Volt#04: Basis Yield
Generate market neutral returns
Volt #04 generates returns using a delta-neutral automated basis trading strategy. Users deposit USDC which is deployed into a long basis perpetuals strategy on Mango. This Volt enters a long position in SOL-PERP (link) and enters a short position in (borrows + sells) SOL (link) to delta-hedge (within +/- 1%).
This Volt performs best in negative funding rate environments, when perpetuals are trading below the spot price. The long perpetual + short spot position generates yield in the form of continuous funding payments on Mango during times of negative funding.
New epochs are automatically triggered when the amount of pending deposits is above a certain threshold to minimize price impact from signaling to other market participants. Epochs with large amounts of incoming deposits/withdrawals may take longer than normal to resolve to minimize price impact and reduce slippage. During the time that the Volt is rebalancing, no new deposits can be made.
The size and direction of basis depends on demand for leverage on either side, with a positive funding rate indicating a demand for long leverage and a negative funding rate indicating a demand for short leverage.
- Positive funding rates, leading to a negative return for the volt. However, if the volt observes consistently positive rates, it will exit the long basis position until rates revert negative again.
- Delta exposure may occur if an imperfect hedge occurs due to slippage from rebalances.
- Liquidations may occur if the SOL oracle price significantly diverges by 50% or more.
- Friktion Smart Contract Risk
- Mango Markets Smart Contract Risk