Apricot EDU: How to Open a Delta Neutral Farming Position
Delta neutral farming strategies are some of the most popular strategies in decentralized finance due to their ability to earn high yield while minimizing loss due to price fluctuations. Given their popularity, the Apricot team is excited to dive into this topic as the third installment of our EDU series.
For those unaware, a delta neutral farming strategy is a strategy which takes both a long and short position of the LP pair being farmed.
We’ll now show you how to open a delta-neutral farming position:
Sally is an Apricot user wishing to open a delta neutral farming position.
- To open a delta neutral strategy, she must first select the LP pair she wishes to farm.
- Sally sees the ORCA-USDC LP pair is earning an appealing max yield of 106.88% APR with 2.5x portfolio leverage and she wants to exercise this opportunity.
To open this position and remain delta neutral, Sally must first deposit an asset as collateral which is neither ORCA or USDC, in this example we deposit $100 of SOL. Apricot is the first cross-margin leverage farming platform in decentralized finance — Meaning you can farm any supported asset pair regardless which asset is serving as collateral, increasing capital efficiency.
If they provide collateral which does not contain one of the assets being farmed, the position is delta neutral by default. Before explaining why, let’s first have Sally open her farming position.
In the above screenshot, Sally clicks ‘Start Farming’ and her ‘Deposit’ and ‘Borrow’ balances are immediately updated. Below you can see her balances are updated with ORCA-USDC LP tokens and her newly issued debt of equal amount.
Remember, a delta neutral farming position is one where the user opens up both a short and long position of the same LP pair assets. A simple way to understand this concept is that Sally’s ‘Short’ position consists of the values in her ‘My Borrow’ column.
- $126.52 ORCA
- $125.74 SOL
This borrow amount was then used to purchase ORCA-USDC LP tokens, LP tokens represent a 50 / 50 split of ORCA and USDC. Additionally, the LP tokens in Sally’s ‘My Deposit’ represent the ‘Long’ position. Although we wish this position was completely isolated from price fluctuation, there is the situation where if the price of ORCA changes then Sally might have a slight net long or short due to token imbalance after LP redemption.
An example of this would be the price of ORCA rises, resulting in the LP tokens redeeming more USDC than ORCA. To offset the imbalance after redemption, the additional USDC redeemed to the imbalance should be sold to pay off any remaining ORCA denominated debts. If the position is open for a longer period of time, it is likely there will not be excess borrows due to LP token appreciation from accrued exchange fees and compounded protocol emissions.
If there are in fact excess borrow values still remaining, Apricot will soon be implementing a simple solution to pay off this debt via In-App Swap — a new feature releasing in a few weeks.