DeFiLlama launches "Delta Neutral Strategies" list! Based on term arbitrage, extending to diversified strategies

For those who are keen on researching cryptocurrency trading strategies, the "basis trading" strategy may not be unfamiliar. This strategy mainly involves taking a long position in the spot market of a token and shorting in perpetual contracts to hedge against price exposure, with the main profit coming from the contract's funding rate. Recently, the on-chain data website DeFiLlama launched a list of "delta-neutral strategies," which are mostly based on basis trading and expanded upon, offering traders a variety of strategy choices.

We just launched our new delta-neutral farming page based on perp hedges!

It simulates the APY you can make with no price exposure by shorting the token on perps, buying spot and farming with that token.

Thread on how this works and how you can reap these APYs pic.twitter.com/wYPgCA74uJ

— DefiLlama.com (@DefiLlama) January 14, 2023

DeFiLlama "Delta Neutral Strategy" List

This feature is included in the Yields feature list under Long-Short Strats. By clicking on it, you can enter the tokens you want to trade, and filter them based on blockchain, TVL, and more detailed requirements. The image below shows the selection of ETH for trading strategy, with DeFiLlama using the third strategy in the image for explanation.

Assuming a user uses $1,500 USDC to purchase one ETH, while simultaneously shorting one ETH in Binance's perpetual contract market. As the long and short positions are of the same size, no losses occur due to price fluctuations. At this point, besides earning profits from shorting ETH due to the positive funding rate in the perpetual contract market, the user can also earn income by depositing the one ETH on Aave lending protocol to provide liquidity, with a combined APY of approximately 12.43%.

The DeFi Llama list will display data such as APY DeFi protocol + funding rate earnings using this strategy, funding rate, average funding rate, DeFi protocol TVL, etc., allowing users to choose strategies based on data.

Although the overall ideas of each strategy are similar, it is still important to differentiate the sources of DeFi protocol earnings. In the above example, profits are generated by providing liquidity, but if the Lido protocol is used, ETH is staked to receive staking rewards.

Potential Risks of the Strategy

Although the strategy only involves contract trading and DeFi protocols, there are still several potential risks to be aware of in its use:

1. Ensure positive funding rate: If market fluctuations cause the funding rate to be negative in the long term, losses may occur due to short positions.
2. Ensure sufficient collateral: Since shorting is required in the contract market, if the price rises too much and the collateral value is insufficient, there may be liquidation risks.
3. Ensure proper use of DeFi protocols: Different strategies are paired with different DeFi protocols, some of which may have ETH locking restrictions. It is important to understand the protocol's rules before use.