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Modulis 6 Β· Strategies
8/9

Backtesting and historical analysis

Backtesting (testing a strategy against past data) β€” the process of checking how our strategy would have performed in the past. It helps us understand the risk/return profile across different market phases.

A simple analogy

Backtesting is like reviewing an old football match with a new tactic in hand. You know the final score β€” but you check whether your plan would have worked in every situation.

How to read a backtest correctly

Backtesting shows what the strategy WOULD have done in the past β€” the future will be different, and that's normal. So use a backtest as a training tool: it shows how the plan behaves across different phases, so you know where to act. Judge the behavior, not a promise.

SOL price history

PeriodStartEndChangePhase
Jan-Nov 2021$1.50$260+17,233%Mega bull
Nov 2021-Jun 2022$260$38-85%Bear
Jun 2022-Dec 2022$38$8-79% (FTX)Crisis
Jan-Dec 2023$10$100+900%Recovery
Jan-Mar 2024$100$200+100%Bull
Mar-Sep 2024$200$130-35%Correction
Oct 2024-Jan 2025$130$250+92%Bull
Jan 2025-Sep 2025$250$253~0%Peak
Oct 2025-Jun 2026$253$60-76%Bear
Jul 2026-Sep 2026$60$102+70%Recovery

Where these numbers come from

Prices rounded from monthly Binance candles, data through 2026-09-05. All three levels of this lesson use the same table so your own calculations line up. Past prices say nothing about future results.

Scenario 1: 2022 Bear Market

Start: June 2022, SOL = $38, portfolio = 100 SOL

Without a strategy (just holding SOL)

June 2022: 100 SOL x $38 = $3,800
December 2022 (FTX): 100 SOL x $8 = $800
Loss: -$3,000 (-79%)

With our strategy

Collateral: 100 SOL x $38 = $3,800
Debt: $1,140 USDC (LTV 30%)
LP: $760 USDC (single-sided)
Put Spread: Long $32 / Short $22

SOL falls to $8, if you do NOTHING:
  Collateral value: 100 x $8 = $800
  Debt: $1,140
  LTV (course formula): $1,140 x 1.05 / ($800 x 0.90) = 166%

  In reality liquidation would have hit earlier: Kamino's SOL
  collateral threshold is 75%, and the raw ratio
  $1,140 / (100 x price) reaches it around SOL β‰ˆ $15
  -> LIQUIDATED ❌

Problem: even a 30% LTV wasn't enough for a -79% drop!

Two LTV formulas β€” why they differ

The course calculates LTV with safety weights: debt x 1.05 / (collateral x price x 0.90). That is NOT how Kamino calculates it β€” it is a deliberate safety margin that produces a ~17% higher number and warns you earlier. Kamino itself compares the raw ratio against the collateral's liquidation threshold (75% for SOL collateral, verified 2026-09-05; 90% for USDC collateral). The threshold depends on the collateral type and on the specific Kamino market, so always check it in the market where you open your position.

What to take from this

A -79% drop is extreme, so a starting LTV of 30% alone isn't enough in a scenario like this β€” you need to act before that point. The good news: that's exactly what the crisis protocol is for, with clear thresholds that trigger EARLIER:

That's what the backtest shows: you don't wait for the bottom β€” you act on the number.

With the crisis protocol

SOL = $30 (course LTV reaches 44%):
  -> Close the LP (+$760 USDC)
  -> Pay down part of the debt: $1,140 - $760 = $380
  -> LTV: $380 x 1.05 / (100 x $30 x 0.90) = 15%

SOL keeps falling to $10 (LTV hits ~44% again):
  -> Put Spread ($32/$22) profit: ~$800
     (max $1,000 minus the ~$200 premium)
  -> Pay off the rest of the debt: $380 -> $0
  -> ~$420 left in cash
  -> LTV = 0% (no debt at all!)
  -> The 100 SOL survives βœ…

SOL recovers to $100 (December 2023):
  -> 100 SOL x $100 = $10,000 + ~$420 cash
  -> Starting investment: $3,800 + net options costs (~$200)
  -> Result: $10,420 from $4,000 -> +161%

What actually 'worked' here

Options did not turn a crash into a profit. What worked is that the position was never liquidated: the 100 SOL stayed in your hands and lived to see the recovery. Without the protocol those same 100 SOL would have been gone around SOL β‰ˆ $15. This is a historical example, not an expected outcome β€” the next crisis can look different.

