[Feature] Position Rebalance on Pseudo Market-Neutral Strategy
As a quick recap, Pseudo Market-Neutral Strategy is a yield farming strategy that does not take sides on the market by borrowing the exact amount of a non-stable token (in essence shorting the token) that is placed in the liquidity pool (in essence longing the token), resulting a neutral position on the non-stable token during initial position opening. Dive deeper into the mechanics here.
This strategy brings forth two main advantages:
- 1.Increases its share portion in a liquidity pool to earn higher yield even after deducting borrowing interests.
- 2.Hugely reduces the Price Effect on the position value when the price of the non-stable token fluctuates.
In the following sections, we will discuss the details and benefits of rebalancing a strategy position back to delta-zero, and our users can complete this complicated operation with just a Single-Click on Single Finance.
Price Effect is first introduced by Single Finance in the whole DeFi universe.
It refers to the change in net equity value of a yield farming position due to the price changes of the underlying assets in the liquidity pool. Though some may omit this factor, the fact is Price Effect is always highly correlated to our yield farming performance, as at least half of our assets held in the liquidity pool is in non-stable token (except stable tokens farms).
Example 1: Stable Tokens Farm
As stable tokens always stay around US$1, the Price Effect (pink column in the graph) is relatively immaterial (0.0122%) to the performance of the entire position.
Performance of USDT-USDC stable tokens farm over the past 180 days
Example 2: Non-stable + Stable Tokens Farm
The value of the yield farming position is highly correlated to the price of the non-stable token (WCRO in this example). During the period price of WCRO drops significantly, Price Effect therefore becomes very material (-49%) to the performance of the entire position.
Performance of WCRO-USDC farm over the past 180 days
Yield farming profits are best secured if Price Effect is kept under control, and Pseudo Market-Neutral Strategy can definitely help to achieve terrific results.
Neglecting all the trading fees, yield farming rewards, borrowing interests, etc., the graph below gives a plain view on the correlation between a position's Price Effect and price movement of its non-stable token under the strategy. Adopting Pseudo Market-Neutral Strategy largely reduces Price Effect to -4.0% and -2.9% even when the price of the non-stable token moves +/- 30% (the orange dots).
To study the Price Effect simulation further, the curve is convex instead of linear, meaning the hedging effect diminishes when the price moves away from the initial opening price. Therefore, there is a genuine need to rebalance the position so as to stabilize the position's value change.
As one may observe that the Price Effect curve near the initial opening point is relatively flatter, it would be effective to reduce the overall Price Effect by rebalancing the position back to delta-zero once the latest price of non-stable tokens is going far away form the initial price during position opening, i.e. to shape a new frontier.
User can use our dashboard under Pseudo Market-Neutral Strategy to monitor the latest delta information of their current strategy. Mouse-over the delta slide bar to see the exact number of non-stable token that is in long/short position.
Delta is the ratio used to measure the long-short ratio in leveraged positions in Single Finance:
Delta = (non-stable token currently held - non-stable token currently borrowed) / non-stable token currently borrowed
An approximate estimation (neglecting all the trading fees, yield farming rewards & borrowing interests) on Delta and Price Change of non-stable token since position opening/rebalancing of a Pseudo Market-Neutral Strategy (must be >=2x) is tabulated below:
Single Finance makes Position Rebalance on Pseudo Market-Neutral Strategy easy. By clicking the "Rebalance" button on each position (steps), the protocol does all the maths and transactions at the backend and rebalances the strategy to delta-zero (to match the amounts of non-stable token held with non-stable token borrowed).
- 1.Save time on calculation, simulation and multiple operations.
- 2.The rebalancing amount is based on the "Net" delta value, so it minimizes the transactional cost as well as Price Impact.
- 3.Completes complicated steps with just a Single-Click.