Delta-neutral Exchange Traded Strategies
The exchange-traded strategies are ERC-20 structured products that lets users leverage a collateralized debt position (e.g. DAI lent on Aave) to borrow a volatile asset (e.g. WETH), pair it with a stablecoin, and provide stable-to-crypto liquidity, (e.g. WETH/DAI) in an AMM, like Uni V3. This allows earning high APY and hedging against crypto volatility.
As the crypto asset moves up in price, the value of the debt goes up accordingly. As the crypto asset falls in price, the amount of debt reduces. Thus the yield received is 'delta-neutral', i.e. stablecoin based.
ETSes are exposed to impermanent loss, thus, ETS is 'delta-neutral but gamma-exposed yield'. In order to mitigate the gamma exposure, the position is regularly rebalanced by automated bots that react to a delta b/w amount of crypto borrowed and LPed.
There are wide range ETSes (corresponding to classic Uni V2 positions) and narrow range ETSes (corresponding to various concentrated liquidity positions). Wide range ETSes are relatively low risk; in contrast wide range ETSes are high risk-high return.
A fee retained by Overnight for ETSes can vary b/w 20 and 50% of the yield charged daily. The higher the risk, the costlier it is to run regular rebalances - some narrow range ETSes during periods of high volatility can require up to 100-150 rebalances per day with corresponding gas costs.
Each ETS is an ERC-20 rebase token that runs on absolutely same mechanics as USD+, using similar exchange and mark-to-market logic.
Last modified 4mo ago