Yield Generation

Stasis employs multiple sophisticated mechanisms to generate stable yield while maintaining market neutrality. This document explains how the protocol creates value for users through various yield sources.

Primary Yield Sources

1. Funding Rate Arbitrage (Primary)

Mechanism

  • Hold short positions in perpetual futures

  • Collect funding payments from long position holders

  • Maintain delta neutrality through spot hedging

Yield Characteristics

  • Frequency: Every 8 hours (3x daily)

  • Stability: Historically positive in crypto markets

  • Magnitude: 5-15% annualized in normal conditions

Example Flow

1. Vault holds $1M USDC
2. Opens $800k short ETH perpetual position
3. Receives funding payment: $800k × 0.01% = $80 every 8 hours
4. Daily income: $80 × 3 = $240
5. Annual yield: $240 × 365 = $87,600 (8.76% on position)

2. Basis Trading (Secondary)

Mechanism

  • Capture price differences between spot and futures

  • Profit from convergence at settlement

  • Exploit temporary market inefficiencies

Opportunities

  • Contango: Futures trading above spot (profit from convergence)

  • Backwardation: Futures trading below spot (less common in crypto)

  • Volatility Events: Temporary dislocations during market stress

Risk Management

  • Limited exposure to basis trades

  • Focus on high-probability convergence plays

  • Quick position unwinding capabilities

3. Volatility Premium Capture (Tertiary)

Mechanism

  • Sell overpriced volatility through options strategies

  • Capture volatility risk premium

  • Maintain delta neutrality through dynamic hedging

Implementation

  • Limited options exposure

  • Focus on short-term volatility trades

  • Sophisticated risk management required

Yield Optimization Strategies

Dynamic Position Sizing

Funding Rate Responsive

def calculate_position_size(funding_rate, volatility, max_leverage):
    base_size = vault_value * 0.8  # 80% base exposure
    
    # Increase size when funding rates are high
    funding_multiplier = min(funding_rate / 0.01, 2.0)  # Cap at 2x
    
    # Reduce size when volatility is high
    volatility_discount = max(1 - volatility / 0.5, 0.5)  # Min 50%
    
    optimal_size = base_size * funding_multiplier * volatility_discount
    
    return min(optimal_size, vault_value * max_leverage)

Market Condition Adaptation

  • Bull Markets: Increase exposure (higher funding rates)

  • Bear Markets: Maintain conservative sizing

  • High Volatility: Reduce leverage, focus on stability

Asset Allocation

Multi-Asset Approach

Target Allocation:
- ETH Perpetuals: 40-60%
- BTC Perpetuals: 30-40%
- Other Assets: 0-20%
- Cash Buffer: 10-20%

Selection Criteria

  1. Funding Rate History: Consistent positive rates

  2. Liquidity: Sufficient market depth

  3. Volatility: Manageable price movements

  4. Correlation: Diversification benefits

Timing Optimization

Funding Rate Prediction

  • Historical pattern analysis

  • Market sentiment indicators

  • Technical analysis signals

  • Machine learning models

Position Entry/Exit

  • Optimal timing around funding events

  • Market microstructure analysis

  • Liquidity-aware execution

Compounding Mechanisms

Automatic Reinvestment

Process Flow

1. Funding payments received → Vault value increases
2. Exchange rate improves → rSTS becomes more valuable
3. No user action required → Seamless compounding
4. Gas-efficient → No claiming transactions

Mathematical Model

Compound Growth Formula:
Final Value = Initial × (1 + Daily Rate)^Days

Example:
$1,000 × (1 + 0.0164%)^365 = $1,061.83 (6.18% APY)

Efficiency Advantages

vs. Manual Claiming

  • Gas Savings: No transaction fees for claiming

  • Timing Optimization: Reinvestment at optimal moments

  • Convenience: No user intervention required

vs. External Compounding

  • Capital Efficiency: No external protocol fees

  • Reduced Risk: No additional smart contract exposure

  • Immediate Reinvestment: No delays or slippage

Performance Metrics

Yield Measurement

Gross Yield

Gross APY = (Total Funding Earned / Average Vault Value) × 365/Days

Net Yield (After Fees)

Net APY = Gross APY - Management Fee - Performance Fee - Operating Costs

Risk-Adjusted Yield

Sharpe Ratio = (Net APY - Risk-Free Rate) / Volatility
Information Ratio = (Net APY - Benchmark) / Tracking Error

Efficiency Metrics

Funding Rate Capture

Capture Efficiency = Actual Funding Earned / Theoretical Maximum
Target: >90%

Delta Accuracy

Delta Accuracy = 1 - (Average |Delta| / Target Range)
Target: >95%

Cost Efficiency

Cost Ratio = Total Costs / Gross Yield
Target: <20%

Risk-Return Optimization

Risk Budgeting

Allocation Framework

Total Risk Budget: 100%
- Funding Rate Risk: 60%
- Delta Risk: 20%
- Operational Risk: 15%
- Liquidity Risk: 5%

Dynamic Adjustment

  • Increase risk during favorable conditions

  • Reduce risk during market stress

  • Maintain minimum safety buffers

Return Enhancement

Leverage Optimization

Optimal Leverage = f(Funding Rate, Volatility, Risk Tolerance)

Typical Range:
- Conservative: 1.5-2.0x
- Moderate: 2.0-2.5x
- Aggressive: 2.5-3.0x

Strategy Diversification

  • Multiple yield sources

  • Different time horizons

  • Uncorrelated strategies

Market Conditions Impact

Bull Market Characteristics

  • High Funding Rates: 15-50% annualized

  • Strong Performance: Above-target yields

  • Increased Leverage: Optimal conditions for scaling

Bear Market Characteristics

  • Lower Funding Rates: 3-10% annualized

  • Stable Performance: Consistent but reduced yields

  • Conservative Positioning: Focus on capital preservation

Sideways Market Characteristics

  • Moderate Funding Rates: 5-15% annualized

  • Steady Performance: Target yield achievement

  • Balanced Approach: Optimal risk-return balance

Future Enhancements

Strategy Evolution

  • Additional yield sources

  • Improved prediction models

  • Enhanced automation

Technology Improvements

  • Better execution algorithms

  • Real-time optimization

  • Advanced risk management

Market Expansion

  • New asset classes

  • Additional exchanges

  • Cross-chain opportunities

Next: Using Stasis

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