Delta-Neutral Strategy: approach and opportunities on Lido, Hyperliquid and Resolv
Delta-neutral strategies are an essential part of quantitative finance. They enable investors to limit their exposure to the market while generating returns through yield strategies. In the world of digital assets, they take on a particularly interesting dimension with the diversity of financial instruments available and the return opportunities offered by decentralized finance (DeFi).
This article explores how to implement a delta-neutral strategy combining ETH staking and short Hyperliquid positions. It then looks at how to optimize this approach with the Resolv protocol and their USR and RLP tokens. Finally, we'll look at the role a portfolio management system like Nuant can play in analyzing and improving these strategies through backtesting.
Building a delta-neutral strategy with Lido and Hyperliquid
ETH staking, via solutions such as Lido, provides a return in exchange for participation in securing the Ethereum network. But in addition to the liquidity risk, it also exposes you to fluctuations in the ETH price. To neutralize this risk, you can take a short position on Hyperliquid.
Hyperliquid is a decentralized trading platform specialized in derivatives. In particular, it enables you to sell short assets such as ETH via perpetual contracts. By taking a short position, you counteract market volatility while retaining staking returns.
In practice, several factors influence the effectiveness of this hedge:
- If the ETH price on the spot market and that on Hyperliquid are not perfectly correlated, this can generate additional costs.
- Short positions involve financing costs, which vary according to supply and demand.
- Excessive leverage or volatility can lead to premature liquidation, jeopardizing the stability of the strategy.
Let's take an example: if ETH staking offers an annual return of 3% and ETH short selling on Hyperliquid yields a financing rate of 10% per year, then for 100 ETH:
- Staking yields 3 ETH per year.
- The short position generates 10 ETH.
- In total, the strategy generates a net gain of 13 ETH per year.
This approach can be further optimized by looking for platforms offering better funding rates or by combining this strategy with other opportunities, such as via protocols like Resolv.
Simplifying strategy with Resolv and the USR and RLP tokens
In order to participe to a delta neutral strategy via Resolv, a user have to simply deposit ETH to mint RLP or USR in proportion to their deposit.
When deposited, ETH will automatically create 3 positions:
- Generate returns through liquid staking via Lido, Binance and Dinero
- Earn funding fees by opening short ETH positions on Binance, Hyperliquid and Deribit.
- Keep a liquidity pocket in case of withdrawal by users has two tokens, USR and RLP, which simplify set-up and make it easy to benefit from a delta-neutral strategy. The idea is to automate hedging and optimize returns without having to manually manage staking and leverage positions.
The USR token functions as a stablecoin, but instead of being backed by cash or bonds, it is backed by staked ETH. Each USR is pegged to $1. While USR can be used across DeFi applications, simply holding it does not provide exposure to a delta-neutral yield strategy. Instead, it increases the underlying ETH reserves backing USR. To earn rewards, users must convert their USR into stUSR, allowing them to benefit from the yield generated by the strategy.
RLP, on the other hand, plays a slightly different role. It is a product designed to absorb certain risks of the delta-neutral strategy. It takes on funding rate volatility, centralized market fluctuations and other execution inefficiencies. In return, it offers a higher return than simple ETH staking or stUSR.
We can take the example of 1 ETH at $2,500. The user can deposit it and mint 2,500 USR, which can then be locked to receive 2,500 stUSR, generating a 9.5% yield. When he will unstake, he will receive more USR than his deposit. Alternatively, user can decide to receive RLP, he will receive 2,500 RLP and see its price gradually increase, with a 20% yield based on market conditions (staking/funding rate).
In addition, USR and RLP tokens can be used in certain DeFi protocols, such as Euler to create leverage loops, Morpho to deposit them in vaults or Pendle to tokenize and sell future stUSR returns.
The main risk of using Resolv instead of Hyperliquid or Lido is the potential for a hack, given the protocol’s early stage. Additionally, holding RLP exposes you to market risks, including liquidations if derivative positions are forcibly closed or if funding fees turn negative (when there are more shorts than longs). In such cases, the value of RLP may decrease. However, holding stUSR protects you from these market risks. You can think of RLP and stUSR as a junior tranche and a senior tranche, respectively, where RLP carries higher risk but offers greater potential returns, while stUSR provides more stability with a lower yield.
Tracking and optimization with Nuant PMS
A tool like Nuant can be used to automate the monitoring of delta-neutral strategies. It provides real-time key data such as financing rates, risk exposure, and position performance. Users can track their positions and make decisions based on their evolution.
In addition to monitoring, Nuant's PMS enables strategies to be tested before implementation. Thanks to a DeFi simulator, users can observe how a strategy would have performed in different market scenarios, measure its effectiveness, and adjust parameters to maximize returns.
Moreover, Nuant offers the ability to create custom alerts and receive notifications (via email, Telegram, or Discord) to stay informed about market movements or on-chain actions from specific addresses.
Conclusion
Delta-neutral strategies allow you to exploit the returns of staking via Lido while limiting directional risk via a short position with Hyperliquid. However, it is possible to use Resolv to automate and facilitate this strategy by holding RLPs or stUSDs. The addition of a PMS with analysis and simulation capabilities further refines these strategies and maximizes their effectiveness. This approach is part of the evolution towards more sophisticated DeFi strategies, paving the way for wider adoption by institutional players.
