Deploying $25k into Delta Neutral Positions (Full Walkthrough)

Summary

In this video, the creator discusses their recent experience with exiting a Uniswap Ethereum-to-USDC liquidity pool, resulting in a small loss due to improper hedge rebalancing. They explain the process of deploying $331,000, with a focus on hedged and stablecoin liquidity pools. The creator highlights strategies to mitigate risks, such as shorting underperforming assets like fcoin, and explores different DeFi platforms offering stablecoin liquidity pools. Their aim is to refine their strategy for better returns, leveraging both hedged positions and high-yield stablecoin pools, while also planning future deployments. The creator offers insights into their strategy and tools, encouraging others to learn and share in the journey.

Takeaways

• 😀 The speaker exited their Uniswap Ethereum-USDC liquidity pool, resulting in a $10 loss due to missed rebalancing and overexposure to the market.
• 😀 The speaker aims to refine their strategy by developing in-house tools to automate the hedging process and prevent future losses.
• 😀 $331,000 will be deployed in total, with $25,000 allocated to stablecoin positions and $6,000 to a hedged crypto-to-crypto position (Solana and fCoin).
• 😀 Hedging involves shorting fCoin to reduce exposure and mitigate losses, with the goal of minimizing market risk and generating consistent returns.
• 😀 Simulation tools like Metrics Finance help test different strategies, such as varying weightings of fCoin and Solana, to evaluate potential outcomes and risks.
• 😀 The speaker uses platforms like Defi Llama and Stable Fish to track stablecoin liquidity pools and find the best yield opportunities.
• 😀 The current strategy focuses on a mix of stablecoin liquidity pools and hedged crypto positions to balance risk and return.
• 😀 Simulation models show how slight market changes (e.g., fCoin going down 3.4%) could impact returns, but yields from liquidity pools often outweigh small losses.
• 😀 In cases where fCoin underperforms, over-hedging might be a good strategy, as it ensures that potential losses are minimized and profits are generated.
• 😀 The speaker is considering using both Trader Joe and Uniswap liquidity pools for stablecoin-based investments, with expected APRs of 15-30% based on recent data.
• 😀 To optimize strategy, the speaker will explore platforms like Moonwell for potential high-yield opportunities, but is cautious of past exploits on some platforms.

Q & A

Why did the user exit their Uniswap Ethereum to USDC liquidity pool?

The user exited the liquidity pool because they missed their rebalance periods, which caused them to be under-hedged and overexposed to the market. This resulted in a small loss of around $10.

What strategy does the user plan to implement going forward to avoid losses?

The user plans to refine their strategy by building tools in-house to automate and better track rebalancing, aiming to ensure they don't miss rebalancing periods and are better hedged.

How much capital is the user planning to deploy and in what way?

The user plans to deploy roughly $331,000, which includes $25,000 of new capital, $6,000 from previously deployed capital, and around $10 of loss from the initial liquidity pool.

What is the target position for the $6,000 plus additional capital?

The target is a crypto-to-crypto hedge position, specifically focusing on assets like fcoin and soul.

What example does the user use to explain a hedged liquidity pool?

The user describes an example with an $8,000 liquidity pool, where 61% of the funds are allocated to a short position on fcoin, and 39% is exposed to soul. This hedged position aims to limit potential losses by balancing the exposure.

What potential loss did the user predict in the fcoin and soul liquidity pool?

The user predicted a loss of $4 if the market goes up, and a loss of $4 to $10 if the market goes down, but the strategy's APR of 150% would outweigh these losses over time.

How does the user determine the success of their hedge strategy?

The success of the hedge is determined by how well the strategy compensates for market volatility through fees earned from the liquidity pool and the balancing of exposure between fcoin and soul.

Why does the user consider hedging 80% of the capital to fcoin in certain scenarios?

The user hedges 80% of the capital to fcoin when they anticipate fcoin will underperform. This way, if fcoin loses value, they can benefit from a greater exposure to the asset at a lower price.

What stablecoin liquidity pools is the user considering for deployment?

The user is considering stablecoin liquidity pools such as those available on platforms like Uniswap, Trader Joe, and Moonwell, and is exploring options with good APR like 35% or 16% on various pairs like USDT/USDC.

What factors are influencing the user's decision to deploy into stablecoin liquidity pools?

The user is focusing on finding stablecoin pools with solid APR and low risks, especially ones where they can get stable returns like 15%-30%, and they're cautious of pools that may be susceptible to exploit risks.