Delta-Neutral Yield Strategies

A delta-neutral strategy is an approach designed to mitigate the impact of price movements in the underlying asset, aiming to achieve a position where the portfolio's value remains relatively unchanged regardless of the market's directional movements. This strategy involves balancing positive and negative deltas, so that the overall delta of the assets in question totals zero.

Delta-neutral strategies are particularly valuable and effective in crypto assets markets. Given that more capitalized crypto assets, like Bitcoin, tend to appreciate over time, these strategies allow traders to capture attractive yields while minimizing risks associated with price volatility.

Arcana Delta-neutral Yield Strategies

Arcana employs multiple delta-neutral strategies to tokenize the yield captured in the form of arcUSD. These strategies are carefully selected and tailored to leverage the unique opportunities within the crypto markets while aiming to minimize downside risks.

Cash and Carry Trade:

This classic strategy involves buying (going long on) a token like Bitcoin in the spot market while simultaneously selling (going short on) corresponding Bitcoin perpetual futures contracts. The goal is to exploit the price discrepancies between the spot and futures markets, collecting the yield from the perpetual funding rate. While this is a popular strategy for major tokens like BTC and ETH, it can be employed on more volatile assets as well.

Liquidity Pool Hedging:

Building on the principles of the cash and carry trade, this strategy utilizes a portion of the assets to participate in large, established, and battle-tested DeFi liquidity pools to collect LP yield, while another portion of the assets is used as margin to short the assets in these liquidity pools, achieving a delta-neutral position.

Initially, Arcana will focus solely on the Cash & Carry trade with Bitcoin. At some point after launch, the protocol will implement Liquidity Pool Hedging. Other delta-neutral strategies utilizing volatile assets as well as Loan Liquidation strategies, are currently under study and may be added to the protocol's strategy suite in the future.