting from shorting the market.

With this assumption in mind, what could be the best way to capitalize on JLP for now? For degens, you can leverage long JLP via Kamino Finance’s JLP Multiply.

This feature automatically executes a recursive leveraging strategy where USDC is borrowed against JLP as collateral, and will be swapped for more JLP to be deposited as collateral to keep the cycle going. Users can select a multiplier value, which determines how much leverage is taken on, and they can simply sit back, relax and leverage long JLP to Valhalla.