Delta-Neutral Strategy
A delta-neutral strategy is an investment approach that aims to generate returns while maintaining zero exposure to the directional price movements of the underlying assets. In the context of Stasis, this means earning yield without being affected by cryptocurrency market volatility.
What is Delta?
Delta measures how much an asset's price changes in response to a $1 change in the underlying asset's price:
Delta = +1: Perfect positive correlation (long position)
Delta = 0: No correlation (neutral position)
Delta = -1: Perfect negative correlation (short position)
How Delta-Neutral Works
Basic Concept
A delta-neutral portfolio combines long and short positions that offset each other's price movements:
Long Position Delta + Short Position Delta = 0Example Scenario
Long: Hold $10,000 worth of ETH (Delta = +1)
Short: Short $10,000 worth of ETH futures (Delta = -1)
Net Delta: +1 + (-1) = 0 (neutral)
Price Movement Impact
+10% (+$1,000)
+$1,000
-$1,000
$0
-10% (-$1,000)
-$1,000
+$1,000
$0
Stasis Implementation
Strategy Components
1. Spot Holdings
Protocol holds USDC as base collateral
Maintains liquidity for user deposits/withdrawals
Serves as margin for futures positions
2. Perpetual Futures
Short positions on Hyperliquid exchange
Hedge against potential crypto exposure
Generate funding rate income
3. Dynamic Rebalancing
Continuous monitoring of delta exposure
Automatic position adjustments
Maintains neutral positioning
Yield Generation Sources
Primary: Funding Rate Arbitrage
Funding Rates: Periodic payments between long and short positions
Typical Flow: Longs pay shorts (positive funding)
Stasis Benefit: Earns funding payments as short position holder
Secondary: Basis Trading
Basis: Price difference between spot and futures
Convergence: Futures price converges to spot at expiry
Profit Opportunity: Capture basis when it normalizes
Risk Management
Delta Monitoring
Target Delta Range: -0.05 to +0.05
Rebalancing Trigger: |Delta| > 0.1
Emergency Threshold: |Delta| > 0.2Position Limits
Maximum Leverage: 3x on futures positions
Liquidity Buffer: 10% of vault in USDC
Concentration Limits: No single asset >50% exposure
Automated Controls
Real-time Delta Calculation: Continuous monitoring
Automatic Rebalancing: Triggered by delta thresholds
Emergency Procedures: Rapid position unwinding if needed
Benefits of Delta-Neutral Approach
🛡️ Market Protection
Bull Markets: No FOMO - steady returns regardless
Bear Markets: No losses from price declines
Sideways Markets: Consistent yield generation
📈 Predictable Returns
Stable APY: 5-6% target regardless of market conditions
Lower Volatility: Reduced portfolio variance
Consistent Performance: Less correlation with crypto markets
💰 Capital Efficiency
No Opportunity Cost: Earn yield without market timing
Leverage Benefits: Amplify returns through futures
Compounding Effect: Reinvested yields increase base capital
Strategy Limitations
Execution Risks
Slippage: Large position changes may impact prices
Timing: Brief periods of non-neutral exposure during rebalancing
Liquidity: Market conditions may affect position management
Funding Rate Dependency
Variable Rates: Funding rates can change or turn negative
Market Conditions: Extreme volatility may affect funding patterns
Competition: Other arbitrageurs may reduce opportunities
Technical Risks
Exchange Risk: Dependence on Hyperliquid availability
Oracle Risk: Price feed accuracy for delta calculations
Smart Contract Risk: Automated rebalancing system vulnerabilities
Performance Metrics
Key Indicators
Realized Delta: Actual portfolio delta over time
Funding Rate Capture: Percentage of available funding earned
Rebalancing Frequency: Number of adjustments per period
Sharpe Ratio: Risk-adjusted return measurement
Monitoring Dashboard
Users can track:
Current portfolio delta
Funding rate earnings
Strategy performance vs. benchmarks
Risk metrics and exposure levels
Next: Funding Rate Arbitrage