Strategies

Asset-specific strategies, as for May 2025 (post Boyco unlocks):

BGT LSTs

BGT LSTs (iBGT, yBGT, LBGT, osBGT, stBGT, etc) have a unique property in that they have a effective "floor price" at 0.95-1 BERA (since the underlying BGT can be redeemed, and LSTs provide redemption functions).

When Berachain first launched, all the BGT LST islands were set to have a high upper end to the price (5.0/BERA in iBGT-BERA, for example). While there is no technical upper bound in price, the trading range has peaked around 2-2.5 BERA. As of May 2025 - the Berachain Foundation has indicated that the expected price based on their modeling is around 1.25/BERA.

Based on the most recent data and feedback from asset issuers, the forward looking price range is expected to be much narrower, and Kodiak Islands will gradually narrow the range in line with the expected forward-looking volatility in order to provide the optimal balance between yield generation and IL, while still ensuring the "always in range" strategy.

Stable Pairs

USDT-HONEY, USDC-HONEY

Post Boyco, this liquidity is no longer being incentivized by Kodiak and there is no whitelisted island for these pairs. The necessary stablecoin liquidity to facilitate stablecoin routing and bridge volume on Kodiak is supplied with Protocol owned liquidity and partnerships with external market makers.

Stablecoin-HONEY, BTCLST-WBTC, ETHLST-WETH, and similar pairs

All of these will have range centered at "fair price" and a concentrated liquidity range, that ranges from 0 to +/- 15%, determined in conjunction with the asset issuer, and lending protocols. As the "fair price" increases (e.g. for ETHLST, when staking yield accrues), the island is adjusted to re-center the range.

Volatile Pairs (Major)

These include: WETH-HONEY, WBTC-HONEY, WETH-WBTC, WBERA-HONEY, WBERA-WETH, WBERA-WBTC.

In general, the goal for majors on Kodiak Islands is to be the baseline liquidity that works in tandem with BEX to be the most important routes for Berachain - not to be a fee farm / high IL option. Note that the pace of rebalances is always constrained by available liquidity (including outside the island), ensuring the Island rebalances are not a large share of the volume, and always proceeding gradually (e.g. TWAP back to target range), so as not to be disruptive to LPs and the overall ecosystem.

Liquidity provision provides a "short gamma" economic exposure, which results in needing to buy when prices go up, and sell when prices go down to rebalance to the 50-50 ratio. Therefore, over-rebalancing ends up resulting in losses from LPs both from slippage incurred from swaps and consistent "buy high" / "sell low" behavior (thus, converting IL into realized loss). It's important to carefully manage this.

All these are following Kodiak's flagship "wide range strategy." In general, the target asset ratios are:

• Baseline: 50-50

• Soft tolerance: 60-40 - this means, for small changes in price, there will be limited / "opportunitic" rebalancing. This is because small imbalances tend to "fix" themselves as prices tend to mean revert. When asset ratios move more skewed than 60-40 ratio, Kodiak Islands will initiate rebalances to move the range gradually back to a 60-40 ratio, and rely on price movements to take it towards the baseline 50-50 ratio.

• 2z Target: 75-25 - this means, that with a high confidence interval (2 std deviation range) during the "average rebalancing period", the asset ratio will not be more skewed than 70-30

The target range around the current price is a function of:

• Volatility of the pair (the more volatile, the wider the bands would be)

• Average rebalancing period (this is a function of liquidity for these assets outside the island)

Given the annualized volatility, and the "average rebalancing period" in days, the mathematical result for the range is given as follows:

How to derive this:

Assume that the baseline range is symmetric around current price:

Range = [P_0 / R ​​, P_0​ * R] //for example, 1/4 to 4x

Given an annualized volatility of sigma and a average rebalancing frequency of r (in days):

P = P_0 * (1 + 2 * sigma * sqrt(r/365)) //scales with sqrt(r)

We then solve for the V3 range R such that a 2z at price P the token ratio becomes 70/30. The result is in the chart above. As a first order approximation, the target range is linearly proportional to the annualized volatility and the sqrt(average rebalancing period).

Forward looking annualized volatilities of assets are determined by looking at implied volatility for assets with liquid options markets (e.g. BTC, ETH), and realized trailing volatility for others (e.g. BERA).

Asset-asset Pair volatilities (e.g. BTC-ETH), are computed by looking at realizing trailing correlations and using this formula:

sigma_a,b = sqrt(sigma_a^2 + sigma_b^2 - 2 * sigma_a * sigma_b * corr_a,b)

As of May 2025, here are the latest volatility estimates for the majors:

For non-BERA pairs - Since there is effectively infinite liquidity for WBTC / WETH and highly efficient markets outside of Berachain, the rebalance periods can be relatively low. In general, rebalance swaps for volatile majors would ideally target TWAP over 1-2 weeks timeframe to get back within the target ratios, and the ranges are calibrated over time accounting for this, consistent with the volatility of each pair.

For BERA pairs - Per the framework above, even with a 60-day rebalancing period, only a ⅓ - 3.5x range is needed. However, since there is almost no liquidity outside of Kodiak (since BEX liquidity is minimal), the target range is set conservatively wider for now. As BEX liquidity grows with recent POL changes, the effective rebalancing period will shorten and Kodiak islands can become more concentrated and capital efficienty.

Volatile Pairs (Ecosystem Tokens)

These include pairs like: YEET-BERA, OOGA-BERA, DOLO-BERA.

In general, these follow the same framework as majors, with the exception that oftentimes they have no price history, and no liquidity outside the Kodiak Island. This makes it impossible to estimate the volatility and makes the rebalancing periods effectively infinity, so most of these islands are initially set to full range, and will only effectively use concentrated ranges if there is a commitment of baseline liquidity to rebalance with outside the Kodiak Island, or sufficient price history to determine floor / cap prices.

In some cases - for CEX listed tokens, the token project can request a specific concentrated liquidity range that could be used - examples include: BR-BERA, STG-HONEY. Ultimately Kodiak Islands are tailored to each project's specific requests.