Delta neutral Raydium farming/ staking strategy

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Indexes
  1. Farming $RAY
  2. Staking $RAY
  3. FTX

Delta neutrality

Delta neutral is a portfolio strategy utilizing multiple positions with balancing positive and negative deltas so that the overall delta of the assets in question totals zero.

A delta-neutral portfolio evens out the response to market movements for a certain range to bring the net change of the position to zero.

Raydium is a automated market maker (AMM) on the Solana blockchain. Solana is a highly scalable blockchain with an astonishing throughput capacity of about 50.000 transactions per second, making it one of the fastest blockchains available. This makes transactions on this chain very cheap. The average cost of a transaction is about 0.000015 $SOl (@14$/SOL).

Farming $RAY

Raydium is a AMM build on Solana with a very generous benefits to whoever deposits liquidity and farms or stakes $RAY. Farming $RAY is done by providing liquidity to one of the liquidity pools (e.g. RAY-USDT). The benefits are between 178–241% APR at the moment.

Depositing one RAY-USDT liquidity pool token (RAY-USDT LP) thus yields 2.41 $RAY. One RAY-USDT LP token consists of 1 $RAY and 1 $RAY worth of $USDT. At the time of writing, one RAY-USDT LP token would consist of 1 $RAY and 9.12 $USDT ($RAY=9.12 $USDT).

Staking $RAY

$RAY can be staked and 128% APR can be earned this way. You can make use of this by buying on a CEX or DEX, sending the $RAY to your Solana address (make one on Bonfida or Sollet) and depositing it in the appropriate contract on the Raydium website.

Hedging against $RAY

If you don’t want exposure to $RAY’s price movements, a hedge is needed. A possible hedge to mitigate risk and decrease exposure to $RAY is to short RAY-PERP. RAY-PERP is a perpetual future designed to follow the RAY token price quite nicely.

Walkthrough:

  1. Buy $RAY token (FTX exchange), or DEX
  2. Transfer $RAY to Bonfida.com or Sollet.io wallet
  3. Use this wallet to connect to Raydium.io dApp
  4. Two options: stake $RAY or provide liquidity to one of the RAY LP’s and stake your LP token to earn $RAY
  5. Hedge $RAY downside by shorting an equal amount of RAY-PERP futures.
  6. Result: You are earning $RAY on a fully hedged position. Meaning you take the APR (128–241%) minus funding cost of the perpetual future (10–15% APR) as profit!
    ROI will be a bit lower next to your investment in the farm/stake pool, since you will need to post collateral on FTX. Your collateral can take many forms: USD, EUR, ETH, BTC, BTMX, etc. If you have a hedge (e.g. $1000) equal to the amount invested in staking/farming ($1000 worth of $RAY), your ROI would be halve of the profit without a hedge (since you need twice as much capital).

Risk layers:

  1. Liquidation risk on FTX’s short position. Mitigate risk by posting enough collateral. Chose your collateral based on your risk tolerance.
    As an illustration: when you post a USD amount equal to the amount of RAY you are staking/farming, a liquidation is possible when RAY appreciates 100%.
    You have an option to decrease risk over time by converting the RAY you earn as yield to USD and increase your collateral on FTX, thus decreasing liquidation risk.
  2. Raydium exploit or Solana hack
  3. Flash crash/pump RAY-PERP on FTX: in this case it posses an extra liquidation risk

Be careful, and don’t bet the farm on crypto! If your interested, please use my referral code on FTX: https://ftx.com/#a=5640095. Thoughts, improvements, remarks, anything? Leave a comment :)