Alpaca Finance Users Shed Light on Pseudo-Delta Neutral Yield Farming Strategy, 180% APY Yield Farming

The volatility of crypto has users on the prowl for innovative strategies for safe and stable gains. Some unique strategies were unveiled to help users sleep calmly at night.

By
Kyle Heise
on
June 30, 2021
Category:
BSC News

Lost in Translation No Longer

Crypto and its solutions have truly gone global. What started as a suggestive tweet in Japanese has turned into a new investment strategy on AlpacaSwap designed to increase annual percentage return (APY) and reduce losses. A Medium post on June 25 by Japanese Alpaca Hiyocoro revealed the methods of what is called a Delta Neutral position. As with all crypto investments, the advice should be executed with precision. 

Source

AlpacaSwap is a unique place to invest in Decentralized Finance (DeFi). DeFi allows users to earn profits by holding neutral positions as liquidity providers and with chances for yield farming rewards. The unique strategy revealed by Japanese Alpaca Hiyocoro serves to keep assets and equity safe––neutral––even if the price moves. The object is to minimize liquidation; liquidation is still present, especially considering how much crypto moves, making this strategy pseudo-delta neutral .

Hiyocoro admitted to initially receiving the idea from a Japanese user known as Mr. Medaka.

Medaka posted a Tweet on June 24 in Japanese, which translated explained how he found a position that “is natural but is in a state where long and short antagonism does not affect profit and loss.”

Medaka also acknowledges his help from Hiyocoro and concluded that the strategy is similar to short strangle in traditional options trading, where profit is maximized to the net premium from two different trading options. There is a liquidation risk with this position if BNB were to continue experiencing drastic volatility.

Source: Medaka’s short and long positions on Alpaca


Pseudo Neutrals

The pseudo delta neutral positions are those looking for the highest yields and sharpest rations. The problem is that these investing strategies require constant attention for higher profits and are a personal choice for investors. Hiyocoro first gave two different examples of pseudo-neutral positions in his blog post to execute the multi-pronged strategy.

The first position was a BNB-BUSD pair that went long BNB. With the 3x leverage offered on Alpaca, the liquidation point was at around a drop of 35%. The second position is the BNB Short position, a third the size of the first BNB long position. Both positions should be directly proportional to the price of BNB, where the short position is not as vulnerable as the long position to dramatic price swings.

Source: This alpaca could be you if you execute your delta neutral

When the two strategies are combined, Hiyocoro’s examples allow the BNB token to move between -25% and +35% to maintain a neutral stance. If the asset moves more than that, the user will take a loss. Hiyocoro’s examples saw a yield of 4.2% in 10 days, and about a 170% APR including ALPACA rewards. So far, the strategy looks impressive.

The problem is that BNB is liable to move that much in a day and can leave users worrying about price swings in their sleep. Users must set up and prepare several asset positions that will work in tandem to maximize assets and eliminate losses. The venture should be followed by serious investors only as quick losses can be experienced.


True Delta Neutrals

A true delta-neutral takes a long and short position in an asset at the same time to cancel out the effect on your portfolio when the asset’s price moves.  The strategy is safe for moderate percentage swings but is still subject to decoupling losses when prices change dramatically. 

Hiyocoro described the two best ways to achieve a true delta neutral position and not be scared prices will drop while you are away. The examples for Hiyocoro mitigate losses significantly using unique DeFi tools. They follow a course of lending and borrowing together different amounts to set up as neutral a position as possible.

Source: Keep calm and graze on


The first strategy to a true delta neutral strategy is to lend on a platform like Venus or Aave. Using the multipronged investing strategy of depositing and borrowing described by Hiyocoro, positions on Venus or Aave allow the BNB price to rise to +60% to keep neutral. The strategy is safer than the pseudo-neutrals but, in the end, yields minuscule profits. And that’s not what crypto is about.

A second strategy is to flex the Alpaca possible future feature. With this unique feature to leverage, Hiyocoro found a position that will allow a BNB farm pair to remain neutral during a BNB price spike of around 33% while remaining neutral for any drop in a BNB price. The example brought in about $3500 APY on an initial $25,000 investment. That’s a clean and safe 13% APY. 

Conclusion

True and Pseudo delta neutrals have been described to help investors realize the potential losses and, most importantly,  maximize the safety of their investments. Crypto tokens, especially LP tokens, become susceptible to extreme fluctuations in their prices, but so can leverage delta neutral strategies. The two true Delta neutrals can return a safe and stable profit as long as they remain within their liquidation limits. Alpaca Finance has the reputation of being a calm and grazeful (read: graceful) DeFi platform that should hopefully ease the sleep of investors. Either way, users can always sleep better knowing they set up a delta neutral. 



About Alpaca Finance

Alpaca Finance is the largest lending protocol allowing leveraged yield farming on Binance Smart Chain. It helps lenders to earn safe and stable yields, and offers borrowers undercollateralized loans for leveraged yield farming positions, vastly multiplying their farming principles and resulting profits.‌

Alpacas are a virtuous breed. That’s why, Alpaca Finance prides itself on being a fair-launch project with no pre-sale, no investor, and no pre-mine. So from the beginning, the project has always been a product built by the people, for the people. Or as they like to say: by the Alpacas, for the Alpacas.

Where to Find Alpaca Finance:

Website | Twitter | Telegram | Discord | Medium | GitHub |

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Kyle Heise

Born and raised in the East Bay of California. He has studied and worked on three continents and lived in eight countries. Kyle resides in San Francisco. He holds bags mostly in Ethererum, Cake, and BSC GameFi projects.

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