Scenario 2: 2023 Recovery

Start: January 2023, SOL = $10

Collateral: 100 SOL x $10 = $1,000
Debt: $300 USDC (LTV 30%)
LP: $200 USDC (single-sided, range $7-$10)
Daily fees: ~$0.50/d (small capital)

Over 12 months:
  SOL rises to $100 (+900%)
  LP fees: ~$180 (collected and reinvested)
  Collateral value: 100 x $100 = $10,000
  Debt: $300 (unchanged)
  LTV: 3% (very safe)

Options (Covered Call $20 assignment):
  50 SOL sold at $20 -> $1,000
  But SOL reached $100 -> missed $4,000 of upside
  Remaining 50 SOL x $100 = $5,000

Result: ~$6,000 + $180 fees - $300 debt = $5,880
Return: +488% (vs +900% without the strategy)

A Covered Call caps the upside

In a strong bull market, a Covered Call limits growth. That's a trade-off: you got the premium and protection, but you give up part of the upside. In 2023 we give up some profit β€” but we're covered if the market had turned back down.

Scenario 3: 2024 Bull + Correction

Start: January 2024, SOL = $100

Collateral: 100 SOL x $100 = $10,000
Debt: $3,000 USDC (LTV 30%)
LP: $2,000 USDC (range $72-$100)
Put Spread: $85/$60
Covered Call: $200

Phase 1: SOL rises to $200 (Jan-Mar)
  -> LP generates fees (~$8/d x 90d = $720)
  -> Covered Call $200 assignment -> 50 SOL x $200 = $10,000
  -> Great β€” sold at 2x!
  -> Remaining 50 SOL x $200 = $10,000

Phase 2: SOL falls to $130 (Mar-Sep)
  -> If we'd held 100 SOL: -35% from the peak
  -> Ours: we already sold 50 at $200 (assignment)

  Full accounting (the debt does NOT disappear β€” you owe it):
    50 SOL x $130      = $6,500
    Cash from the CC    = $10,000
    LP position         = $2,000
    LP fees collected   = $720
    USDC debt           = -$3,000
    ─────────────────────────────
    Net                 = $16,220

  -> Starting investment: $10,000
  -> Return: +62% (steady, no panic)

The most common backtest mistake

The easiest way to fool yourself is to forget the debt. A "$16,500 portfolio" with $3,000 of unpaid USDC debt is not $16,500 β€” it is $13,500 plus the LP and the fees. When you run your own backtest, always write the debt on its own line with a minus sign, otherwise the result will look better than it is.

Scenario 4: 2025-2026 Bear (the most recent cycle)

This is the most important scenario, because it happened recently and it was the deepest drop of the last 12 months: SOL from $253 (September 2025) to $60 (June 2026), βˆ’76%.

Start: September 2025, SOL = $253, portfolio = 100 SOL

Without a strategy (just holding SOL)

September 2025: 100 SOL x $253 = $25,300
June 2026:      100 SOL x $60  = $6,000
Loss: -$19,300 (-76%)

With the strategy β€” where the liquidation would have hit

Collateral: 100 SOL x $253 = $25,300
Debt: $7,590 USDC (LTV 30%)
LP: $5,000 USDC (range $200-$253)
Put Spread: Long $220 / Short $160

⚠️ If you do NOTHING:
   the raw ratio $7,590 / (100 x price) reaches Kamino's
   75% SOL collateral threshold at SOL β‰ˆ $101 β€” that is
   spring 2026, WELL before the $60 bottom. Position liquidated.

