A guide to our market-neutral farming strategy. Generate 40% return on USDT.

In the last blog, we showcased how we helped our institutional clients to generate more than 40% return on stablecoins. If you haven’t gone through the blog yet, we recommend you do so and come back here when you are done. In this blog, we will enable you with the tools and formula so that you can leverage the same strategy to make a 40% return on your stablecoin portfolio.

To simplify the execution, we have created this spreadsheet with our execution methods integrated. Using this spreadsheet will ensure that you can actively manage the strategy in a secure and efficient manner. In the upcoming sections, we will show how you can use it to set up and manage a market-neutral strategy with AXS tokens.

Apart from AXS, there are multiple staking pools available in the DeFi space that can help you earn high APY on stablecoins using this method. Do keep in mind though that the above spreadsheet takes into the fee of AXS staking on the Ronin chain. If you decide to use any other staking pool you will have to update the Fee tab accordingly to provide you with an optimized return.

Strategy setup:

In the first step, you prepare your strategy by adding the basic information. The spreadsheet requires mainly three input parameters to initialize the strategy.

1. Investment Amount: Enter the amount of USDT you want to dedicate to this strategy. This is the total amount of your investment.
2. Rebalancing Tolerance: This is the tolerance percent at which rebalancing will be recommended. A very high tolerance can significantly increase your risk exposure while a very low tolerance can prompt users to rebalance too frequently and can lead to a lot of time and money being lost in the process. We recommend this tolerance be kept at 10% for new users.
3. Short Leverage: Enter the leverage multiplier that you want to take on the AXS/USDT short position. While higher short leverage increases your overall APY, it can create a higher liquidation risk when left unchecked. To new users, we recommend not taking leverage of more than 3x.

As soon as the three parameters are provided system will provide you with the amount of long and short positions.

1. Long position: This is the system-calculated amount (in USDT) that you will use to purchase the long asset i.e. AXS token. Once you have the token you can stake it at the AXS staking portal. As soon as this step is completed your reward generation process has started.
2. Short position: This is the system-calculated amount (in USDT) that you will use to short the AXS token. You can short it on Binance or another centralized/decentralized exchange of your choice. Do note that if you decide to use an exchange other than Binance you will have to update the Fee tab accordingly.

At any time, the sum of the long position and the short position is your overall portfolio value in the strategy. By completing the above steps as mentioned for the long and short positions you have successfully initialized the strategy. Once you have completed this part move on to the strategy monitoring tab to actively manage it.

Disclaimer: Do not change the parameters of the strategy setup tab once the strategy has been initialized and is in process. Only change the setup tab when you are starting a new strategy with new parameters.

Strategy monitoring:

Once the strategy is running, you will need to actively rebalance the positions and compound earnings as instructed in the sheet. Active rebalancing is important to keep your risks in check. Similarly, compounding rewards will keep strategy efficiency in place. We recommend you check on a daily basis if you need to rebalance or compound. You may need to increase the frequency of this test if the market is highly volatile and asset price changes by 5% or more since the last rebalancing.

To check for rebalancing or compounding you need to input the following parameters as highlighted in the spreadsheet:

1. No. of staked token: This is the amount of token (AXS) that you have staked. Enter the number of tokens you see on the staking platform.
2. Staking APR: This is the APR that the staking pool is providing. Staking APR can change frequently and is generally not guaranteed.
3. Token Price: Enter the market price at which the token (AXS) is currently being traded.
4. Unharvested tokens: Enter the amount of reward that has been collected. These tokens are unharvested and you can find them on the staking platform.
5. Short position value: Enter the current value of your short position. This you can find on the exchange where you shorted the tokens during the strategy setup stage.

Once this information is provided, the system will calculate the long position value, your total portfolio value, hedge ratio, and ideal harvesting amount at which compounding should be done. Using these calculated data points, the system will recommend you the following actions:

1. Is harvesting required? If the system prompts yes then it’s time to compound the reward. If it says No, you don’t need to take any action now.
2. Is rebalancing required? If the system prompts yes with an orange flag then it means you need to rebalance. If the system prompts yes with a red flag then it means you are beyond the safety threshold and you should rebalance immediately. If rebalancing is needed then the system will also prompt you regarding the rebalancing amount and the direction in which rebalancing is required.

And done. This is the check you need to do regularly to keep your strategy in place and mitigate any risk that appears during run-time.

Exiting the strategy:

At any point when you want to exit the strategy you will have to close all your positions. We recommend the following steps to exit the strategy.

1. Claim any unharvested rewards and un-stake tokens from the staking pool. This is your total long position. Sell these tokens for USDT.
2. Close your short position on the exchange to get back your USDT.

The sum of the two positions will provide your total investment amount with generated yield.

Disclaimer: Understand that while market-neutral strategy attempts to mitigate asset volatility risk, you are still exposed to other variety of risks including but not limited to smart contract risks and exchange risks. You can lose all your assets.

Be SAFU!

Rivera is empowering investment professionals to innovate new financial products in DeFi. With our no-code infrastructure, fund managers can launch a custom DeFi vault with their choice of assets, LP pools & derivative techniques. Register now to get early access and exclusive rewards.