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Volt#04: Basis yield
Generate market neutral yields
Volt #04 generates returns using a delta-netural automated basis trading strategy. Users deposit USDC which is deployed into a long basis 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%).
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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.

New to Perpetuals? Check out our guide below:

Power Perpetuals Part 1: ELI5
Medium

User Flow

  1. 1.
    Users deposit/withdraw stablecoin. Epochs and deposits/withdrawals are resolved by default weekly on Thursday night (2 UTC).
  2. 2.
    New epochs are automatically triggered when the amount of pending deposits is greater than 2% of Mango's 24h trailing volume on SOL perps to minimize price impact from signaling to other participants about expected future flow.
  3. 3.
    Epochs with large amounts of incoming deposits/withdrawals may take longer than normal to resolve so that the Volt can exit its position while reducing slippage. During the time that the Volt is rebalancing, no new deposits can be made.
  4. 4.
    Once an epoch, volt aggregates deposits and moves the USDC to Mango
  5. 5.
    Given โ€œmango account equityโ€ = $X, volt buys $X of SOL-PERP and shorts $X of SOL. This implies the volt is long 1 unit of basis, delta-hedged within -1 to +1%. The Volt is at effective 2x leverage on $ equity, but only exposed to spread between perp & spot so virtually impossible to liquidate (since they both use same oracle)
  6. 6.
    After the volt has fully traded into position, mints vault tokens for users and opens claiming pending deposits/withdrawals
  7. 7.
    Users may claim deposits/withdrawals
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Simulated Historical Performance

Historical SOL-perp Funding Rates on Mango
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Simulated Volt #04 Portfolio Position (Non-Compounded)
1
Simulated returns since 3/14: 6.33%
2
Simulated APR since 3/14: 43.70%
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Historical CEX funding rates
Lately in Solana, we have witnessed a structural short basis regime where participants are incentivized to put on a long perpetual position to offset short demand.
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Risks

  • 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