Delta-neutral strategies

Delta-neutral strategies are a type of investment strategy that aim to minimize the sensitivity of an investment portfolio to changes in the price of an underlying asset. In the context of Tetu V2, delta-neutral strategies are used to balance the exposure of the portfolio to price changes of the underlying assets. This allows the portfolio to be less sensitive to market volatility and to minimize potential losses in the event of large price swings.

The goal of delta-neutral strategies is to achieve a balance in the portfolio such that changes in the price of the underlying assets are offset by changes in the value of other assets in the portfolio. This helps to reduce the overall risk of the portfolio and provides a more stable return over time.

Tetu V2 uses delta-neutral strategies as a key component of its investment approach, offering users a way to manage their exposure to market volatility and to potentially increase the stability of their returns. This helps to provide a more secure and reliable investment experience for users of the platform.

Uniswap v3 Dynamic Liquidity Strategies occasionally align with the delta-neutral standard, yet the constancy of this condition is not guaranteed owing to the fluidity of these strategies. On the other hand, TETU's Balancer strategies firmly uphold a delta-neutral position, faithfully embodying this fundamental investment tenet.

Uniswap v3 Dynamic Liquidity Strategies

The strategy can be used to earn swap fees in any Uniswap V3 pools whose assets (tokenA, token) are presented in lending platforms. Depending on type of asset pair (stable, volatile, correlated), the strategy has different initialization parameters: the price range for providing concentrated liquidity and the maximum price deviation from the median for rebalancing. For stable pairs, liquidity is generally provided in the narrowest possible range - one price tick.

General scheme of work

User deposits tokenA (USDC for Tetu V2 USDC vault, WMATIC for WMATIC vault etc) to vault. The vault deposits token to the splitter. Splitter selects a strategy with best APR and deposits token to the strategy. The strategy obtains the liquidity composition of the pool in the given price range and creates a loan token backed by tokenA in such a way as to fully utilize the assets in liquidity.

When the price in the Uniswap v3 pool changes so much that the position goes out of the price range or the current price deviates from the median by more than the parameter specified in the strategy settings, then liquidity position and the loan are rebalanced.

Depending on the parameters of the strategy, there are two types of rebalancing:

"swap" and "fill-up".

In "swap" rebalance, excess token or tokenB is exchanged using the Tetu Liquidator, while in "fill-up' method, the excess is added to a separate liquidity position half the size of the main range (from the current price to its edge).

1 tick strategy

The Uniswap V3 1 tick strategy is a way to borrow token B in exchange for token A and enter the A-B pool. Because token B were borrowed you have a very low impermanent loss when compared to other strategies.

In Uniswap V3, the situation is similar but can vary depending on the range. For stablecoins, the range can be set to a 1-tick price, creating a linear pool with a fixed price. The nature of the impermanent loss in this case is different.

If the price changes by any amount, the strategy will need to be rebalanced, which involves buying and selling tokens. However, the strategy also borrows some assets, which allows it to handle swap and repay operations effectively.

Overall, the Uniswap V3 1-tick strategy is a powerful tool for minimizing impermanent loss risks and maximizing profits

Rebalances and performance

The Uniswap V3 strategy frequently rebalances, with up to 20~40 rebalances per day during volatile periods. If the price changes too quickly, the fuse mechanic is employed to stop rebalances on high movement.

The strategy has been tested on various time periods and has performed well. Rebalance performance is monitored through a Gelato task.

You can track the strategy's profit and loss on the info page.

Balancer Delta-neutral

Balancer pool: https://app.balancer.fi/polygon#/polygon/pool/0xb3d658d5b95bf04e2932370dd1ff976fe18dd66a000000000000000000000ace

bb-t-DAI (DAI + tDAI) + bb-t-USDC (USDC + tUSDC) + bb-t-USDT (USDT + tUSDT)

Balancer documentation: https://docs.balancer.fi/products/balancer-pools/boosted-pools

User deposits USDC to vault. The vault deposits UDSC to the splitter. Splitter selects a strategy with best APR and deposits USDC to the strategy.

The strategy invests the received amount in the Balancer Boosted Tetu USD pool. To invest in the pool the strategy should have USDC, USDT and DAI in proper proportions. Initially the strategy has only USDC, so it borrows required amounts of DAI and USDT in TetuConverter.

The strategy splits available USDC amounts into three parts in proportions related to the reserves of the assets in the Balancer pool. Two of the parts are used as collateral to borrow USD and DAI. The third part is deposited to the pool as is. TetuConverter supplies USDC to a lending platform (i.e. AAVE, dForce, etc) and gets supply fee and rewards back as a profit. TetuConverter finds a lending platform with the best current APR. Than TetuConverter borrows USDT/DAI on the lending platform and receives an obligation to pay interest on closing the debt.

The strategy deposits available amounts of USDC, DAI, USDT to the Balancer Boosted Tetu USD pool and receives pool bpt in exchange. Balancer Boosted Tetu USD pool works similar as Balancer Composable Stable Pool - it deposits received amounts to three linear pools. The linear pools forward a part of received tokens to Tetu strict vaults that provide additional fees and rewards.

The strategy periodically collects rewards from TetuConverter and Balancer pool and swaps them to USDC using Liquidator. Received USDC amount is reinvested to the Balancer pool.

To withdraw an amount from the strategy, the strategy withdraws liquidity from the pool and receives USDT, DAI and USDC amounts on balance. Then it needs to close the debts in TetuConverter. To close a debt, the strategy should repay more than it was originally borrowed: the borrowed amount + repay debt. If the strategy doesn’t have enough USDT/DAI to make repayment, it can swap some USDC. As soon as it has the required amount of USDT/DAI on its balance, it repays the debts and receives the collateral back together with a supply fee.