With the crisis protocol:
  SOL = $200 -> LP falls out of range, fees stop
  SOL = $169 (raw LTV 45%):
    -> Close the LP (+$5,000)
    -> Debt: $7,590 - $5,000 = $2,590
    -> Raw LTV: 15%
  SOL = $101 (where it would have been liquidated without the protocol):
    -> Raw LTV: 26% βœ… position alive
  SOL = $60 (June 2026, the bottom):
    -> Raw LTV: 43% -> warning zone again
    -> Put Spread near max -> pay off the remaining debt
    -> LTV = 0%, 100 SOL in hand
  SOL recovers to ~$102 (September 2026):
    -> 100 SOL x $102 = $10,200, no debt

What this scenario says honestly

The result is still negative: from $25,300 down to ~$10,200 is roughly βˆ’60%. The strategy did NOT turn a βˆ’76% crash into a profit, and it never claims to. The difference is single but decisive: without the protocol the position would be gone at ~$101, while with it the 100 SOL survived and lived to see the recovery.

One more detail worth noting: the course's example position (SOL $88, LP range $64–$88) would have been out of range on both sides during this cycle β€” in June 2026 SOL was $60, below the lower bound. The numbers in the course are illustrative; the mechanism does not depend on price, but the range bounds really do have to be moved.

What did we learn from history?

LessonDetail
30% LTV isn't enough at -70%+A crisis protocol is essential
A Put Spread helps, but works no miracleOptions profit covers the debt β€” the drawdown stays deep
A Covered Call limits growthBut that's a trade-off β€” not a flaw
LP fees generate incomeEven small amounts add up over time
The crisis protocol keeps the position aliveA clear plan matters more than "faith"
The strategy works long-termA bad month β‰  a bad strategy

Summary

ScenarioWithout strategyWith strategy
2022 Bear (-79%)-79%~-68% at the bottom β€” a marginal edge; what matters is that the position survives debt-free and keeps its 100 SOL
2023 Recovery (+900%)+900%+488% (capped by CC)
2024 Bull+CorrectionVolatile+62% (stable)
2025-2026 Bear (-76%)-76%~-60% β€” but without the protocol the position is liquidated at ~$101

Don't misread this table

In a crisis the drawdown difference is SMALL β€” a few or at most a dozen percentage points. The advanced level models the same 2022 scenario in more detail and gets βˆ’74.4% with the strategy vs βˆ’76.3% without it, a gap of about 2 percentage points. The real benefit is not measured in drawdown but in two things: (1) whether the position survived at all, and (2) how much SOL you still hold for the recovery.

Main takeaway: the strategy reduces both losses and peaks. The result is steadier, more manageable returns over the long run. This is historical analysis, not a forecast or a promise: past results do not guarantee future ones.

Once you've run the strategy through real history, you stop guessing how it would behave in a crisis β€” you've already seen it in numbers, and you know exactly what you'll do and when.

The DeFi Risk OS platform helps you run this strategy with real-time monitoring and alerts.
Quick check
What did the 2022 bear-market backtest show without a crisis protocol?
Practice task
0 / 5
Run a paper backtest

The best way to trust (or doubt) a strategy is to run it yourself through a historical drop. This is a paper task β€” no trades (~25 min).

This is learning, not investing β€” use only small amounts you treat as tuition.

You just ran a paper backtest through a historical drop and saw exactly where the crisis protocol kicks in β€” most investors never do this.

Portfolio trackingExit strategy

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Solana address

CUj6wYQLSBxidzm7Lqtkxbw2d8Sv2H2tbJELyAjR756M

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Send SOL or SPL tokens (e.g. USDC) only on the Solana network. Sending from an exchange over a different network loses the funds permanently β€” nobody can recover them.

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